Aligning interests and management incentives: strategic levers for effective governance

Edited by Liliana Bellotto and Dario Lenarduzzi

In the current context, characterized by increasing complexity, competitiveness, and rapid change, traditional legal governance tools alone are no longer sufficient to ensure effective corporate management. Indeed, aligning management interests and incentives is becoming increasingly central as a strategic lever for guiding corporate decisions toward sustainable medium- to long-term objectives.

From this perspective, variable remuneration systems represent a key tool for attracting, motivating, and retaining managerial resources, while also encouraging behaviors consistent with creating value for the company.

The main levers for aligning interests and incentives

Companies can adopt a variety of incentive tools, tailored to their size, sector of activity, and strategic objectives.

MBO systems (Management by Objectives)

MBO systems directly link a variable compensation component to the achievement of predefined, specific, and measurable objectives. These goals can be financial (e.g., EBITDA, revenue, margins) or qualitative (organizational development, innovation, operational efficiency). Their effectiveness depends on clear indicators and prior communication with management.

Long-Term Incentive (LTI) Plans

Long-Term Incentive (LTI) plans are designed to promote a strategic vision and management focused on the sustainability of results over time. Through deferred benefit accrual mechanisms, these tools foster a true alignment of interests and incentives, reducing the risk of opportunistic, short-term decisions.

Participatory and financial instruments (Stock Options)

Among the most advanced forms of incentives are tools that allow management to directly participate in the growth of the company's assets, such as:

• Stock options and public share ownership plans;

• Participatory Financial Instruments (PFI);

• Carried interest mechanisms (typical of private equity).

These solutions strengthen managers' sense of belonging and responsibility, bringing their interests closer to those of shareholders.

Alignment between business interests and performance

The adoption of incentive systems responds to a dual corporate purpose:

1. Align management interests with those of the owners, reducing the conflicts typical of complex corporate structures;

2. Guide behaviors toward sustainable growth objectives, avoiding speculative drifts.

A crucial element lies in the proper design of plans, which must ensure a precise balance between the level of risk assumed by management, the results actually achieved, and consistency with the company's strategic objectives. A poorly calibrated structure could, in fact, generate distortions, incentivizing non-aligned or excessively risky behaviors.

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