Optimizing Long-term Incentive Plans



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4.3.2 Ranking excess


Figure 24 confirms how good the optimized target company works in comparison to the target company. Especially the plan that starts sixty days later shows a significant reduction of the shifts of ranking numbers. The reduction in excess ranking numbers is

Figure 24 Percentage that stays the same compared to the actual plan versus excess ranking. The upper figure is the normal situation, the middle is with the use of an optimized (maximum correlation coefficient) peer group, and the lower is with the use of an optimized (least square) peer group.


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Figure 25 Change in ranking of target company and optimized target company, when the starting date of the plan changes. The optimized peer group and the target company have a correlation of one.






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