We believe that in the current pay-for-performance environment, the foundation for all compensation programs should be the company’s business and its strategic plan and the compensation philosophy established by the Compensation Committee in conjunction with management.
Compensation is one of the clearest ways to communicate a company’s priorities and values, and that properly designed compensation programs are vital to reinforce the strategy and motivate achievement of the organization’s business objectives. Conversely, when compensation programs are inconsistent with the organization’s mission, the result can be costly.
When it comes to executive compensation design, too often companies seek competitive parity rather than competitive advantage. While a thorough understanding of marketplace compensation levels and practices is an important input into the compensation design process, it is the role of the Compensation Committee, in conjunction with management, to assess that information in the context of the specific strategy and objectives of the company. We counsel our clients that one size does not fit all, and encourage thoughtful examination of all relevant issues.
A creative combination of various compensation and benefit vehicles can be designed to deliver competitive, strategically focused compensation while maximizing effectiveness, tax and accounting efficiencies. Additionally, we believe that balanced programs consisting of multiple cash and equity compensation vehicles utilizing different but complimentary performance metrics and targets drive responsible growth and mitigate risk.
While accounting, legal, tax and shareholder considerations should never be the sole reason for the selection of a particular plan, a nuanced examination of their impact on both the company and its executives should be included in any analysis.
Knowledge and awareness of the view of the institutional investor and public are also an important consideration when determining executive compensation strategy, design and opportunities available. But this does not mean that such considerations should receive undo weighting in the decision process. The role of the Compensation Committee is to adopt a program that will create shareholder and corporate value. Based on our experiences with clients over the years, we continue to believe that carefully designed compensation programs tightly aligning pay with the long-term performance of the corporation are in the best interests of shareholders, and that diligent “education” campaigns and “governance road shows” can go a long way towards influencing key stockholders and advisory services.