Our Insights

CEO Sign-On Practices, Risks

One of the most important decisions a board makes is identifying and hiring the company’s CEO. Given the critical nature of this decision, boards often make major investments in signing packages for new CEOs. These signing packages serve multiple purposes: helping secure new talent to run the company, providing “staking” grants to align the new CEO with shareholders, and, in some cases, buying out existing equity packages. This article by Greg Arnold originally appeared in NACD Directorship. Read more

Four Principles Guiding Discretion

All businesses are inherently uncertain, which complicates business planning and makes target-setting and year-end decision-making for incentives a challenging endeavor. In these times of volatile national and global markets, the calls for adjustments to formulaic awards are becoming increasingly pervasive. Add to these market factor a variety of unforeseen events both man-made: the political gridlock in Washington and the resulting fiscal cliff, sequestration etc. and natural: the devastating and disrupting effects on businesses of Super Storm Sandy last year and the Mississippi flooding the year before — and the challenges facing compensation committees with respect to the application of discretion are truly daunting. Read more

Three Questions to Pull Back the Curtain on Discretionary Pay

Judgment by directors acting on shareholders’ behalf is a cornerstone of U.S. corporate governance. So why is it so controversial when CEO pay is based on judgment? A more transparent process, with clear expectations and discussions, can focus performance messages and de-mystify the pay decision for all employees in addition to informing shareholders publicly about CEO pay. Read more

Setting Incentives Without a Budget

This is the season when many boards evaluate operating budgets and set targets for incentive compensation plans for executives. The two processes are so commonly blended together, they have essentially become one. And that can be a problem. This article by John Borneman originally appeared in NACD Directorship. Read more

Advancing the Dialogue: Market-Based Framework for Adjustments

Today’s highly uncertain market presents a myriad of challenges when it comes to goal-setting for incentive plans. Over the course of a performance cycle, companies may find that the volatile operating environment may present a variety of unforeseen “headwinds” or “tailwinds” that make the established goals either too challenging or too easy. In this article we explore a market-based framework to automatically adjust plan targets on an “after-the-fact” basis if it is determined that the actual operating environment deviated significantly from the company’s original budgeting and planning assumptions. Conventional wisdom suggests that executives should always hold on to company stock earned through incentive plans. However, recent research conducted by Semler Brossy indicates that stock sales are relatively common practice for long-serving executives, and in this article we offer a principled approach which encourages appropriate diversification over time. Read the entire article (PDF) written by Seymour Burchman and Mark Emanuel. Read more