Our Insights

Executive Pay: Creating Real Alignment With Shareholders

Nobody really likes total shareholder return (TSR) as an incentive plan metric. Nobody, that is, except the major shareholders of publicly traded companies. Boards feel pressured to adopt TSR as a metric because it is easy to explain to shareholders, but they don’t really embrace TSR due to the lack of transparency and understanding among executives. Shareholders, on the other hand, have strongly supported TSR as a key metric of success. This is the new reality to which board members and executives need to be sensitive when designing incentive plans. Read more

Say on Golden Parachute: A Look at Say on Pay’s Lesser-Known Cousin

Golden parachutes became common in the hostile takeover years of the 1980s, when executives worried about losing their jobs to corporate raiders. The golden parachutes provided executives with lump sum payments, immediate vesting of equity awards and continued participation in benefits following a change in control. Media reports and debacles about failed financial service companies in the 2000s raised public ire over these arrangements. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 advanced a mandate for shareholders to review these parachute arrangements prior to completion of a corporate merger or change in control. The mandate became known as say on golden parachutes and complemented say on pay, a mandate for routine shareholder pay program reviews. Both mandates are advisory and nonbinding. Read more

Pay for performance or pay for results?

For the last few decades, the focus of executive compensation has been to align pay with performance.Nearly every company includes “pay for performance” as a core principle of the executive compensation design, and compensation committees consider managing the pay for performance relationship as one of their primary governance responsibilities. But what exactly does “pay for performance” mean? For most companies, pay for performance has traditionally meant the following: identify key business metrics; set challenging but attainable performance objectives; and deliver pay for achieving those objectives. Read more

Executive Compensation—What Matters Most to Activists?

Executive compensation is a perpetual hot-button topic and one that activist investors frequently use to court shareholder support for their proposals. In a recent BoardVision video, Semler Brossy managing directors Roger Brossy and Blair Jones talk with Ken Bertsch, partner at CamberView Partners, about the following questions. Read more

A Look Behind the Numbers

Can performance restricted stock units deliver a better payday for executives? Recent trends in the choice of long-term incentive vehicles have driven companies away from options to performance restricted stock units (PRSUs). This partly stems from ongoing pressure from proxy advisers and some institutional investors. In one study of S&P 1500 companies, the use of options in all companies declined from 77.2 percent in 2009 to 63.9 percent in 2013, while the use of performance-based equity rose from 45.5 percent in 2009 to 68.9 percent in 2013. A leading cause of this shift is that many organizations, including Institutional Shareholder Services (ISS) and Glass, Lewis & Co. LLC, consider PRSUs performance-based, unlike options. Read more

Goal Setting: Meeting Stakeholder Expectations in an Increasingly Dynamic and Complex World

The perennial challenge of setting meaningful, yet realistic, incentive-plan goals has become ever more difficult in an increasingly complex and rapidly changing business world. Companies now must also accommodate the growing importance of a range of stakeholders. Read more