Ask the Experts: What Will be a Hot Topic in Corporate Governance in 2015?Zoom inDownload PDF
Now is the time for Boards to take a fresh look at their goal setting approach. At the time this was written, the SEC had not provided final rules on the CEO Pay Ratio or clawback requirements. While these topics will be hot in 2015 if final rules are provided, I view goal setting as potentially a more complicated and pressing issue for many Boards.
Increasingly shareholders and their advisors are scrutinizing the difficulty of goals used in pay programs. The recent acquisition of Incentive Lab by ISS suggests this trend is likely to accelerate and become more analytical. External assessments of goal-setting rigor will play a larger role in Say on Pay votes going forward.
There is uncertainty around exactly what frameworks will be used by shareholder advisory groups to assess goals. But given the contextual nature of goal setting, it is likely they will have limitations. As a result, Boards will face significant pressure to provide expanded disclosure on the topic.
Boards will benefit from proactively scrutinizing their approach before others apply the lens. First, Boards should take a fresh look at their process to ensure it is comprehensive and that the right information is available to guide decisions. Second, Boards should review their disclosure to identify opportunities to provide a fuller picture of the calibration process as well as the Board’s analysis of the difficulty of the goals. Boards that don’t act now risk being caught flat footed in the future.
Seamus O’Toole, a managing director with Semler Brossy Consulting Group, has served as a trusted advisor on compensation and incentive design issues for both public and private companies for over 12 years. Working with companies of all sizes and across industries including technology, financial services, utilities, and retail, he helps clients execute their strategy through appropriate performance measurement and incentive design, including annual and long-term programs. Prior to joining Semler Brossy, O’Toole founded and ran a technology consulting boutique focused on data and process management and customized application development. O’Toole can be reached at firstname.lastname@example.org.
This article by Seamus O’Toole was excerpted from C-Suite Insight, Corporate Governance, Issue 16. Read the entire article, “Ask the Experts: What will be a Hot Topic in Corporate Governance in 2015?”