Here’s the formula for executive compensation implosion: Introduce regulatory guidance, fold in proxy statements featuring rich stock option awards and below-average company performance, add in activist shareholders and public scrutiny, and apply another company’s pay approach to “fix” the problem. Then sit back and watch as nothing incredible happens.

Fortunately, the potential implosion can be diffused through the prudent and deliberate use of equity. Place more emphasis on rewarding the contributions and performance of the executive team, not just on allowing them to benefit or be penalized based on market movements. Use stock options or performance restricted stock, not as the favorites in all cases, but when they clearly offer the best opportunity for achieving strong shareholder alignment and longer-term stock ownership.

Most critically, rather than be influenced by “popular” executive pay choices, step back and instead determine what philosophy, metrics, overall design and vehicles will present the strongest business case for the company, its shareholders, and its employees. Ensure that pay and performance are aligned and that the sharing of gains between executives and shareholders is appropriate. The key is not to pursue the next new idea exalted by peers or in the business media, but instead to consider designs that will address a company’s unique needs and circumstances.

For more information and real-life examples of these principles put in action, read, “Don’t Follow the Leader: The Present State of Executive Equity Compensation” and “Structuring ‘Unassailable’ Executive Compensation Programs.”