Responsible Executive Compensation for a New Era of Accountability / Edition 1

Responsible Executive Compensation for a New Era of Accountability / Edition 1

by Peter T. Chingos
     
 

Many companies determine executive pay and rewards using approaches that are out of sync with current economic realities and impending reforms. New models of executive pay and executive pay oversight are needed to maintain investor confidence, create more value for shareholders, and comply with the latest SEC regulations.

Written for executives and boards of

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Overview

Many companies determine executive pay and rewards using approaches that are out of sync with current economic realities and impending reforms. New models of executive pay and executive pay oversight are needed to maintain investor confidence, create more value for shareholders, and comply with the latest SEC regulations.

Written for executives and boards of directors in for-profit companies, Responsible Executive Compensation for a New Era of Accountability provides a detailed road map to altering executive compensation programs to comply with the new accounting rules.

Pay programs need to be sufficient to attract and retain the best talent while still addressing the individual organization’s needs. The structure of the program, particularly incentive plans, should focus on operational and financial priorities, which should be linked to long-term shareholder value creation. Using numerous case studies and diagnostics to illustrate how companies can examine and revise their executive compensation programs and avoid future pitfalls, Peter Chingos and other authors from Mercer Human Resource Consulting focus on how companies create and measure value and how traditional executive pay programs–with their heavy emphasis on accounting-friendly stock options–can be reassessed and revised in light of anticipated SEC and accounting rules, changing definitions of corporate governance, and ongoing legislative and regulatory developments.

Focusing on the critical issues facing companies that need to assess and refine their executive reward strategies, this authoritative book covers the hallmarks characterizing well-designed and responsible executive compensation programs, including:

  • A business-focused compensation strategy: A compensation strategy that begins with a clear business vision tied to shareholder value creation
  • Well-defined compensation components: Executive compensation that consists of an appropriate mix of salary, annual and long-term incentives, and benefits
  • Pay and performance validation: Assurance to shareholders and other constituencies that the relationship between compensation and financial performance is sound
  • Executive accountability: The heart of an effective executive compensation program; there has to be a clear cause-and-effect relationship between results and rewards
  • Highest standards of governance: The CEO and the board of directors have primary oversight responsibility for approving, reviewing, and communicating a company’s executive compensation strategy and pay decisions

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Product Details

ISBN-13:
9780471474319
Publisher:
Wiley
Publication date:
03/19/2004
Pages:
298
Product dimensions:
6.38(w) x 9.29(h) x 1.05(d)

Table of Contents

Introduction: Responsible Executive Compensation for a New Eraof Accountability (Peter T. Chingos).

1 Creating Value for Shareholders: From Measurement toManagement (William H. Ferguson).

1.1 What Value Is and Why It Matters.

1.2 Primary Forces that Affect Value Creation.

1.3 Link between Strategy and Value.

1.4 A Managing-for-Value Mind-Set.

1.5 Value Drivers.

1.6 Concluding Thoughts.

1.7 Case Study: Global Financial Institution.

2 Performance Measurement: How Companies Deliver Value(Russell Miller).

2.1 Value Creation Objective.

2.2 Performance Measurement System.

2.3 Selecting Performance Measures.

2.4 Building a Performance Measurement System.

2.5 Goal Setting.

2.6 From Performance Measurement to Performance Management.

2.7 Conclusion.

3 Assessing Executive Pay Programs (Melissa L. Burek andShepard Long).

3.1 Objectives of an Executive Pay Assessment.

3.2 Evaluating Current Program Understanding.

3.3 Validation of Compensation Strategy.

3.4 Pay Levels: Competitiveness and Alignment with CompensationStrategy.

3.5 Pay and Performance Relationship.

3.6 Pay Practices.

3.7 Regulatory Requirements.

3.8 Communication.

4 Corporate Governance Issues Affecting ExecutiveCompensation (Howard J. Golden).

4.1 Introduction.

4.2 Role of the B.oard and Management as Fiduciaries.

4.3 Sarbanes-Oxley Act of 2002.

4.4 Stock Exchange Listing Requirements.

4.5 Effect on Compensation Committee Procedures.

4.6 Conclusion: The Moving Target.

5 CEO Evaluation: Navigating a New Relationship with theBoard (J. Carlos Rivero, Mercer Delta Consulting).

5.1 Introduction and Objectives.

5.2 Mandate for More Thorough and Disciplined CEOEvaluation.

5.3 Clarifying the Purpose of the Process.

5.4 Defining Performance Dimensions and Measures.

5.5 Selecting Objectives and Specifying Measures.

5.6 Leading and Participating in the Process.

5.7 Implementing a CEO Evaluation Process.

5.8 Summary.

6 Executive Pay and the Shareholder Perspective (K. KellyCrean).

6.1 Overview of Key Trends.

6.2 Understanding the Key Stakeholders.

6.3 Overview of Key Stakeholders.

6.4 Understanding Shareholder Policies.

6.5 Red Flags and Emerging Compensation Concerns.

6.6 Reaction to Other Compensation Elements.

6.7 Shareholder Proposals.

6.8 Communicating with Investors: Avoiding Pitfalls.

6.9 Conclusion.

7 Option Valuation: Accounting and Executive IncentiveDesign (Susan Eichen).

7.1 Background.

7.2 Why Value Stock Options?

7.3 Option Valuation Basics.

7.4 Valuing Employee Stock Options.

7.5 Varying the Assumptions.

7.6 Incentive Plan Implications.

8 Changing Role of Equity Compensation (Diane L.Doubleday).

8.1 Overview of Trends in Equity Compensation.

8.2 Factors Influencing Change.

8.3 New Role of Equity.

8.4 Impact of Change on the Broader Employee Population.

8.5 Challenges for Decision Makers.

8.6 Conclusion.

9 Relative Performance Evaluation and the Selection ofPeers (Haig R. Nalbantian and Wei Zheng).

9.1 Introduction: Current Difficulties with Pay forPerformance.

9.2 Economic Rationale for Relative Performance Evaluation.

9.3 Measuring and Understanding Performance Risk.

9.4 Key Questions for Implementing Relative PerformanceEvaluation.

9.5 Constructing the Peer Group.

9.6 Measuring Relative Performance—Risk-AdjustedMeasures.

9.7 Mechanisms for Introducing RPE in Stock-BasedIncentives.

9.8 Conclusion.

10 New Executive Compensation Model (Michael J.Halloran).

10.1 Program Objectives.

10.2 Base Salary.

10.3 Annual Incentive Plan Design.

10.4 Long-Term Incentives.

10.5 Executive Benefits and Perquisites.

10.6 Role of the Compensation Committee.

10.7 Shareholder Expectations.

11 Outside Director Compensation (Peter J.Oppermann).

11.1 Introduction.

11.2 Factors Influencing Changes in Director Compensation.

11.3 Current Compensation.

11.4 Trends.

11.5 Developing an Outside Director Compensation Program.

11.6 Conclusion.

12 Board Assessment: Designing a Process that Is Meaningful,Practical, and Engaging (Beverly A. Behan, Mercer DeltaConsulting).

12.1 Importance of Board Assessment.

12.2 Risks and Opportunities.

12.3 Viewing Board Assessment in Context.

12.4 Board Assessment Process.

12.5 Three Approaches to Evaluation.

12.6 Feedback—A Crucial Step.

12.7 Variations on the Board Assessment Process.

12.8 Director Peer Review—The Extra Step.

12.9 Summary.

13 Creating Value with Communication (Lea L.Peterson).

13.1 Communication Leverages Plan Design.

13.2 Mercer Study Raises Concerns about Executive Views.

13.3 What’s Unique about Executive Compensation.

13.4 What Works with Executives.

13.5 How to Communicate for Impact.

13.6 The Importance of Personalization.

13.7 Communication Challenges in a Tough Environment.

13.8 What’s at Stake.

14 Role of the Compensation Consultant (G. StevenHarris).

14.1 Importance of an Independent Perspective.

14.2 Maintaining Independence and Avoiding a Conflict ofInterest.

14.3 Selecting a Compensation Consultant.

14.4 Criticisms of Compensation Consultants.

14.5 Establishing a Consulting Foundation: Constructing the FactPattern.

14.6 Compensation Consultant as a Trusted Advisor.

Index.

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