11 Oct, 2012
New Book Set to Fuel Debate Over CEO Pay:Performance Ratio
NEW YORK–(BUSINESS WIRE)–Are CEOs paid for their performance? They should be, says Executive Pay at a Turning Point, Demonstrating Pay for Performance & Other Best Practices in Corporate Governance. Written by the partners and consultants of Pay Governance, LLC, an independent executive compensation advisory firm, this new book finds close alignment of a company’s stock price performance with realizable CEO pay.
This is a crucial finding in the current “Say on Pay” voting environment, with proxy advisors exhibiting more influence than ever.
Pay Governance and academic research, along with hundreds of observations of board and compensation committee meetings and discussions with executives and directors, demonstrate that CEOs with high realizable pay work at higher performing companies. Firms delivering less value to shareholders pay their CEO’s lower levels of realizable pay. These findings are in sharp contrast to often repeated charges by critics in the media, the public, regulators, government officials and some shareholders, that CEO pay is out of proportion to company performance.
The book claims that despite the continuing controversy, the data demonstrates that the executive pay model currently being used by most corporations is effective at creating both shareholder and overall economic value.
Despite its successes, the U.S. executive pay model is at a critical turning point as pressure grows for expanded regulation to reduce executive compensation or change the pay model. The choice, according to the authors, is whether to improve the current system with additional corporate governance, or submit to regulatory control that might reduce pay but could also reduce company success as well.
The authors acknowledge that designing an ideal pay program is more difficult than ever. In addition to regulatory threats, companies are increasingly faced with the demands of global competition, economic downturns and the difficulty of keeping successful management teams intact. “Yet these programs are more important than ever as a tool to help corporations, their boards and their executives meet and surpass shareholders’ expectations and other challenges,” said Pay Governance Managing Partner Ira Kay.
While the book begins with a demonstration of how the current approach to executive compensation is functioning as it was intended, most chapters show companies how they can fine tune both the design and execution of their own programs. These sections cover analytics, enhancements, design, process and corporate governance. The authors offer specific strategies for continuous improvement in the executive pay model in the areas of risk management, compensation committee best practices, setting of performance standards, determining competitive pay levels and appropriate competitive labor markets.
Readers will find in-depth analysis of some of the most important issues facing compensation committees. One chapter presents an evaluation of the controversial Institutional Shareholder Services test of CEO pay recommendations for Say-on-Pay votes compared to the realizable pay metric. Another discusses strategies for successful votes.
Throughout Executive Pay at a Turning Point, the Pay Governance authors push the idea that wholesale changes are not warranted for a system that already achieves its primary objective – creating a compensation system that encourages and rewards performance. The success of the executive compensation system has been recognized by those it was designed to serve. Shareholders of U.S. public companies have consistently given strong approval of existing executive pay programs in the first two years of Say-on-Pay voting.
To obtain a copy of Executive Pay at a Turning Point, Demonstrating Pay for Performance & Other Best Practices in Corporate Governance, visit www.paygovernance.com/ebook/.
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