August 17, 2016 Executive Compensation Executive & Director Pay Design Articles

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Executive & Director Pay Design

Board Oversight of Executive Pay: A Fresh Approach

Executive pay has long been in the spotlight for shareholders, boards, management teams, and commentators alike. More recently, the connection of executive pay outcomes with company performance has taken center stage. 

It’s been a key focal point in the past, but today the pay-for-performance relationship carries a heightened sense of urgency and a greater degree of precision than ever before. It’s become a balancing act across multiple stakeholders, from executives to the broader base of employees, to outside analysts, regulators, and investors.

External stakeholders — investors, regulators, proxy advisors — have the benefit of assessing the pay-for-performance relationship after the fact, when performance has already been delivered and incentives already paid. Yet boards and management teams have the more difficult task of defining expectations and setting performance requirements (i.e., goals) at the outset of a performance period, such that those after-the-fact assessments hold true. Instead, why not allow for judgment after-the-fact for boards and management teams, as well? Not as an excuse for performance below expectations, but as a means of testing the expectations themselves — were they too hard, too soft, or just right . . . knowing what actually happened during the performance period?

View the full article as it was originally published.

Barry Sullivan

This article was originally published in Directors & Boards.

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