Resource Library Insights

Performance-based compensation for a company's directors can threaten board objectivity and create possible conflicts of interest. Yet with the right measures and goals, a company can avoid sub-optimization and directors aligned with shareholder interests. The best solution may lie in significant equity ownership tied to board tenure.

Without appropriate goals and measures, business results could be neutral. This article focuses on the identification of appropriate performance measures for all organizational levels and setting mutually supportive goals that reinforce key strategies and lead to improved shareholder value. Read the entire article (PDF) written by Seymour Burchman and Blair Jones.

The pressure is on to abandon once-popular equity vehicles, particularly stock options, which have taken the heat as a prime instigator of executive pay excess. The right LTI design for a given company should be based on a careful consideration of the needs and characteristics of the company, its shareholders and its employees.

Establishing principles to address specific pay program amounts and components will help the Board to ensure that decisions regarding director pay are made thoughtfully, holistically, and accurately.

Many companies are now adopting or considering long-term incentive plans where value realized by participants is contingent on achievement of specific performance goals, which are often not based on stock-price. While these types of plans provide opportunities to focus management on results that will drive shareholder value, they don't come without significant risk of unintended consequences.