Resource Library CEO Pay Ratio

Executive compensation is a perpetual hot-button topic and one that activist investors frequently use to court shareholder support for their proposals. In a recent BoardVision video, Semler Brossy managing directors Roger Brossy and Blair Jones talk with Ken Bertsch, partner at CamberView Partners, about the following questions.

The landscape for long-term incentive plan design has radically changed, as companies have largely replaced stock options with restricted stock as the main component of long-term incentives granted to executives. Research firm Equilar has found the percentage of S&P 1500 businesses granting options decreased from 79% in 2007 to 75% in 2012, while companies issuing restricted stock jumped from 80% to 92% in the same period.

Commentators on executive pay have for years pointed to factors that drive up compensation levels. Some of these factors, such as paying more to take account of unprecedented challenges and global competition, raise no eyebrows. But others, namely peculiarities in the compensation system unrelated to the functioning of executives, come in for fair criticism.

To avoid sub-optimizing the performance of a talent-development system, boards need to assure the systems are built from the ground up with pay in mind. If compensation programs reward, motivate, and retain top performers as they move up, sideways, and take on special projects, the highest performing and the highest potential people will remain committed to the organization and become a competitive advantage.