Executive compensation has become a lightning rod for critics of corporate governance and the role of independent directors. Shareholders are expressing their views through advisory 'say on pay' votes in a growing number of countries, including the United States, and some jurisdictions are adopting policies that will make these votes legally binding. Regulators are demanding greater disclosure of the details of executive compensation packages, and a few are calling for outright caps on pay.
Now more than ever, effective compensation must balance long-term company performance and growth, with the creation of shareholder value and appropriate rewards for individual executives. Successful compensation committees achieve this balance by developing pragmatic compensation policies, seeking innovative approaches to pay, reviewing the actual results, and maintaining an unwavering focus on the alignment between pay and performance.
These leading compensation committees frequently revisit and test their compensation philosophy to ensure that it is aligned with the corporate strategy. They focus on developing short-term and long-term incentives, and they believe in and exercise discretion – upwards and downwards – to correct for irregularities that may emerge.
The members of Tapestry's networks are actively discussing these issues, and generating insights about effective practices with fellow directors, investors, regulators, proxy advisors, and other stakeholders.
Charting a course for tomorrow’s compensation committee
Compensation committee leaders do much more than set executive pay levels. Compensation Committee Leadership Network members discussed some of the broader leadership responsibilities that forward-thinking compensation committees will face in coming years, including how to identify, develop, and retain a new generation of executive leaders who seek to maximize flexibility and balance, not solely their paychecks.
Compensation philosophy and practice
Is the peer group model for benchmarking executive compensation fundamentally flawed? If so, what should replace it? Two distinguished guests joined the Compensation Committee Leadership Network (CCLN) to discuss the art and science of peer groups: David Chun, CEO of Equilar, and Charles Elson, chair of the John L. Weinberg Center for Corporate Governance at the University of Delaware. Members also discussed two other evolving topics related to executive pay: long-tern incentive plans and share ownership guidelines.
Reforming bank culture: transforming values into action
A participant at the fourth Bank Directors Summit in London said simply, "A key element [of our culture problem] is compensation – it's behind all the excesses of the last 10 to 15 years. If we don't address compensation, we won't change banks." Participants at the Summit discussed a number of levers, including executive pay and performance metrics, which bank boards can use to shape culture.
Dialogue with ISS President Gary Retelny
Proxy advisory firms such as Institutional Shareholder Services (ISS) and Glass, Lewis & Co. issue tens of thousands of voting recommendations each year on a wide range of governance issues. Their policies, methodologies, and recommendations on say on pay votes draw significant attention, including charges that proxy firms have undue influence on investors. Tapestry has explored this issue in a number of ways.
Focus on performance
Compensation committee leaders met to address a number of topics, including their role in overseeing management development and succession planning and trends affecting compensation discussion and analysis disclosures. Members were joined by Michael Segal, partner at Wachtell, Lipton, Rosen & Katz, to discuss issues directors should consider when reviewing their committee's charter.
Oversight of executive compensation
As compensation levels of senior executives continue to climb, and the disparity between their pay and that of average workers continues to grow, board members are experiencing greater pressures to rein in executive pay packages. While it is not their primary responsibility, all non-executive directors share an interest in effective and responsible compensation philosophy. Members of the West Audit Committee Network met to exchange ideas on how to best support and collaborate with their compensation committee colleagues.
A changed and changing executive compensation environment
At the network’s 16th meeting, compensation committee leaders discussed challenges that will affect executive compensation in the next few years, CEO goal setting, Institutional Shareholder Services’ 2012 proxy guidelines, and programs that grant the CEO discretion to issue stock-based awards to company employees. Members were also joined by guest Jonathan Feigelson, TIAA-CREF's general counsel and head of governance, for a discussion on the investor’s perspective on corporate governance.