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June 19, 2013

Compliance and "Best Practices" No Longer Sufficient Standards for Executive Pay Programs

Directors need to put the spotlight back on building great leadership teams to drive their companies’ long-term success

NEW YORK—June, 19, 2013—Instead of relying on political correctness as an executive pay strategy, Boards of Directors need to put the spotlight back on building great leadership teams to drive their companies’ long-term success, says a new white paper from compensation consultancy Pearl Meyer & Partners. 

“In today’s economic and governance environment, it is essential that companies ‘Go Beyond’ – beyond best practices, beyond data, beyond check-the-box compliance, and beyond the obvious,” said David N. Swinford, the firm’s President and CEO.

In The 2013 Compensation Committee Agenda: Go Beyond, Pearl Meyer & Partners outlines five approaches to help Directors ensure that executive compensation programs – including the use of performance-based incentives – will drive the strategic priorities of their particular company.

In recent years, a growing focus by Directors on satisfying proxy advisory pay standards and compliance requirements has driven many companies to “conform to the norm,” Swinford said. The result is copycat pay programs that are based on current pay trends, peer practices and competitive data.

“Simply following the crowd ignores the huge impact that a differentiated compensation strategy can have on building a strong management team that’s focused on that company’s business strategy,” Swinford said. “An effective executive pay program should send a strong signal to employees and to the marketplace about that company’s goals, priorities and vision.”

The five key areas discussed in the white paper to support a complex set of strategic needs:

  1. Buck Trends and “Best Practices” in Favor of Business-Based Plans.The Committee’s goal is to build a great company and if it performs, Say on Pay will take care of itself.
  2. Link Realizable Pay to Compensation Decision-Making. Considering the actual level of pay relative to the company’s actual performance gives Committees real, actionable information.
  3. Spend More Time on the Performance Side of the Equation. It’s not just the level of pay – companies have to get both sides right.
  4. Apply a New Lens to Equity Plan Design and Award Values. The choice of long-term incentives and the size of payouts should be based on performance and retention strategies.
  5. Customize Your Risk/Reward Profile to the Business.  Compensation plans should evolve to reflect the business risks and HR needs of companies at different life-cycle stages.

Pearl Meyer & Partners’ complete white paper The 2013 Compensation Committee Agenda: Go Beyond can be downloaded here. 

About Pearl Meyer

Pearl Meyer is the leading advisor to boards and senior management helping organizations build, develop, and reward great leadership teams that drive long-term success. Our strategy-driven compensation and leadership consulting services act as powerful catalysts for value creation and competitive advantage by addressing the critical links between people and outcomes. Our clients stand at the forefront of their industries and range from emerging high-growth, not-for-profit, and private organizations to the Fortune 500.

At Pearl Meyer, we work with boards and organizations to design and implement compensation and leadership strategies that build great management teams.
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