Discretion can be a valuable tool for compensation committees to ensure payouts are aligned with the organization’s performance and strategic goals. Most importantly, discretionary components require well-defined criteria for how the compensation committee will evaluate performance.
In this three-minute video, Daniel Rodda, Partner at Meridian Compensation Partners, shares three strategies for using discretion effectively in annual compensation plans:
- Building trust, transparency, and openness between executives and compensation committees
- Evaluating performance of discretionary components regularly throughout the year
- Understanding how various stakeholders including employees, shareholders, and proxy advisors will perceive final payout decisions.