Service Type: Performance Alignment
Incorporating ESG Goals into Executive Compensation
Weighing ESG Metrics for Pay Plans
Lessons Learned: What will be the most critical governance issues companies must address post-pandemic?
Redefining Success – Incentive design and goal-setting in uncertain times
Back to the Basics: Re-examining Executive Compensation Design for the Upcoming New Year
Determining Annual Incentive Pay in a Pandemic
LTI Mix—Does ‘Performance’ Matter?
Meridian Webinar: COVID-19’s Impact on Incentive Plans
Impact of COVID-19 on 2020 Annual and In-Flight Long Term Incentives
Should ESG Metrics Be Included in Executive Incentive Plans?
Banking Industry Incentive Practices
COVID-19’s Incentive Impact: While Most Companies Wait, Companies with Early FYEs are Forced to Act
COVID-19 and Short-Term Incentive Designs
Our Meridian Client Update published May 28, 2020 discussed the impact of COVID-19 on 2020 Short-Term Incentive (STI) plans and how Committees may determine appropriate payouts (if any) at year-end. Payout decisions for 2020 STI in many instances will be impacted and driven by liquidity constraints, affordability, relative performance and/or investor expectations. The design for … Continued
The Impact of COVID-19 on Chemical Companies and Their Annual Incentive Programs
Long-Term Incentives: Before, During and After COVID-19
In response to the constantly evolving COVID-19 pandemic, companies have announced a litany of executive compensation-related actions including layoffs, furloughs, base salary reductions and much more. For long-term incentives (“LTI”), most companies have adopted a “wait and see” approach with respect to issues like: modeling implications of a V, W or U-shaped recovery; valuing existing … Continued
Compensation Committees: What to Do With 2020 Bonus Plans?
At the onset of COVID-19, the popular advice for adjusting annual bonus pay was to “wait and see.” Now several weeks in, some companies have begun restructuring bonuses. What actions are they taking? In this episode, Chris Havey, Partner & Lead Consultant with Meridian Compensation Partners, explains what he’s witnessing across corporate boardrooms right now: … Continued
Banking Industry Response to COVID-19
Introduction The 2020 Coronavirus (COVID-19) pandemic represents one of the most significant global events in recent history, resulting in unprecedented impact on our country’s economy, its businesses and its people. For our financial services clients, initial priorities focused on the safety of employees and customers. At the same time, many banks were thrust into the … Continued
In-Flight Long Term Incentives—What, if Anything, Should Energy Companies be Doing?
The energy industry has some particular challenges with long-term incentives (LTI): • Multi-year equity value decline: Many energy companies entered 2020 with multiple years of underwater stock options and equity awards tracking well below their original grant date value. • New shocks to the system: COVID-19 has exacerbated the long term supply and demand imbalance … Continued
Predicting the Future of E&P Bonus Design
E&P bonus plans have historically aligned with growth and investment, focusing on volume (production and reserves) and cost reduction, measures that are more controllable by management and less impacted by commodity prices than earnings-based metrics. In recent years, investors and analysts have been increasingly critical of E&P bonus payout misalignment with shareholder returns and financial … Continued
COVID-19 and Short-Term Incentives
For many companies, it is unlikely that there will be significant (if any) payouts under the executive or managerial bonus plans for 2020. Alternatively, for those that do have payouts, it is similarly unlikely that plan mechanics alone will determine final earned awards. Rather, most will have to apply some degree of discretionary adjustments in … Continued
How should oil & gas companies approach their 2020 annual bonus?
“Wait and see” seems to be the mantra of the day, particularly when it comes to an energy company’s annual bonus plan. We think that’s a prudent approach for the moment, as much uncertainty remains among the energy industry and broader economy. However, as we think forward a few months, what alternatives might companies consider … Continued
Compensation Committee Challenges Amid COVID-19
Most compensation committees finalized executive compensation plans, targets, and awards at the end of February, never expecting that COVID-19 would come next. Now boards are left to navigate a crisis environment with a very unpredictable future. In this episode of Inside America’s Boardrooms brought to you by Diligent, Meridian Partner Bob Romanchek speaks with TK … Continued
Bracing for a New Disclosure Rule on Executive Pay for Performance
A new and mandatory executive pay proxy disclosure requirement is about to hit. A remnant of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, this pay-for-performance disclosure rule will become effective for most public companies shortly after the US Securities and Exchange Commission (SEC) officially posts the final rules and a related comment … Continued
Compensation Implications of the Current Environment
That was rough… The week of March 9, 2020 may have marked the single worst week for oil and gas stocks on record. A lot has changed, and the only thing certain is that more change will come. Here is what we feel confident of: ■ E&P companies will re-set 2020 capital programs; early announcers … Continued
How Should Environmental, Social and Governance (ESG) Performance be Reflected in Executive Compensation?
Many of the public company boards and corporate executives (very notably, 181 CEOs signing the Business Roundtable Statement avowing Stakeholder primacy1) that are eager to demonstrate this responsiveness cite compensation as an existing, meaningful and highly visible tool that is increasingly being used to reward or penalize executives for ESG performance. The reality, however, is … Continued
Managing Executive Incentive Programs for Chemical Companies
This article offers some useful context and information for compensation committees and management teams of chemical companies to consider when designing and managing their executive pay programs. In particular, we cover key attributes of the industry and their impact on setting goals and designing incentives to help manage the impact of volatility resulting from: Commodity … Continued
EVA for E&P Companies: A Challenging Measure
While initially the EVA material will be provided purely for information, it seems inevitable that ISS will continue to push to include EVA as a formal part of its pay for performance analysis. There are general concerns about ISS using EVA – a complicated analytical framework that uses highly adjusted financial data – to make … Continued
Pay for Performance
Over the past ten years or so – since the widespread adoption of shareholder ‘say on pay’ votes on executive compensation at public companies in the US and elsewhere – arguably no single idea has animated the analysis and design of CEO compensation programmes as much as the goal of ‘paying for performance’. For a … Continued
Adding Economic Value: The Complicated Case of EVA for Financial Companies
In 2018, shortly after its acquisition of equity research firm EVA Dimensions, Institutional Shareholder Services (ISS) announced that it will include Economic Value Added (EVA) measures in advisory reports[1]. ISS believes EVA measures provide a clear and more complete picture of value creation. The challenge for financial companies is that EVA is a difficult metric … Continued
Economic Value Added—New Governance Considerations
ISS’s introduction of EVA metrics is likely to foster discussion among compensation committees about the nature, merit and implication of these metrics. EVA may also be of interest among institutional investors as an additional lens to assess pay and performance alignment. This Client Update provides an overview of EVA, how ISS intends to use it … Continued
The Demise of TSR as the Primary Executive Pay Performance Measure
During the past decade, the use of total shareholder return (TSR) has risen rapidly in prevalence as a performance metric in executive long-term incentive plans. Many compensation committees believed this was a direct way to align executive pay and performance. But is it? A notable number of large-cap companies are now not so sure. Meridian … Continued
Executive Compensation in the Banking Industry
Introduction This is Meridian’s fifth year tracking executive compensation practices at U.S. banks with assets above $10 billion. One theme remains consistent: programs continue to evolve. As we entered the 2018 year, companies invested much time and energy calculating the CEO pay ratio and preparing for its disclosure. The Tax Cut and Jobs Act eliminated … Continued
In What Circumstances do Special Equity Grants Make Sense?
Based on our experience, it is important to understand the many inputs and ensure the Committee is making informed decisions with “eyes wide open” to avoid surprises. Awards should focus on specific intended objectives. From time to time, Compensation Committees may feel pressured to approve recommended one-time LTI grants, particularly in today’s strong economy (lowest … Continued
Relative TSR for Resource Companies: Does it Still Make Sense?
Relative total shareholder return (relative TSR), the most commonly used performance share unit (PSU) measure, has recently been challenged by institutional investors. Earlier this year Ontario Teachers’ Pension Plan (OTPP) released an article entitled “Is Management Compensation Rewarding the Right Behavior?”, which focuses on incentive design in the oil and gas industry. OTPP criticized relative … Continued
Long-Term Incentives and Stock Ownership Ensure Alignment with Shareholders
Much of the commentary on energy industry pay programs has focused on annual bonus metrics. Annual incentives are easier to analyze because the payouts are clearly disclosed each year in the Summary Compensation Table, and those payments can communicate how the company performed over a discrete one-year period. Due to this visibility, compensation committees spend … Continued
Is it time for longer-term performance awards?
Short-termism: Acknowledging a Trend In his 2016 annual letter to CEOs, Larry Fink wrote: “I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behavior. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most … Continued
CEO Compensation in the Largest US Companies
Are US CEOs overpaid? Bob Romanchek, senior partner at the executive compensation consulting firm Meridian Compensation Partners, adds clarity to the issue by looking at the components of pay, the historic levels of total pay opportunity and the critical relationship to company performance. The main components of CEO compensation for large US-based companies are base … Continued
Setting Goals to Incent High Performance
High-performing banks define and execute their strategic vision by clearly articulating what they want to achieve and how they will do it. The old adage, “what gets measured, gets done”, is true when it comes to incentive plans. Companies that define specific measures and create accountability for achieving them are more likely to achieve the … Continued
Preventative Care for Executive Compensation Programs
In many cases, U.S. public companies receive a high level of support from shareholders for their annual advisory vote on the executive compensation program. Based on these results, companies often conclude there is no need to make any material changes to the design of their executive compensation program. As a result, companies may not conduct … Continued
Relative TSR Still Delivers Real Pay-for-Performance Alignment in the Oil & Gas Industry
The menu of industry annual incentive metrics (and some long-term incentive metrics) now includes several instances of ROCE, Cash ROCE, ROIC, estimated wellhead returns, and other non-GAAP measures of investment returns. Investors may welcome the incentive accountability to financial returns, but will performance against these new benchmarks create better alignment between pay and performance? Should … Continued
Performance-Based Long-Term Incentives: What Have We Done?
Are you satisfied with the design and operation of your company’s performance-based longterm incentive program for top executives? Chances are you are not. In chasing that ever-elusive pay-for performance vehicle design, you may have gone from stock options to performance units and performance shares, or some combination thereof, over the last 30 years. You also … Continued
Bringing Pay for Performance Into Focus Requires the Right Lens
Savvy investors understand the value of a strong management team and are willing to pay handsomely—if company performance warrants. It’s important to design executive pay to reward great performance and penalize poor performance. In our experience, most directors strive to do just that. Unfortunately, investors and other stakeholders sometimes struggle to recognize the link between … Continued
Five “Must Know” Aspects of the Compensation Committee Process
[embedyt] https://www.youtube.com/watch?v=Y8eqctYRuBM[/embedyt] Episode Summary Serving on the compensation committee has become a formidable challenge for most directors regardless of one’s background or career. Not only do compensation committees have to navigate a host of regulations and complex terminology, but over the last several years, shareholders have made a significant push towards transparency on how decisions … Continued
Aligning Executive Pay With Company Performance
From an executive compensation perspective, boards have an important duty to pay executives appropriately in line with the underlying performance of the company. The age-old issue of paying for performance seems more complex than ever—and more highly scrutinized! The design of short-term and long-term incentive programs needs to align with a company’s business strategy, and … Continued
Bob Romanchek on Inside America’s Boardrooms
Serving on the compensation committee has become a formidable challenge for most directors regardless of one’s background or career. Not only do compensation committees have to navigate a host of regulations and complex terminology, but over the last several years, shareholders have made a significant push towards transparency on how decisions are made. Bob Romanchek, … Continued
Measuring E&P Capital Decisions in an Annual Incentive Plan is Complicated
There has been a lot of attention (both from the media and investors) focused on whether E&P companies are using the right metrics in their annual incentive programs. E&P companies have been criticized for a heavy focus on production and other volume measures without a corresponding link to whether that volume is profitable or generating … Continued
Rewarding Executives for Successful Bank M&A
This article originally appeared on BankDirector.com. Mergers and acquisitions (M&A) can create significant value for shareholders. Accordingly, bank executives should be rewarded when completing and integrating successful transactions. However, in today’s environment of heightened executive pay scrutiny, some approaches to providing additional compensation for M&A can result in criticism from shareholders and advisory firms such … Continued
How Pay Drives Performance
High performing banks execute customized strategies that deliver results. They have the vision, leadership, culture and incentive programs that help to attract, motivate and retain top talent. Leaders of high performing banks articulate their strategic direction with laser focus, communicate performance expectations and achieve or exceed their stated goals. Properly designed compensation programs should reward … Continued
The BP Shareholder Vote: A Cautionary Tale
Compensation is often more about the message than the money. BP’s recent shareholder vote offered some valuable lessons for other energy companies about sending the right messages to shareholders when commodity prices impact business results. On April 14th, nearly 60% of voting BP shareholders opposed BP’s compensation programs. The press reported that shareholders were upset … Continued