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
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
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
[embedyt] https://www.youtube.com/watch?v=oSZ-8hhjzuI[/embedyt] While the Tax Cuts and Jobs Act has brought some positives to the economy and certainly to select individuals, it has also brought some challenges to compensation committees as they try to figure out the correct balance for long-term incentives as part of the executive pay package. In this episode, Bob Romanchek, partner … Continued
It usually perks up the ears of most corporate directors when you say “board compensation.” What’s happened recently in this area, particularly with equity grants? If you take a step back, outside director compensation has generally been in a pretty narrow range, value-wise. Looking back over the past five to seven years, it’s averaged about … Continued
While the use of stock options as a primary vehicle for executive equity awards has tapered recently, the common belief that stock options are worth about one-third of face value has remained. Although this rule of thumb held true for many years, for reasons described below, that may no longer be the case, especially for … Continued
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
There is no more contentious, complex or difficult issue for boards than setting up the right incentives for executives. With companies in cyclical businesses that may have commodity costs as a large portion of performance, the challenge gets even more complex. Corporate Board Member recently talked with Jim Wolf, managing partner at Meridian Compensation Partners, … Continued
Consolidation in the banking industry continues, with more than 200 bank mergers in 2017. Whether your institution is a potential buyer or seller, there are several compensation matters that will need to be addressed proactively. Change-in-Control (CIC) Protections CIC arrangements are particularly important in the banking industry due to the significant consolidation activity. CIC arrangements … Continued
[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
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
The key highlights from Meridian’s 2017 Outside Director Compensation study among Fortune 100 companies include: In 2016, total compensation increased modestly at 1.2% Annual cash retainer values were flat for the second consecutive year, but equity values increased at approximately 2.9% per year. Equity comprises 60% of total compensation, while board meeting fees now comprise … Continued
Introduction Bank executive compensation practices continue to evolve, as does the regulatory influence on pay programs. Eight years after the Dodd Frank Act was signed, incentive compensation rules under Section 956 of the Act remain outstanding and seem unlikely to move forward under the current administration. The 2016 re-proposal of Section 956 regulations included prescriptive … Continued
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
Approximately 25 percent of U.S. public companies will be asking shareholders to approve a new or amended share plan this proxy season. Since most companies do not revise share plans on an annual basis, boards may want a refresher on issues to consider when seeking shareholder approval. When asking for approval of a share plan, … Continued
Find this article and more in the NYSE Governance Services Corporate Board Member Magazine – nyse.com/governance Over the last 10–15 years, we have observed a sea change in long-term incentive (LTI) award design. The role of stock options has dramatically declined, generally replaced by performance share or unit (PS/U) awards. Factors driving this change included … Continued
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
Meridian Partner Jamie McGough joins TK Kerstetter, host of Inside America’s Boardrooms, to discuss “Should Boards Reconsider the Benefits of Stock Options?” Watch Jamie explain why the use of stock options has diminished and why he thinks companies might want to reconsider stock option plans in their executive pay packages. [embedyt] https://www.youtube.com/watch?v=jYeZNUFiRZQ[/embedyt]
This interview originally appeared in Corporate Board Member magazine. Corporate Board Member spoke to Bob Romanchek, partner and consultant with Meridian Compensation Partners, about the expected use of stock options going forward. At one time, the use of stock options for executive pay purposes was a strong majority practice. What changed and why? If you … Continued
Meridian Partner Matthew Isakson joins TK Kerstetter, host of Inside America’s Boardrooms, to discuss “Compensation Committee Best Practices: Pay Increases & Goal-Setting.” [embedyt] http://www.youtube.com/watch?v=bRPVdmcqfyo[/embedyt] Get more insight into compensation committee goal setting from Matt Isakson and Boardroom Resources here: “4 Guiding Perspectives for Compensation Committee Goal Setting.”
Find this article and more in the most recent issue of Equilar C-Suite magazine. Find past issues of C-Suite at Equilar.com. Boards walk a fine line to align director pay with shareholder value By Ryan Villard Boards of directors bridge the gap between investors and their executive teams, providing guidance and holding management accountable … Continued
The structure of a share unit plan and how a share unit is settled can have a significant impact on its taxation and accounting treatment. This update: Considers three alternative share unit plans that are generally used in Canada and outlines the key advantages and disadvantages of each alternative Summarizes the proposed changes to the … Continued
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
More and more public companies are adopting performance share unit (PSU) plans as a significant component of long-term (equity) compensation for executives.[1] The most common PSU performance metric is total shareholder return (TSR – i.e., stock price growth plus dividends) compared to performance peer companies. The choice of performance peers has a significant impact on … Continued
[su_youtube_advanced url=”https://www.youtube.com/watch?v=JMVEeD7uRmc” width=”700″ height=”420″ responsive=”no” rel=”no” fs=”no”][youtube_channel][/su_youtube_advanced] In this video, Meridian Partner Jared Berman sits down with TK Kerstetter of “Inside America’s Boardrooms” to discuss three issues that should be on the compensation committee agenda.
It’s that time of year when compensation committees begin the process of setting annual incentive goals for the upcoming performance cycle. For most public companies, these goals generally relate to financial metrics such as revenue, earnings, and cash flow that are aligned with the key objectives on which committees want management to focus. Once appropriate … Continued
Description Performance shares are performance-contingent pay denominated in common stock and earned over a performance period if certain performance goals are attained. Often, performance share plans provide for a payout matrix under which performance shares are paid at differing levels (e.g., threshold, target and maximum) based upon achieved performance. Key Features Performance Period Performance period … Continued
Description Restricted stock is an award of employer stock that is subject to vesting requirements and transferability restrictions (generally at no cost to the employee). Key Features Dividend and Voting Rights Restricted shares typically have voting and dividend rights. Dividends may be paid currently or may be paid upon satisfaction of vesting requirements. Vesting Time-based. … Continued
Description A stock appreciation right (SAR) entitles an employee to the appreciation in value of a specified number of shares of employer stock over an “exercise price” or “grant price” over a specified period of time. Key Features Base Price The base price generally is equal to the underlying stock’s fair market value on the … Continued
Description Performance units are performance-contingent pay denominated in dollars and earned over a performance period if certain performance goals are attained. Often, performance unit plans provide for a payout matrix under which performance units are earned at differing levels (e.g., threshold, target and maximum) based upon achieved performance. Key Features Performance Period Performance period typically … Continued
Description Restricted stock units (RSUs) are an award of units that correspond in number and value to a specified number of shares of employer stock that typically are subject to vesting requirements and transferability restrictions. Units do not represent any actual ownership or equity interest. Dividend and Voting Rights RSUs have no voting or dividend … Continued
The majority of long-term incentives arrangements utilize shares of company stock as a mechanism for driving employee behavior and aligning compensation to shareholder value creation. The use of shares does not create a cash expense; however, it does have a cost to shareholders through dilution of earnings and voting power of existing shareholders. (See separate … Continued
Qualified Retirement Plans A qualified retirement plan is a funded plan for which organizational assets irrevocably have been set aside, outside the reach of general creditors of the company. These funds pay for benefits as they become due. Companies obtain tax deductions for contributions made to qualified plans at the time the contributions are made. … Continued
The primary purpose of an annual incentive plan, also called an annual bonus plan, is to drive and reward behaviors that have an impact on the operating success of the company. Following is information on how such plans are typically designed, including participation, payout opportunities, performance metrics and payout curve. Participation At most U.S. companies, … Continued
Description A stock option is a right to purchase employer stock at a fixed price (e.g., an “exercise price”) during a specified period of time. Key Features Exercise Price The exercise price generally is equal to the underlying stock’s fair market value on the date of grant. Vesting The most typical type of vesting is … Continued
The Basics What are change-in-control arrangements? Executive change-in-control arrangements generally refer to any severance, payments or special benefits that are provided to an individual in connection with a change in control (CIC) of the company. A CIC is typically defined to include such transactions as a merger in which the executive’s company is the smaller … Continued
The Basics What are executive severance arrangements? General executive severance arrangements generally refer to any severance, payments or special benefits that are provided to an individual due to a termination from the company. General severance is provided for terminations not related to a change in control (“CIC”). CIC-severance arrangements are a separate topic. Typically, general … Continued
Long-term incentives (“LTI”) are forms of variable (“at risk”) compensation based on the achievement of longer-term performance and objectives. Primary objectives are to: Align executive interests with shareholders and align executive pay with company performance and strategy. Balance annual incentives with focus on long-term (3- to 10-year) results. Retain executives. Facilitate long-term executive stock ownership. … Continued
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Overview A nonqualified deferred compensation plan represents an unsecured promise by an employer to pay compensation to an employee at a future date. Such a plan is not subject to the complex rules under ERISA that are applicable to tax-qualified retirement plans (regarding eligibility, nondiscrimination, funding, trust requirements, etc.). This gives employers significant flexibility in … Continued
The Basics What are stock ownership guidelines? A stock ownership guideline is a policy created by the compensation or governance committee which establishes the level of stock ownership that is expected for the executives or outside directors of a company. A majority of public companies in the U.S. and Canada now have ownership guidelines for … Continued
Linking value creation, business strategy and underlying goal setting is arguably the linchpin of executive compensation, where the pay-and-performance “rubber” meets the road. For compensation committees, focusing on the basics can help cut through to the heart of the matter, and lead to better incentive goals. The Basics Value creation is about two things—return on … Continued
The Basics Selecting the optimal performance measure(s) for executive compensation or other business purposes starts with an understanding of the most common measures and their respective strengths and limitations. The Most Common Types of Performance Measures There are two broad categories of performance measures most often used in executive incentive plans: financial measures and market … Continued
Overall Compensation Design Non-executive members of corporate boards are generally paid for their service. The overall compensation structure typically includes an annual retainer, committee meeting fees and/or retainers, and a non-retainer equity grant. In recent years, many companies have adopted a structure with a higher retainer and no meeting fees. The actual level of pay … Continued
The Holy Grail in executive compensation is to achieve strong alignment between pay and performance. In the quest to achieve this alignment, management teams and board members strive to design the perfect incentive structures, using the most appropriate performance measures for their industry and individual company circumstances. However, even the most effectively designed incentive can’t … Continued
This update reviews trends in executive pay at S&P/TSX 60 companies[1]. The general trend for the last three years has been for modest growth in actual and target pay, although actual senior executive pay fell slightly from 2013 to 2014. Performance share units (PSUs) continue to increase as a proportion of long term incentive compensation, … Continued
Governance policies related to executive compensation are on the rise as a result of increased influence of bank regulators, shareholders and the Securities and Exchange Commission (SEC). These policies are intended to reduce compensation-related risk, encourage a long-term perspective and align executives with shareholder interests. Meridian’s 2015 proxy research of banks with $10 billion to … Continued
In a previous Energy Insights post, Jim Wolf discussed the impact of $40 oil prices on early 2015 compensation decisions. At the time, energy companies speculated whether we’d see a “V”-shaped or “U”-shaped recovery. After a volatile summer – doubts about China’s growth, Iran’s pending oil output, limited production declines – US energy companies now … Continued
Incentive plans have two primary purposes: 1) To motivate behaviour and drive performance aligned with strategy and 2) To align rewards with shareholder interests. From these two simple purposes come the most difficult work of the compensation committee and an area of increasing focus by shareholders. Choosing the wrong metrics can create unintended consequences and … Continued
Hiring and retaining the right hospital leaders and ensuring that they achieve the organization’s goals are among the board’s most important functions, and executive compensation plays a major role in the success of those efforts. However, preconceived notions about executive compensation may hurt hiring and retention efforts. By taking a closer look at 10 long-standing … Continued