Executive Compensation

We help our clients align total rewards with business strategies to deliver maximum return on their compensation investments. We are pioneers in transforming executive compensation into a performance-driven tool for increasing economic and shareholder value.

A company's peer group includes its key talent and business competitors, making it a critical barometer for assessing pay competitiveness. We help companies develop, or validate, customized peer groups and determine how their pay compares. We ensure that the most appropriate companies are included as peers so pay comparison reflects the best possible match.

In assessing pay competitiveness, we examine all components of total compensation, including base salary, annual incentives, long-term incentives, benefits and the value of perquisites and retirement packages. We take into account important filters, such as company size, industry and business model. Sources include proxy data for peer group companies, supplemented, as appropriate, by published survey data for broader markets.

We seek answers to questions such as:

  • What is the basis for identifying and selecting peer group companies?
  • How competitive is the total compensation package?
  • How do the individual components stack up?
  • What is the mix of fixed versus variable pay? How is mix determined?
  • How does total pay delivery fulfill the desired compensation philosophy?
  • Do executives have similar equity opportunities and holdings?

We analyze your current compensation program and recommend new approaches to strengthen the pay/performance link. Our work is guided by one goal: to ensure a strong pay-for-performance relationship that creates value for shareholders and delivers a portion of that value to the executive team.

We test the compensation system by assessing the competitive market and considering the aggregate economics of the company. We evaluate long-term incentive plans to ensure a balance of vehicles and designs that moderate dilution and market risk. We help create a balanced portfolio that is viable and sustainable in both times of economic prosperity and poor market conditions.

We examine eight incentive plan design elements (purpose, participation, measures, performance targets, award structure, funding, communications and improvement, governance and administration) to develop business-based solutions to fundamental questions, including:

  • To what extent does the program support the business strategy and desired culture?
  • To what extent does participation vary by individual level, performance level or nature of work?
  • Are funding guidelines aligned with the economics of the business?
  • What ROI has the program achieved?
  • How is program effectiveness measured? What continuous improvement strategies and processes are in place to support the program?

Performance measurement and goal setting are the crux of incentive plan design. We work with companies to identify the measures of company performance that align with their strategies and serve as the best drivers of desired results. We may blend financial measures, such as stock price/total shareholder return, return on invested capital and EPS growth, with "softer" metrics, (e.g., succession planning, global expansion and customer service) that lead to business success.

When establishing goals, we want to ensure that executives have clear line of sight and that goals are clearly linked to desired outcomes. We test potential payouts under a range of scenarios to ensure performance targets serve shareholder interests while delivering appropriate value to executives.

We ask — and help to answer — the challenging questions that consider the interests of all stakeholders, such as:

  • To what extent are measures, objective, understood and aligned with strategy?
  • How does the board ensure the measures reflect an appropriate mix of market and internal measures?
  • What new measures might better support changes in business strategy?
  • What are the "right" sharing ratios between executives and shareholders? Do the goals and measures produce the desired ratios?
  • How do targets compare to historical performance and/or peer company performance?
  • What standards or baselines should be used to set goals and performance targets?

We work with boards of directors, compensation committees and their external advisors on performance contracts and compensation arrangements for members of the executive team. We evaluate both current arrangements and advise on new or prospective provisions. We carefully analyze all provisions to demonstrate potential outcomes under various employment scenarios. Our analysis considers issues including:

  • What are the cost consequences of a termination of employment for the CEO and other key executives?
  • How do provisions compare to industry standards?
  • How are peer group practices and the organization's unique circumstances taken into consideration to ensure the provisions are reasonable?
  • Do the provisions that made sense years ago still hold up given the company's current position and strategy?
  • How would investors and the media view the provisions?

We work with companies to assess current offerings and design new programs that fit the company's business circumstances and culture. We review supplemental benefits, SERPS, non-qualified plans and deferred compensation, including "top hat" plans. We advise companies on the following:

  • How does the plan ensure that supplemental retirement opportunities are meaningful to participants at all stages of their career?
  • How do benefits and perquisites measure up given competitive practice, organizational culture and opportunities provided to other employees?
  • Do non-qualified plans meet regulatory requirements?
  • Do the programs offer optimal tax advantages for both executives and the company?

We work with companies in transition, stemming from an IPO, sale or acquisition. Taking into account competitive practice, share utilization, talent requirements and business objectives, we build equity compensation plans to support the organization in its next phase of development. This ensures the company provides meaningful equity opportunities that continue to attract, retain and motivate executives. We address issues such as the following:

  • Who will participate in the new plan?
  • How are opportunities balanced for all participants, legacy and new arrivals, to make sure the plans deliver sufficient shares and sufficient value?
  • How does the layering in new equity plans affect existing plans?
  • What is the impact on the long-term incentive portfolio?
  • What is the effect on share utilization?

Extraordinary situations (such as a downturn or turnaround, a major strategic shift, global diversification or the launch of a new product line) may call for unique compensation opportunities. We advise companies on the use of special plans designed to provide significant rewards for taking the organization to a new level. Whether aspirational or a stopgap, we guide clients through decisions such as the following:

  • What is the purpose of the plan and the timeframe?
  • What milestones should be considered?
  • How will the plan affect the other components of compensation?

Companies entering and emerging from bankruptcy proceedings are concerned about the retention and attraction of the executive talent that will see the organization through its challenges. For those entering or emerging from Chapter 11, compensation becomes an essential tool for retaining and attracting executives skilled at affecting a turnaround.

We design key executive incentive plans that meet the needs of the organization, shareholders and executives. We provide information about bankruptcy trends, precedents and rulings, enabling us to benchmark compensation practices and provide meaningful, constructive plan designs.

We help clients in all elements while navigating the transition: structures, plan designs, levels and mechanics-addressing. We develop stopgap plans to address immediate needs as well as integrated compensation offerings, addressing issues including:

  • What is the purpose of the plan and the timeframe?
  • What milestones should be considered?
  • How does the plan compare to those of other organizations that have successfully made the transition?
  • What extenuating circumstances exist that might allow the organization to receive additional consideration?
  • How will the plan be viewed by the bankruptcy court?

The combination of legislation, SEC regulation and third party/institutional investor activism has brought about an unprecedented level of change in the executive compensation arena. We expect that scrutiny and controls will likely increase in the future.

Our consultants are fully knowledgeable in all current and pending changes that affect executive pay. Skilled in the nuances of the various petitions, rules and regulations, we bring an external perspective to a client's entire pay and governance programs. We help to identify possible issues and offer solutions to ensure compliance.

We provide counsel on issues of concern to shareholder activists and consider the shareholder's perspective when we review and design new compensation plans. We help our clients address issues such as the following:

  • How do plan designs comply with current and proposed regulations?
  • How will plan design features be perceived by outside stakeholders?
  • Will new authorization requests pass third party standards?
  • Are plan designs transparent vis-à-vis desired/required levels of disclosure?

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