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SUMMARY
Compensation committees are responsible for the effective design and evaluation of C-Suite compensation programs which focus on achieving short-term operating plan execution coupled with long-term sustainable business performance alignment. The operating framework within which these responsibilities are fulfilled entails assessing the current business environment, identifying drivers of business strategy, evaluating the impact of regulatory requirements, and engaging with complex and demanding constituencies.
Executive compensation programs are more complex than non-executive compensation programs. There are many determinants of both the design and payout of executive compensation programs: organization performance, industry economics, competitor and peer performance, and shareholders’ expectations. Making “transparent” the process of how executive compensation packages are set and paid is a primary goal for compensation committees. Having relevant and current compensation information regarding practices and trends is critical for the committees. Executive compensation programs need to be considered competitive relative to industry and peers with similar operational size. The goal is to mitigate the risk of turnover, to reasonably decrease the incentive for competitors to “poach” executive talent and enable business strategy execution. This should be done while also considering an overall internal pay structure and total rewards philosophy.