This month, we focus on how companies are exploring creative metrics to link executive compensation to performance.
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Exploring the Latest Trends in Governance and ESG
Dear Friend,
In this month’s Comp & Gov Spotlight, we will be focusing on how compensation committees can “Dare to be Different” when it comes to linking executive pay to performance metrics. In keeping with our theme of challenging homogenized compensation plans, Farient is providing you with helpful insights into how companies are becoming more innovative with different performance metrics they use to inform compensation – and how different approaches can drive greater long-term value.
In this Agenda webcast, Farient Founder and CEO Robin Ferracone joins William “Bill” Roskin, compensation committee member at Sony Corporation of America, to discuss ways companies can reject homogeneity and use new performance metrics to better link executive pay to long-term strategies and goals.
The problem with linking compensation to budget goals is that executives compete to set lower targets to ensure they receive their bonuses. In this article for World at Work, I identify and explain an alternative to budget-based compensation plans: Automatic goal setting.
The Tax Cuts and Jobs Act of 2017 removed the tax deduction for executives’ base salaries of less than $1 million, which spurred compensation committees to become more creative with compensation plans. However, in doing so, some companies have faced pushback from shareholders and proxy firms.
General Motors linking executive compensation to return on invested capital (ROIC) has led to long-term investments in electric and self-driving vehicles. GM shows how a creative compensation strategy that uses a less orthodox performance metric can drive a more forward-thinking, sustainable outlook.
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Mark Hodak is a Partner at Farient Advisors with more than 20 years of experience as a compensation and corporate governance consultant. He has developed executive and board compensation programs for global companies, both private and public, including extensive work around goal setting, performance and perverse incentives.
Farient Advisors LLC Is an independent executive compensation, performance and corporate governance consultancy. Farient provides a comprehensive array of services, including compensation program design, board of directors compensation and investor communications. Farient is located in Los Angeles, New York, Louisville and Dallas and covers clients in more than 30 countries through its partnership in the Global Governance and Executive Compensation Group (GECN). For additional information, please contact us at info@farient.com.
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