Designing and Implementing an Executive Compensation Program: Strategies and Best Practices
A properly designed and well-implemented executive compensation program ensures that talents, which are vital to businesses, are attracted and retained. Moreover, it effectively connects the executive team’s incentives with the organization’s priorities and strategies. Although the implementation of an effective executive compensation program demands planning, time, and commitment, it does not have to be burdensome.
Our panel of key thought leaders and practitioners will offer a discussion of the recent trends and developments as well as the practical strategies and best practices in crafting and implementing executive compensation programs. This LIVE Webcast aims to help you meet the growing regulations imposed on businesses and the stakeholders’ intensifying disclosure demands, The Knowledge Group's CLE Executive Compensation Webcast will provide you with critical insights on how to get it done.
Key topics include:
- Executive Compensation: Recent Trends and Developments
- Notable Cases and Regulatory Updates
- Addressing Common Challenges
- Practical Strategies and Best Practices
- Outlook for 2019
Stephen F. O'Byrne, President
Shareholder Value Advisors Inc.
- The objectives of executive compensation have been the same for 100+ years (providing strong incentives to increase shareholder value, retaining key talent and limiting shareholder cost) but the approach to achieving them as changed dramatically.
- In the first half of the 20th century, companies used value sharing plans, e.g., GM’s plan making all incentive pay equal to 10% of profit in excess of 7% of capital, before shifting to competitive pay policy and target percent of pay at risk.
- The old approach made it challenging to retain key talent because the company had to build up a reserve in good times to pay enough to retain key talent in bad times.
- The new approach makes it challenging to provide strong incentives because competitive pay policy creates an inherent performance penalty – poor performance is rewarded with more shares, while superior performance is penalized with fewer shares – that undermines the linkage between cumulative pay and cumulative performance.
- The modern approach to pay has been largely unsuccessful in aligning management and shareholder interests.
- Analysis of S&P 1500 companies in 2007-2016 shows that relative TSR only explains 10% of the variation in relative CEO pay, but
- This bad picture hides a group of companies – about 20% of the total - that do a good job of aligning relative pay and relative performance and controlling cost. For this group, relative TSR explains 76% of the variation in relative CEO pay.
- There are three useful approaches to designing better executive compensation programs.
- Focus on sharing relationships:
- A perfect correlation of relative pay with relative performance implies (with “pay leverage” of 1.0) that the management share of the excess return is equal to the market pay share of expected shareholder wealth.
- The management share of the excess return is [actual pay – market pay]/excess return.
- Focus on “perfect” pay plans that provide a perfect correlation of relative pay and relative performance:
- The Dynamic CEO Compensation Plan developed by finance professors Alex Edmans of London Business School and Xavier Gabaix of Harvard.
- The perfect investment manager fee contract developed by Don Raymond, the chief investment strategist of Canada Pension Plan.
- O’Byrne’s perfect performance share plan.
- Study the pay practices of the 20% of companies that achieve alignment (r-sq) of 50% with interquartile pay premiums at industry average performance.
- Focus on sharing relationships:
Christopher Earnest, Partner
Compensation Advisory Partners
- Establishing a compensation philosophy tailored to your organization and management team
- Establish a peer group for benchmarking pay levels and programs
- Design & Implement an Annual Incentive Program
- Establish key performance metrics
- Determine desired payout leverage within program
Patrick Haggerty, Partner
Pay Governance LLC
Resisting Homogenization of the Executive Pay Program
- Using customized annual incentive plan designs that strongly align to the strategy
- Designing regular long-term incentive plans to reflect the company’s business realities
- Reevaluating the role, if any, of relative TSR as an explicit incentive plan measure
Who Should Attend:
- Benefits Managers
- C-level Executives
- Executive Compensation and Benefits Managers
- Member of Board Compensation Committees
- Human Resource Executives
- Executive Compensation and Benefits Consultants
- Employee Benefits & Compensation Lawyers
- Employee Benefits Attorneys
- Other Related/Interested Professionals
He specializes in the analysis, design and implementation of executive pay programs that drive shareholder value. Pat consults with publicly-traded, privately-owned and pre-IPO companies in a wide spectrum of industries regarding executive and non-employee director pay programs. His work includes pay level benchmarking (both U.S. and international positions), annual and long-term incentive plan design, and special situations.
Pat has worked with numerous Fortune 500 and other prominent companies, with a particular focus on healthcare companies.
Pat has been published in leading journals and newspapers, including the Directors & Boards, Agenda, and Financier Worldwide. Recently, he has written articles entitled “Activist Shareholders and Executive Compensation”, “Do companies known for innovation use incentive metrics that measure innovation?” and “2016 Compensation Trends in U.S.”
Prior to joining Pay Governance, Pat was a senior consultant in Towers Watson's executive compensation practice.
Pat earned a Master of Science degree in economics at the University of South Carolina and an MBA with a concentration in human resources at Georgia State University.
He specializes in the analysis, design and implementation of executive pay programs that drive shareholder value. Pat consults with publicly-traded, …
Chris Earnest is a partner of Compensation Advisory Partners, LLC (CAP) in Houston. He has over 13 years of experience consulting with compensation committees and management teams. Chris consults in all areas of executive compensation ranging from short and long-term incentive program design to performance measurement, target setting and regulatory/compliance related issues. He also advises on director compensation programs.
Chris began his career as an attorney in Houston where he practiced law before transitioning to consulting. Prior to joining CAP, he was a Managing Director at Pearl Meyer. Chris holds a BS in Law & Society with a minor in Business Administration from the University of Tulsa. He also holds a JD and an MBA from the University of Tulsa.
Chris Earnest is a partner of Compensation Advisory Partners, LLC (CAP) in Houston. He has over 13 years of experience …
Stephen F. O’Byrne is President and co-founder of Shareholder Value Advisors Inc., a consulting firm that helps companies increase shareholder value through better performance measurement, incentive compensation and valuation analysis. His work on measuring the strength and cost-efficiency of top management incentives has been published in the Harvard Business Review, the Journal of Investing, Conference Board Director Notes, the Journal of Applied Corporate Finance and the WorldatWork Journal. He is the co-author, with Professor David Young of INSEAD, of EVA and Value-Based Management. He was previously head of the compensation consulting practice at Stern Stewart & Co. and a Principal in the executive compensation practice at Towers Perrin.
Stephen F. O’Byrne is President and co-founder of Shareholder Value Advisors Inc., a consulting firm that helps companies increase shareholder …
Print and review course materials
Method of Presentation:
On-demand Webcast; Group-Internet Based
Basic knowledge of executive compensation
NY Category of CLE Credit:
Areas of Professional Practice
NASBA Field of Study:
Finance – Technical
Unlock All The Knowledge and Credit You Need
Leading Provider of Online Continuing Education
It's As Easy as 1, 2, 3
Get Your 1-Year All Access Pass For Only $199
About Pay Governance LLC
Pay Governance LLC is an independent firm that serves as a trusted advisor on executive compensation matters. Our work helps to ensure that our clients' executive rewards programs are strongly aligned with performance and supportive of appropriate corporate governance practices.
We assist in developing an overall framework and governing philosophy, which describes the company’s approach to all aspects of pay. We utilize decision-quality data to assist compensation committees in making fully informed decisions.
We evaluate incentive and other executive program designs to:
- Ensure that plans meet the company’s philosophy
- Support corporate strategy and organization
- Ensure performance measures are appropriate and consistent with the company’s value creation objectives
- Improve “line of sight”
- Align executive interests with those of shareholders
- Be tax, accounting, and dilution efficient
- Align pay and performance
We keep compensation committees informed and educated on emerging trends and key developments in executive compensation
We perform periodic reviews of executive arrangements, benefits and perquisites from both a “how” and “how much” perspective.
We work with compensation committees to ensure compliance with relevant regulations and best practices.
About Compensation Advisory Partners
Compensation Advisory Partners, LLC (CAP) is an independent executive compensation consulting firm with offices in Houston, Tulsa and headquartered in New York City. Supported by rigorous analytics, we work with boards of directors and management teams to develop innovative and practical solutions that advance company objectives.
Our advice is grounded in extensive real-time experience and aligns with strong corporate governance standards. Our client experience ranges from some of the largest Fortune 100 multi-nationals to smaller start-ups. Our clients benefit from the collective intelligence and practical experience of our consultants to provide superior market insight.
After working together for many years at other large consulting firms, our partners saw the need to create a new firm positioned to provide strictly independent executive compensation consulting advice. CAP was founded in 2009 to deliver this important service with excellence.