From The Corporate Board - Jan/2005

Summary:

Directors who ignore changes underway with key institutional shareholders, regulators and the courts related to executive accountability and compensation may be taking unnecessary personal risks. The Disney Decision significantly changed the standards for director liability in determining excessive executive compensation.

This article illustrates how current executive compensation benchmarking practices fail to properly job match and calibrate executive compensation and assumes that roles with the same title are doing the same work thus distorting executive compensation data that boards rely on to set CEO / executive pay.

This has contributed to the spiral in executive compensation and in some cases pay percentiles can be overstated by 100 %.

The 5 Levels of CEO work and the "felt fair pay" multiplier are processes and tools that Directors can use to ensure they are properly benchmarking executive roles and comparable compensation when developing defensible peer groups and making informed executive compensation decisions. A format for the "new compensation report" to the board is outlined.

New Liabilities for Compensation Committees (99.11 kB)