A New Test for Director Liability

From The Corporate Governance Advisor - Nov/2004

Summary:

Most boards are still asking the wrong question about executive compensation. They are asking "How Much" rather than the more appropriate "For What". Thus the basis for determining equitable versus excessive executive pay can't be determined unless the executive role and its level of accountability have been effectively and clearly defined.

This article addresses why the lack of executive accountability, flawed executive compensation practices and Levels of Work a solution to integrating organization design and executive compensation. It highlights the use of the Level of Work and the "felt fair pay" multiplier to properly job match executive roles and calibrate executive compensation when developing peer groups. It also demonstrates how Pay for Performance in many companies is broken given some 59 % of listed companies failed to create a positive profit greater than their cost of capital over 5 years ending in 2002.

Executive Accountability and Excessive Compensation (690.63 kB)