Well Designed Compensation Programs

We help Compensation Committees and Management develop an effective executive compensation program. Our services include:

Compensation Principles
  • Establish a compensation philosophy
  • Set expectations for operational performance and shareholder returns
  • Integrate core values into reward programs
  • Determine plan leverage – the relationship between pay and performance
  • Create an opportunity for entrepreneurial rewards for delivering entrepreneurial returns
  • How and when to “reset” the program
Benchmarking
  • Public and private company compensation opportunities
  • Pay ranges for the annual cash and the long term equity incentive plans
  • Realized pay and grant-date pay
  • Performance metrics, targets and weightings
  • Performance terms of equity plans of peer companies
Peer Selection

The definition of the market for executive talent determines the reasonableness and potential ranges of pay levels.  The definition of the “market” will likely include direct competitors - those companies that compete for customers with similar products and services.  It may also include indirect competitors - those companies that compete for management talent.  Company size often has a high correlation with total compensation.  We have developed multiple approaches that can be useful in selecting peer companies.  In the end the objective is to provide defensible and meaningful analysis that supports the compensation opportunity and the selection of performance metrics.

Compensation Review

A comprehensive review consists of a series of analyses pertaining to compensation strategy, the market for executive talent, and company performance. Our competitive review may include, but is not limited to, the following elements:

  • Total Direct Compensation
  • Mix of Pay
  • Cash and Equity-Based Incentive Programs
  • Benefits and Perquisites
  • Stock Ownership Levels
  • Termination and Severance Terms
  • Vesting Terms
  • The relationship between compensation and share price performance
  • Target vs. Realized Pay
  • Share Ownership Guidelines
Incentive Plan Design

This is an area where we believe we can have a significant impact.  Our objective is to align the interests of executives and shareholders in meeting shareholder expectations.  We also want to provide a compensation opportunity that recognizes the competitive market for management talent and at reasonable cost to shareholders.

  • Long-Term Incentives
  • Short-Term Incentives
  • Goal Setting
  • Performance Metrics
  • Statistical Modeling of Compensation Opportunity
  • Accounting and Tax Considerations
Performance Metrics and Targets
  • Identify metrics that are the drivers of shareholder returns
  • Comparative analysis of metrics used by peers
  • Setting performance targets and self-adjusting annual targets
  • Strengths and weaknesses of traditional (e.g., earnings, sales, etc.), efficiency and value-based measures (ROIC, EVA etc.)
Equity Incentive Compensation
  • Forms of equity (time-based, performance based, share options, etc.)
  • Terms of the equity awards (vesting provisions, CIC, termination, etc.)
  • Performance equity terms (market measures; financial measures, time horizon, acceleration provisions, etc.)
  • Non-traditional plans (equity awards based on value sharing; multi-year operating performance, etc.)
Economic Value Added
  • ISS, a proxy advisor to institutional investors, has adopted EVA as one of their metrics to evaluate financial performance
  • EVA gained acceptance during the late 1980s and wide acceptance in the 1990s. It is used today across many industries
  • We have deep knowledge of EVA having been involved in its early development
  • We have assisted numerous companies in implementing performance management and reward programs based on EVA
  • Compensation Committees may want to consider EVA in their evaluation of management’s performance
  • At the same time, the Committee may determine that EVA does not fit well with their industry or their strategy
New or Amended Equity Plans

Equity-based plans provide valuable currency for aligning management’s interests with company performance and shareholder value. The “upsizing” of existing plans or the adoption of a new plan may present some complex and challenging issues.  Our objective is to assist the committee or board in making well-informed, fact-based decisions that insure that the company has adequate shares to attract and retain talented executives.  We offer the following services to help committees and boards make informed decisions on the equity plan:

  • Dilution Analysis
  • Burn Rate
  • Share Value Transfer Analysis
  • Plan Approval Assistance (modeling the proxy advisor scoring tests)
  • Best Practices
  • Plan Document Review
Director Compensation
  • Benchmark board, chairperson and committee compensation
  • Special committee compensation
  • Equity compensation – form and features
  • Total Cost of Governance and other metrics to analyze board compensation
Compensation Advisor
  • Updates on trends and best practices
  • Develop Committee annual calendar and process
  • Attend meetings and keep minutes
Say-on-Pay
  • Proxy advisor analytical review
  • Strategy to secure shareholder support (communication strategy, investor outreach, ISS engagement)
Compensation Discussion & Analysis (CD&A)
  • Creating a compelling story to explain the committee’s rationale behind the incentive plans
  • Review critical numbers and clarity of presentation
  • Manage approval and timetable with the compensation committee
Employment Contracts
  • Current industry and best practices
  • Analytical support for determining contract terms
CEO Evaluation
  • Analytical method to identify areas of strength and areas for improvement
  • Academic research that identifies major categories (Strategic Intent, Capital and HR management, critical internal and external constituents, etc.) that can form the basis of a healthy dialogue between the CEO and the Board