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In the past, the proxy statement disclosure of executive compensation was viewed largely as a legal compliance document. Corporate legal departments generally took the lead in drafting the materials with support from the compensation committee who assembled th...

Oversight of director compensation can fall under the purview of either the governance and nominating committee or the compensation committee, depending on the individual company’s approach to committee responsibilities. However, whichever committee oversees d...

In 2009, the SEC began requiring companies to disclose material risks arising from the compensation programs for all employees. The rationale for this new risk disclosure requirement was the perception that certain forms of compensation arrangements (e.g., unc...

Like their public company peers, many private companies have an executive compensation governance structure that includes a board of directors. All C corporations and S corporations are legally required to have a board. While not all privately held companies, ...

Sustaining the business and fostering profitable growth over time are key objectives for family businesses. Such businesses may also focus on values, culture, and causes as part of their strategies. As a board member for a family-owned company, the director sh...

Venture capital-backed companies are partly or wholly held by one or more venture capital (VC) firms in exchange for access to capital. This structure is common for early-stage companies that can leverage the funds to fuel growth, acquire assets, and develop i...

Executive compensation design is fundamental to how private equity (PE) companies look to create value in their portfolio companies. Private equity companies typically invest in businesses with the intent of improving their operational and financial performanc...

Companies preparing for an initial public offering (IPO) will need to acquaint themselves with the executive compensation requirements associated with being a publicly traded company. Executive compensation expectations change with a broadened investor base, a...

On either side of a merger or acquisition, the compensation committee will typically face challenging issues. At the acquiring company, decisions will have to be made about how to treat ongoing compensation programs (e.g., short-term incentive plans, long-term...

Corporate spin-offs can be a challenging period of time for the compensation committee. Spin-offs are frequently driven by the desire to create value by breaking businesses into their component parts to allow for greater transparency to investors about the bus...

While executive compensation is subject to considerable external scrutiny, and any compensation committee is potentially at risk for criticism regarding their decisions, we believe that executive compensation is a key tool that — when used correctly — can help...

Over the past 5–10 years, committees have become more concerned about the independence of their consultants. In the past, compensation consultants were often engaged by management and would be brought in to discuss management recommendations with the compensat...

Two compensation consulting models have developed that are commonly seen in the market: 1) a single consultant reporting to the committee chair and working for the committee and with management; and 2) two consultants, one directly engaged by the committee and...

Most consultants that you interview will have adequate experience to provide you with the technical advice that you require and will come from a firm with significant resources to provide required market data. Your final selection will therefore come down to y...

Pay Mix Relatively few companies make an explicit statement about the precise percentage of pay expected to be delivered as salary, annual incentive, and long-term incentives (LTI). However, almost all public companies will state that at-risk pay (i.e., annua...

a. Meeting Materials Management and the committee’s compensation consultants work together to prepare meeting materials, depending on who holds primary responsibility for the particular agenda item. Regardless of who is developing the materials, whenever poss...

It is still a mixed practice across boards over whether leadership development and succession planning falls to the full board or whether it is delegated to a committee of the board. The case for managing these activities at the committee level is that it is a...

Before diving into the role of performance metrics in the annual incentive plan, it is worthwhile to briefly discuss the different categories of performance measures used by companies. They are described below: Operational/Strategic/ESG Measures: These tend...

Performance Goals Selecting the right performance measures sends a signal to executives about which aspects of performance are most critical. Most companies will establish a target level of performance that will correspond to a target annual incentive payout....

a. Stock Options Stock options used to be the most prevalent long-term incentive vehicle for senior executives. Why did stock options first become a common form of long-term incentive? Investors viewed stock options as a way to achieve the goals of pay-for-pe...