June 18, 2015
Getting Off the Wrong Executive Compensation Road
– Broc Romanek, CompensationStandards.com
In this blog, IRRC Institute’s Jon Lukomnik discusses the two studies it recently conducted with Organizational Capital Partners. Here’s a blog on the first study – and here’s an excerpt from this new blog about the second study:
Of course, we also need to recognize that companies don’t exist in a vacuum. Investors and proxy advisory firms also over-rely on TSR. A second Organizational Capital Partners/IRRC Institute study reveals that there is no material difference in say-on-pay advisor recommendations or institutional investor voting based on a company’s economic value creation (or destruction) history. While there are historical reasons for this, the positive is that the disconnect between the desire for long-term value creation and how we compensate senior executives is starting to hit home. Since the reports were published, investors representing more than $1 trillion have told us that they are considering how to refocus on economic fundamentals.
However, the institutional voting pattern does mean that companies need to add a fourth bullet point to the action plan above. A coherent, energetic communications program to explain how the LTIP will henceforth measure the right things over the right periods of time, so as to create sustainable value, is an absolute necessity. While being forced to explain why a company is doing the right thing is annoying, in the end, everyone, from investors to Boards to CEOs, will benefit.
Don’t forget to send your nominations for our “Annual Proxy Disclosure Awards.” Here’s how that works. Deadline for nominations is Wednesday, July 1st…