February 2, 2016
Using TSR? Creating Real Alignment With Shareholders
– Broc Romanek, CompensationStandards.com
Here’s a teaser from this article by Semler Brossy’s John Borneman:
We recently attended a Nasdaq compensation committee forum attended by board members, top HR executives and representatives from a number of institutional investors where the major topic of discussion was about the growing prevalence of TSR and relative TSR (rTSR) metrics in executive compensation. There was broad and general agreement that linking compensation to TSR does not make a very good “incentive” plan. Executives cannot control TSR directly, and it generally makes more sense to link pay to the strategic priorities of the business that executives can control, like revenue growth, innovation, margin management and returns on investments. This idea of strategic alignment has been the core principle for designing effective incentive plans for more than 30 years, and it continues to be relevant today.