The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

August 19, 2019

Relative Performance Is Important, But Should It Be an Incentive Metric?

Broc Romanek

Here’s an interesting piece from Pay Governance about where relative TSR stands today. Here’s the intro:

Relative benchmarking is near-universal as companies assess historical pay-for-performance (P4P) alignment, but should relative performance be an explicit incentive plan measure? Most companies provide the majority of their long-term incentive (LTI) award opportunity to senior executives in equity-based awards, which has an underlying value directly aligned to stock price fluctuations. If companies decide this is insufficient, should they consider using Relative Total Shareholder Return (TSR) as an incentive metric? If so, should it be structured as a separate component or as a modifier? Before we address these questions, some historical context: