The Advisors' Blog

– Liz Dunshee

Based on two years of outreach, The Aspen Institute & Korn Ferry announced the release of these “Modern Principles for Sensible & Effective Executive Pay.” These 5 Principles are intended to reflect shifting priorities and attitudes and guide boardroom dialogue. Here they are (see the full document for Principle a bullet-point explanation of each Principle and key questions for compensation committees):

1. Pay is unambiguously tied to the company’s purpose and the drivers of its long-term success – e.g., avoid excessive focus on TSR; consider financial & non-financial outcomes

2. Executive pay outcomes are fair – e.g., balance CEO pay with other executives and the employee population, and share rewards fairly; do not rely on external pay benchmarking as the sole basis for setting executive pay

3. Goals used in incentive plans are credible and their outcomes difficult to manipulate – e.g., meaningful downside for under-performance; don’t encourage excessively risky behavior; align long-term incentives with at least a full business cycle

4. The executive pay program is fully described in clear, jargon-free language – e.g., actively reduce complexity in pay packages; be able to summarize your program in two pages or less

5. The Board bears ultimate accountability for making decisions about executive pay and for aligning pay with the long-term health of the enterprise