How Governance Concerns are Reshaping Executive and Director Compensation

Abstract

The governance renaissance is transforming how Corporate America does business, but for many shareholders the most visceral target of criticism has been executive compensation. Genuine improvements in governance of compensation programs will be judged by the extent to which boards exercise rigorous oversight, provide clear and concise disclosure, and incorporate meaningful and effective performance hurdles balancing short- and long-term cash and stock incentives. For many boards, the first step in improved governance of pay programs is a re-examination of how competitive information on executive compensation levels is gathered and analyzed. Stock options will be among the first targets of compensation governance reform. Executive employment agreements, retirement benefits, and board pay also will be re-examined. There also is renewed interest in customizing board member pay to reflect differing responsibilities such as committee memberships.