Directors Think CEO Pay Needs Reform
November 8 2010 by Ceo Briefing - Nov. 9 2010
It seems that calls for reforming and/or lowering CEO pay are coming from many sectors these days. Corporate directors overwhelmingly believe that CEO pay policies could be reformed, according to a new survey by PricewaterhouseCoopers (PwC). The poll found that 58 percent of the 1,110 directors surveyed believe U.S. company boards have trouble effectively controlling CEO compensation and think the situation could be reformed by setting minimum stock ownership guidelines, re-evaluating compensation benchmarks and devising realistic peer group comparisons. In addition, news that total earnings for directors of UK FTSE 100 groups rose 55 per cent last year has sparked renewed criticism from employees, the public and shareholders about remuneration and performance. It’s time for a response from the CEOs who lead corporations and the economy into prosperity. Here are some points to consider.
Compensation expert Sophie Black, who is remuneration adviser in Mercer’s human capital business, told the Financial Times that the 55 percent increase is headline grabbing but one must dig a little deeper. The rise is almost entirely down to increased bonus and long-term incentive pay-outs based on companies’ improving performance. That should be regarded as an indication that performance-based pay is working. Remuneration committees need to reframe the debate, she says. Shareholders are demanding pay for performance but companies are criticized when it works in the way it is intended, such as reduced pay-outs in poor years and increased pay-outs when performance returns. Communication with shareholders is, therefore, key to managing the process. Base salary increases are incredibly restrained, and certainly below inflation, she says. To read more of Black’s response and other responses reported by the Financial Times, please click here.