Sunday 5 June 2011

Sunday, June 05, 2011 Posted by Jake 1 comment Labels: , , ,
Posted by Jake on Sunday, June 05, 2011 with 1 comment | Labels: , , ,

Reality: The High Pay Commission report shows that CEO pay has soared, while the value of their companies has stagnated.

1 comment:

  1. From report by IRRC Institute:

    "For the vast majority of S&P 1500 companies, there is a major disconnect between corporate operating performance, shareholder value and incentive plans for executives.

    The study details an over-reliance on accounting metrics that do not measure capital efficiency, and how total shareholder return obscures a line of sight to the underlying drivers of economic performance. Moreover, economic performance explains only 12% of variance in chief executive officer (CEO) compensation.

    The report finds that:

    Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven.

    Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.

    Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.

    Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.

    More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.

    Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.

    Nearly 25% of companies have no long-term performance based awards at all, relying instead stock options and time-based restricted stock in their long-term compensation plans.

    Total shareholder return (TSR) is the most dominant performance metric in long-term incentive plans, present in more than 50% of all plans despite the fact that executives do not have line of sight accountability for key drivers that impact TSR outcomes.

    Nearly 60% of companies changed performance metrics for CEO compensation in 2013, and one-third of companies changed at least 25% of the peer group used for performance benchmarking. That lack of stability of performance metrics can suggest a short-term focus despite the fact that the incentive plans are supposed to be long-term focused."


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