How do you estimate CEO worth in today’s business climate?
Global stock markets are returning historically higher than average returns. The thirst for IPOs and Mergers and Acquisitions seems unquenchable. Record levels of wealth have been created for shareholders on a global basis. How are you supposed to balance all this liquidity with the need to satisfy employees, shareholders, media, institutional investors, securities associations and others cries to bring run away CEO compensation under control? Look at the astronomical golden parachute that resulted from forcing Nardelli out of Home Depot for his salary compared to lack luster stock performance.
The keys to an effective pay review are:
1) Compensation should come from strategy. Build the following in this order: vision, mission, strategy, human capital strategy, executive compensation plan.
2) Consider employment market issues and specific and relevant data.
3) Strategically use all of the components of total compensation, not just salary.
4) Tie compensation into desired market position; are you a follower or leader?
5) Align pay with performance objectives.
The SEC, OSC and other securities bodies and governance watch dogs are demanding publicly traded companies to have more: disclosure, transparency, documentation, justification, tie into a performance formula.
Putting It Into Action:
Try to get yourself assigned to an executive compensation review team at work. Failing this, get involved in Boards where you can play a role in the Governance, Compensation, CEO Review or Finance/Audit Committees. Research annual reports, prospectuses and other publicly available reports on executive compensation. The more knowledge you have in this area, the better. This issue will remain a very visible and sensitive issue that will provide you will great visibility.
With you along the path towards success,
Joseph