Five Building Blocks for a Better Compensation Committee May 17, 2018

Transcription

1 Five Building Blocks for a Better Compensation Committee May 17, 2018 ADVANCING EXEMPLARY BOARD LEADERSHIP

2 Housekeeping Submit a question and receive your answer directly from Pearl Meyer. You will also be opted-in to receive future executive compensation thought leadership from Pearl Meyer. Tweet live during the event today 2

3 Meet the Presenters Laurie Siegel has served as a senior executive for several global companies. She was the chief human resource officer of Tyco International for a decade. While at Tyco, Siegel oversaw the total overhaul of the leadership team, initiatives to restore the confidence of the company s 240,000 employees around the globe, and many of the work streams associated with the spin-offs of Covidien, TE Connectivity, ADT Corp., and the merger of Tyco Flow Control with Pentair. Prior to joining Tyco, Siegel served in senior leadership roles at Honeywell International and as a management consultant. Siegel is currently a director of CenturyLink, FactSet, and Volt Information Sciences. She chairs the compensation committees of all three companies. Siegel is a senior advisor to the G100 Companies and a principal of LAS Advisory Services. Siegel has been named a fellow of the National Academy of Human Resources (2008) and to the NACD D100 (2017). Terry Newth is a managing director in Pearl Meyer s Boston office. He consults on the design, development, and assessment of executive compensation programs that support each organization s business objectives, long-term business strategy, and organizational culture. His clients range from Fortune 500 organizations to pre-ipos to private and family-owned companies in a wide range of industries. Terry s areas of expertise include pay strategy and philosophy development, market-based pay studies, incentive plan design, severance and CIC arrangements, outside director pay, transactionrelated compensation, CD&A and supporting table disclosures, corporate governance and share plan authorizations. Matt Molberger is a vice president in Pearl Meyer s Boston office. He primarily consults to companies in the technology, life sciences, and consumer goods sectors. Matt works with clients to develop comprehensive executive compensation programs that support long-term business objectives. He specializes in incentive plan design, pay benchmarking, security arrangements, proxy statement disclosures, and preparing for and responding to input from shareholder advisory firms. Matt's client experience ranges from pre-ipo planning to supporting Fortune 500 companies throughout the annual compensation cycle. 3

4 Housekeeping Presentation slides are available at and within the webinar console. 4

5 Housekeeping You will automatically receive 1 NACD credit for your participation. Credit may be applied to NACD Fellowship programs. Contact Fellowships@NACDonline.org for more details. The replay and slides will be available early next week at and 5

6 Agenda I. Process: Develop a theme-based calendar II. Philosophy: Re-examine and evolve your compensation philosophy III. Incentive Rigor: Dig deep into your annual goal-setting process IV. Wealth Sensitivity: Model your realizable/dynamic pay plans V. Proxy Advisor Plan: Implement a before-and-after approach to proxy advisory firms 6

7 I. Process Develop a theme-based calendar Enhance your processes Check all the boxes Annual Compensation Committee Cycle Philosophy Strategy Planning Decisions Governance Review/evolve compensation philosophy Peer group update Marketplace trends Preliminary next FY incentive plan constructs Executive compensation benchmarking Preview bonus funding Preview next FY incentive plans Equity budgeting Merit increases Bonus and performance-based equity approvals Equity awards Incentive goal-setting CD&A Review charter Board of directors compensation Proxy advisor highlights Committee/consultant evaluation Fiscal Year End Fiscal Year Start 7

8 II. Philosophy Re-examine and evolve your compensation philosophy Document your philosophy and review it annually Discuss whether evolution is needed given changing business needs or talent environment What is the purpose of your total rewards program and/or what are you trying achieve? 8

9 Poll Question #1: Philosophy How robust is your committee s review of the executive compensation philosophy? We have a detailed conversation annually We quickly review and confirm our current document or policy We include our policy document in our materials for reference, but do not discuss The topic is not discussed or covered elsewhere in our materials 9

10 II. Philosophy (Continued) What should the discussion entail? External Considerations Internal Considerations Changing market practices Labor market dynamics Strategy for setting target compensation opportunities Which element(s) Positioning vs. market Evolving business strategy and strategic initiatives Changes to executive team or broader employee population Motivational or retention needs Company culture Tolerance for individual deviations 10

11 III. Incentive Rigor Dig deep into your annual goal-setting process Ensure the correct management team members are participating in the discussion Create a process/methodology for setting goals Evaluate your goals through multiple lenses Calibrate the performance-payout scale appropriately 11

12 III. Incentive Rigor (Continued) Consider your threshold, target, and maximum goals through multiple lenses Budget Analyst/ Investor Expectations Historical Rates of Achievement 12

13 Performance Achievement (As % of Target) Performance Achievement (As % of Target) Performance Achievement (As % of Target) III. Incentive Rigor (Continued) Set an appropriate performance-payout scale according to perceived goal difficulty and desired motivating effect 250% Example I 250% Example II 250% Example III 200% 200% 200% 150% 150% 150% 100% 100% 100% 50% 50% 50% 0% 0% 0% 80% 90% 100% 110% 120% 80% 90% 100% 110% 120% 80% 90% 100% 110% 120% Payout Percentage (As % of Target) Payout Percentage (As % of Target) Payout Percentage (As % of Target) 13

14 Poll Question #2: Incentive Rigor What does your committee s incentive goal discussion and assessment involve (select all that apply)? Budget Analyst/investor expectations Historical rates of achievement Performance-payout slope calibration Value sharing between company and management Other 14

15 Thousands IV. Wealth Sensitivity Model your realizable/dynamic pay plans Understand your plans leverage and wealth creation potential $22,000 CEO Total Equity Wealth Sensitivity $20,000 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $16.00 $18.00 $20.00 $22.00 $24.00 $26.00 $28.00 $30.00 Stock Price Current Stock Price 15

16 Unvested Equity Value ($ in '000s) IV. Wealth Sensitivity (Continued) Also, keep an eye toward the retention component of the wealth creation potential $12,000 CEO Unvested Equity Value Analysis $10,000 $8,000 $6,000 $4,000 $2,000 $0 Current Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Current Awards Projected Future Awards 16

17 IV. Wealth Sensitivity (Continued) Consider a total compensation perspective Understand how much the pay outcomes are driven by financial and stock price performance, and where an incentive may create issues with risk 17

18 Poll Question #3: Wealth Sensitivity How much does your compensation committee understand the potential wealth creation opportunity of the executive compensation arrangements? Strong understanding Good understanding Fair understanding Minimal understanding 18

19 V. Proxy Advisory Plan Develop a committee- or board-level viewpoint on the importance of the proxy advisory vote recommendations and commentary Not very important Importance Spectrum Critical Key Considerations Understanding proxy advisory influence within your investor base and in the context of recent company performance and historical say-on-pay outcomes Understanding gaps between current programs and policies and shareholder advisory preferences Understanding your tolerance for a negative outcome 19

20 Poll Question #4: Proxy Advisory Plan What level of importance does your committee place on the results and commentary of the proxy advisory reports? Extremely important Important Fairly important Not important Not applicable 20

21 V. Proxy Advisory Plan (Continued) Implement a before-and-after approach to proxy advisory firms Before After Committee review of important changes to proxy voting guidelines Run simulations of proxy advisory quantitative tests to get ahead of any potential concerns Read your CD&A draft through a shareholder advisory lens Committee-level review and discussion of proxy advisory commentary (compensation-related items) Equip shareholder outreach team with talking points to address any of the negative comments Schedule offseason call with proxy advisory firms directly, if desired 21

22 Key Takeaways Revisit your calendar and enhance your processes Dig deeper, particularly with regard to incentive plans Plan ahead 22

23 Questions ADVANCING EXEMPLARY BOARD LEADERSHIP

24 Don t Miss Our Next Webinar in This Series Join NACD and Pearl Meyer for our next Compensation Series webinar on August 9 at 2:00 PM (ET) To register or check out the archives of earlier webinars in this series, visit 24

25 NACD Credit and Fellowship Information If you have any questions regarding NACD credit or the Fellowship programs, please contact: Meghan Metzbower, Senior Fellowship Program Manager Phone: (571) To learn more about NACD Fellowships, visit us at NACDonline.org/Fellowships. 25

26 Thank You 26