Executive Compensation

The Center on Executive Compensation aims to be at the forefront of executive compensation and corporate governance analysis and advocacy. This section provides the Center's views and resources on the numerous executive compensation and governance issues the Center covers, as well as resources for expanding areas of responsibility including diversity, equity, and inclusion (DEI), and efforts to link executive compensation to improve environmental sustainability.

• Compensation Committee and the Board – The role of the Compensation Committee is expanding to encompass the oversight of a company’s full human capital strategy. While Compensation Committees will continue to manage executive compensation in the best interest of shareholders, they will also be called on to oversee corporate culture and efforts to improve diversity, equity, and inclusion.
  
  
• Corporate Governance - Corporate governance provides shareholders with the right and opportunity to hold boards accountable while also providing boards and executives with the authority to manage both the day-to-day operations and strategic planning. However, the traditional model is undergoing transition and may expand to include the views of additional company stakeholders such as employees, customers, and impacted communities.
  
  
• ESG and DEI – No longer satisfied with commitments to improve environmental sustainability or DEI, elected officials and policy makers are pushing companies to provide significantly greater disclosures on these fronts. Concurrently, investors are increasingly calling on boards to link executive compensation to reduced carbon footprints and improved DEI within the workforce.
  
  
• Executive Pay Legislation and Compensation - Companies face a range of regulations and legislation from multiple jurisdictions on executive compensation disclosure, taxation, and prohibited practices. Further, new federal regulations could require enhanced disclosure on pay versus performance or comparing pay raises for the average employees to increases in the CEO’s total compensation, so called pay raise ratio.
  
  
• Executive Pay Plan Design – Executive compensation plans are a constantly moving target as markets shift. Plans must strike a balance of retaining the top talent while ensuring clear links to long-term growth in shareholder returns.
  
  
• Proxy Advisory Firms – Proxy advisory firms review company filings to recommend how investors should vote on management and shareholder proposals at the annual or special meetings. The say-on-pay vote, though not binding, has become a high profile (and high stakes) event where a negative vote result can have impacts on directors and executives. The proxy advisory firms wield substantial influence in how their institutional investor clients vote on say-on-pay, as well as on shareholder proposals, with little oversight from regulators.
  
  
• Severance and Change-in-Control – Compensation provided to an outgoing executive due to severance or a merger frequently is often targeted by negative press or by elected officials. However, there is a legitimate business case for severance packages and employment agreements. Such agreements provide executives with a measure of security such that will consider shareholder maximizing transactions without concern for their own immediate financial health. A carefully constructed agreement is therefore an important element of attracting top talent and ensuring severance is reasonably earned in the event of employment termination.
  
  
• Shareholder Activism and Engagement – The board of electors has a fiduciary duty to represent shareholders and to balance various views points from different investors. Though most boards maintain civil discourse with shareholders, activists may be able to highlight a potential risk or oversight and target directors for removal from a board. As boards are called on to address risks from climate change and concerns about racial justice, as well as income inequality and CEO pay, the risks of a sudden challenge are rising.
  
  
• Tax and Accounting – Executive compensation is frequently targeted within the tax code as elected officials address income inequality. How executive compensation is accounted for can have significant impacts on executives’ tax responsibilities, but also on the company’s tax burden, and therefore on shareholder value.

The Basics of Executive Compensation - The Basics of Executive Compensation provides background on the various components of executive pay, an explanation of the related regulatory and legislative processes that affect it, and the corporate governance system that surrounds it.