“When you look at the last twenty years, the change in CEO pay has tracked well with share price changes. Employee compensation has not,” said Steve Cross, managing partner at Cogent Compensation Partners. This disconnect in combination with the recent economic downturn, Cross explained, has fueled shareholder and employee discontent with executive pay programs.
Cross advised the attendees of the NACD Board Leadership Conference 2011 that there will be a number of unintended outcomes of say on pay, some of which have already taken root, citing the growing number of lawsuits stemming from say on pay rejections. Others, such as a shortening of the definition of “long-term” compensation planning and the broadening of a uniformity in compensation plans across large numbers of companies, are still in store.
When outlining a pay plan, “the best practice is the best for shareholders at their particular company,” Cross said. It must be defensible and reasonable for the company, following compensation and governance theories, while optimizing the return on compensation dollars to the company and the shareholders.