When it comes to deciding the right performance metrics to decide executive compensation, a company must both keep the requirements simplistic, consistent and in line with overall strategy, said a panel of compensation experts at the NACD Board Leadership Conference 2011, held this week in Washington, D.C.
“Although there are no cookie cutter metrics, since companies bring their own set of issues and strategies to the table, there are some consistent best practices,” said Hellene S. Runtagh, Director of Lincoln Electric Holdings, Harman International and NeuStar. Companies should align shareholder interest with the retention of the shareholder and management team, Runtagh said, noting that it was best to not exceed two or three metrics for both the annual bonus and the long term pay.
Financial disclosures can sometimes lead to a disconnect in shareholders’ minds, explained Jannice L. Koors, managing director of Pearl Meyer & Partners. “By nature, they measure what you’ve done, not what you will do,” she said. “Projective measures also need to be examined.”
Yvonne R. Jackson, director of Spartan Stores, Winn-Dixie and Girls, Inc., explained that most compensation plans have a common goal. “Lots of companies measure many different things, but they really do come from the same genesis: What are the new goals, and what behaviors are you trying to change?”