Because of the unique drivers of each company’s business strategy and executive-compensation needs, shareholders also have a responsibility to avoid a “check the box” approach to advisory votes on executive compensation and should critically examine recommendations of proxy advisory firms.
Principle One: Pay for the right things and pay for performance Compensation programs should be designed to drive a company’s business strategy and objectives and create shareholder value, consistent with an acceptable risk profile and through legal and ethical means. To that end, a significant portion of pay should be incentive compensation, with payouts demonstrably tied to performance and paid only when performance can be reasonably assessed.
Guiding Principles
Principle One: Pay for the right things and pay for performance
Compensation programs should be designed to drive a company’s business strategy and objectives and create shareholder value, consistent with an acceptable risk profile and through legal and ethical means. To that end, a significant portion of pay should be incentive compensation, with payouts demonstrably tied to performance and paid only when performance can be reasonably assessed.
Principle Two: Offer the “right” total compensation
Total compensation should be attractive to executives, affordable for the company, proportional to the executive’s contribution, and fair to share- holders and employees, while providing payouts clearly aligned with actual performance.
Principle Three: Avoid controversial pay practices
Companies should refrain from controversial pay practices, unless special justification is present.
Principle Four: Establish credible board oversight of executive compensation
To effectively oversee executive compensation, compensation committees should be independent, experienced, and knowledgeable about the company’s business.
Principle Five: Create transparent communications and increased dialogue with shareholders
Compensation should be transparent, understandable, and effectively communicated to share- holders. When questions arise, boards and shareholders should have meaningful dialogue about executive compensation.
Task Force
The Conference Board Task Force on Executive Compensation
Robert E. Denham (co-chair), partner, Munger, Tolles & Olson;former chairman and CEO, Salomon, Inc.; director, Wesco Financial,Chevron Corp., Fomento Economico Mexicano S.A.B., The New York Times Co.
Rajiv L. Gupta (co-chair), Former chairman and CEO, Rohm and Haas Co.; director, The Vanguard Group, Tyco International, Hewlett-Packard
David R. Andrews, Former senior vice president, government affairs, general counsel and secretary PepsiCo; former chairman, McCutchen, Doyle Brown and Enersen; lead director, Union Bank Corp., Pacific Gas and Electric Co., James Campbell Co.
Peter C. Browning, Lead director, Nucor Co., The Phoenix Companies; director, Acuity Brands, EnPro Industries, Lowe’s
Richard E. Cavanagh, Former president and CEO, The Conference Board; director, Arch Chemicals, The Fremont Group, The Guardian Life Insurance Company of America; non-executive chairman, BlackRock Mutual Funds
David B. Dillon, Chairman and CEO, The Kroger Co.; director, Convergys Corp.
Richard C. Ferlauto, Director, corporate governance and pension investment, American Federation of State, County and Municipal Employees (AFSCME)
David R. Goode, Director, Caterpillar, Delta Airlines, Texas Instruments, Russell Reynolds Associates; retired chairman, president, and CEO, Norfolk Southern Corp.
Joel Hyatt, CEO, Current TV; Director, Hewlett- Packard
R. William Ide III, Chairman, governance center advisory board, The Conference Board; director, AFC Enterprises, Albemarle Corp; partner, McKenna Long & Aldridge; former president, American Bar Association; general counsel, Monsanto
Lynn S. Paine, John G. McLean Professor of Business Administration, Harvard Business School; director, RiskMetrics Group
Lord Charles David Powell, Director, Caterpillar, Hongkong Land Holdings, LVMH Moet Hennessy Louis Vuitton, Magna Holding International, Mandarin Oriental International, Matheson and Co., Northern Trust Global Services, Schindler Holding AG, Textron
Hans Wijers, Chairman and CEO, AkzoNobel N.V., non-executive director, Royal Dutch Shell
To receive the complete report, “The Conference Board Task Force on Executive Compensation,” please visit www.conference-board.org.