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How Do You Make Your CEO Credible?
September 21, 2009
The Conference Board Task Force on Executive Compensation today issued recommendations for corporate institutions to restore credibility and increase trust in pay practices and oversight.
The Task Force says that while a significant regulatory reform debate has begun, and while government has important responsibilities, public companies and institutional shareholders also have a role and should take meaningful action to restore the trust lost during the economic crisis.
"Shareholders of American companies and the public deserve to see executive compensation programs that serve shareholders' interests, and are explained to shareholders in thoughtful dialogue. Implementing the compensation principles we recommend is an important step in restoring the damaged trust in American companies," says Robert E. Denham and Rajiv L. Gupta, co-chairs of The Conference Board Task Force on Executive Compensation. "At the same time, we believe compensation committees and boards must be free to develop compensation programs that reflect their shareholders' interests and fit their companies' business objectives."
Denham and Gupta continued, "Real—and perceived—abuses in executive compensation have contributed to this loss of trust, and the Task Force report provides a practical set of guidelines that, if appropriately implemented, can make significant progress in restoring credibility in our corporations. We believe a rules-based, 'check the box' approach cannot substitute for thoughtful board action discussed with shareholders."
Convened earlier this year by The Conference Board Governance Center, the Task Force and its Advisory Group are comprised of corporate directors, shareholders, academics, and experts in compensation, governance, and law. The full set of guiding principles and recommendations for compensation practices is outlined in the just released report: The Conference Board Task Force on Executive Compensation.
The Guiding Principles state that public companies should:
• Establish a clear link between pay, strategy, and performance.
• Provide compensation that is fair, affordable, and clearly aligned with actual performance.
• Eliminate controversial compensation practices that conflict with the notions of fairness and pay for performance such as excessive golden parachutes, overly generous severance arrangements, gross-ups of parachute payments or perquisites, and golden coffins—unless specific justification exists.
• Demonstrate credible board oversight of executive compensation.
• Foster transparency with respect to compensation practices and appropriate dialogue between boards and shareholders.
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