One clear outcome from say-on-pay voting on executive compensation has been a focus on pay for performance. Farient Advisors has already analyzed how companies are defining pay (see our study “Pay Definitions: What Works Best in Pay for Performance Analysis”). Now we must focus on the “performance” side of the equation and ask:
Are companies choosing performance metrics that provide the most sustainable benefit to their shareholders?
According to a new study from Farient and the State Board of Administration of Florida, some industries demonstrate a clear alignment between the metrics most frequently used in long-term incentive (LTI) equity plans and shareholder value. Half of the 24 industry groups show solid to strong alignment in that the metrics they use most often are also those that best correlate to value. The other half could benefit from some improvement.
This groundbreaking research covers 1,800 companies, 24 industry groups, and fourteen years of data (from 1998 to 2011). It identifies the primary metrics used in executive compensation plans, overall and by industry, company size, and valuation premiums, and then tests these metrics to determine whether those being used have the highest impact on TSR results. It provides the most definitive answer to date on whether companies are choosing their LTI metrics wisely for the most sustainable benefit to shareholders.
To download both the full study and a summary version, please complete the form below:
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Farient Advisors LLC is an independent executive compensation and performance consultancy. Farient provides a comprehensive array of executive compensation and performance advisory services, including compensation program design, board of directors compensation, and investor communications. Farient also offers compensation data subscriptions covering the Russell 3000 to help assess, improve, and convey pay and performance alignment. Farient has offices in Los Angeles and New York.
Corporate Brands, Compensation Committees, and Senior Management are assured of working with experienced advisors who understand the needs of your unique business and can develop performance-sensitive compensation outcomes.
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