Pay for Performance Alignment

Farient believes it’s time to get specific around performance-based pay.

Everyone talks about performance-based pay as the holy grail of executive compensation, but in our experience, there is confusion about what pay for performance means, and how to align executive interests with shareholder interests.

First, we thought it was time to frame performance-based pay with a clear definition of what it is.

Pay for Performance, or what we call “Aligned Pay,” happens when total compensation, after performance has been factored in, is:

- Reasonable relative to market comparables and for the performance delivered
- Sensitive to company performance over time

Second, Farient recently collaborated with the Council of Institutional Investors (CII) to research why investors voted “no” on their Say on Pay votes. Not surprising, the #1 reason was a “Pay for Performance Disconnect” followed by “Poor Pay Practices” and “Poor Disclosure.”

Third, It was clear to Farient that investors needed a clear, effective approach to evaluating  pay for performance. To meet this need we created The Farient Alignment Reports™ that provide clear, graphical, “at a glance” analysis and ratings to shareholders, boards of directors and management.

Copyright 2011 - Farient Advisors, LLC

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