It’s the Perception – Not the Pay
This weekend, The New York Times published a series of articles detailing the less-than-successful adoption of increased transparency requirements in driving tangible executive compensation reforms. As companies were required to shed more light on executive compensation policy, shareholders believed that top pay packages would reflect the fact that boards would now have to publicly justify their decisions.
Thus far, they have not. And no one should be surprised that C-Suite salaries continue to grow. Even when faced with beefed-up reporting requirements, the need to be competitive in attracting top talent still comes first.
What is surprising, however, is that the way in which companies communicate their executive compensation issues has remained unchanged as well– especially given the brand-strengthening opportunities that greater transparency presents.
It’s clear that activist shareholders won’t be satisfied until pay is linked to performance. What isn’t clear to most companies is that there are many ways to define performance that don’t directly relate to stock price. Have top executives created jobs or expanded the market share? Have they provided excellent returns on invested capital? Have they enhanced the company’s ability to acquire other companies? If so, these are all justifications for compensation that can fundamentally change the debate.
At the same time, many companies continue to mask their pay policies in a cloud of legalese, jargon, and statistics. When the Times actually has to publish a glossary of CEO compensation terms to help readers make sense of company proxy statements, the perception that companies have something to hide is inescapable. Being clear, concise, and honest will satisfy your stakeholders, keep the media pit bulls at bay, and could even generate some positive press at a time when the corporation is guilty until proven innocent.
Linking pay to performance and sharing your compensation story with candor and clarity means that there is no story anymore–you’ve already told it. From shareholder votes on “say on pay” to SEC investigations, the issue isn’t going away anytime soon. So, make the best of a tough situation. You may not have to slash the CEO’s paycheck if you can identify the most effective ways to publicly justify it.
