The Center On Executive Compensation is dedicated to developing and promoting principled pay practices and
advocating compensation policies that serve the best interests of shareholders and other corporate stakeholders.
The Center believes that the management of the executive compensation function by corporations should be conducted
in accordance with a set of clearly defined principles. The Center encourages companies to incorporate these principles
in the development, administration and communication of their executive compensation arrangements. The Center further
believes that executive compensation principles should be periodically updated to reflect the most contemporary thinking
on the subject. The following page provides links to the explanation of the Center’s current principles, as well as a
document providing more detail of how they are applied in practice.
To read more explaining how the principles are put into practice, click here (PDF).
Aligned
Executive Compensation Arrangements Should Be Aligned With the Best
Interests of a Company’s Shareholders and Other Stakeholders
- Link to Results. Incentives should be contingent on achieving stringent, well-defined
results-based measures linked to a company’s business, with a significant share of the total
compensation at risk, or not guaranteed, and compensation proportionate to results.
- Ensure Appropriate Incentive Balance. Incentives should be structured to mitigate the
possibility that executives would be encouraged to make decisions that could significant reduce
the long-term value of the firm by including, for example, caps on total earnings potential, an
appropriate mix among short- and long-term compensation elements and an appropriate balance among
equity used in long-term incentives.
- Require Appropriate Ownership Stake. Executives should have a significant ownership stake
in their company, driven by an appropriate amount of pay delivered through equity-based compensation,
a substantial portion of which is linked to results, and implemented through meaningful ownership
and/or retention guidelines applied to option exercises, stock vesting and/or payouts of stock compensation.
- Enable Necessary Talent. Executive compensation arrangements should enable companies to attract, retain
and develop the executive talent necessary to serve the shareholders’ and other corporate stakeholders’ best
interests, while ensuring a proper balance between pay that is focused on results and that which is focused on retention.
- Support the Business Strategy. Compensation should be structured to support the company’s ability
to execute its business strategy.
Fully Compliant
Executive Compensation Arrangements Should Be Structured and Executed in Full Compliance With Applicable Laws
And Regulations and a Culture of Compliance Should Be Adopted to Guide a Company’s Pay Policies and Practices.
Independently Informed and Approved
Executive Compensation Arrangements Should Be Approved by the Board of Directors’ Independent and Active Compensation
Committee That Is Guided by High Corporate Governance Standards Implemented Through a Well-Defined Charter and Informed
by Independent Advisors.
The Board's compensation committee will:
- Employ Sound Corporate Governance Practices. Leading corporate governance practices help ensure that all elements
of compensation are carefully reviewed and appropriately structured.
- Use Independent Compensation Advisors. Outside advisors retained by the compensation
committee should not provide other services that create an actual or perceived conflict
of interest with the executive pay advice provided.
- Conduct Periodic, Independent Competitive Compensation Reviews. A thorough
periodic assessment of the company’s executive compensation programs and practices
helps to reinforce sound governance and appropriate compensation design.
- Evaluate Committee Regularly. Committee member evaluation helps ensure the committee acts
consistent with its charter thus reinforcing accountability.
Appropriately Customized
Executive Compensation Arrangements Should Be Appropriately Customized to and Aligned
With the Company’s Culture and Values, Business Strategy, Industry, and Competitive
and Financial Conditions.
- Utilize Well-Defi ned, Relevant and Rigorous Results-Based Metrics. Incentive plans
should be customized to the company to support the realization of its business strategy while
limiting overly aggressive or overly conservative decision-making.
- Ensure Pay Peer Group Is Appropriate for the Company. The pay peer group typically
includes similarly situated companies in terms of industry, size, location(s) and performance
and should correlate closely with the performance peer group.
- Confirm Compensation Levels Are Proportionately Appropriate Relative to Competitors.
By comparing the company’s compensation program to that of its peers, the compensation committee
can determine the competitiveness of each element of executive compensation and the total program.
Transparent and Accessible
The Compensation Committee Should Ensure That the Company’s Executive Compensation Program Is
Disclosed in a Clear and Understandable Manner and Ensure That the Company Is Accessible to
Explain the Program to Shareholders and Other Stakeholders.
- Provide Clear, Concise, Customized Disclosure. Executive compensation arrangements
should be disclosed and explained in a clear, concise and customized manner that facilitates
a full understanding of the rationale for and levels of all aspects of reportable
executive compensation.
- Be Accessible. Designated company executives and/or directors should be accessible to
discuss and respond to inquiries about the company’s executive compensation policies and practices
with its shareholders and other corporate stakeholders.
Fair and Reasonable
Executive Compensation Arrangements Should Be Fair to the Company’s Shareholders and Executives
When Viewed as a Whole, and Reasonable Given the Context in Which the Arrangements Are Structured
and Compensation Is Earned.