Executive Compensation Regulation - White Paper - The Conference Board Task Force on Executive Compensation

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September, 2009

From the white paper:

"The task force believes that executive compensation executed correctly, in furtherance of a company’s business strategy and shareholder value and consistent with the company’s values, is essential to the economic health of America’s business sector. It has provided guiding principles for setting executive compensation, which, if appropriately implemented, are designed to restore credibility with shareholders and other stakeholders. The following summarizes these principles:

  1. Compensation programs should be designed to drive a company’s business strategy and objectives and create shareholder value, consistent with an acceptable risk profile and through legal and ethical means. To that end, a significant portion of pay should be incentive compensation, with payouts demonstrably tied to performance and paid only when performance can be reasonably assessed.
  2. Total compensation should be attractive to executives, affordable for the company, proportional to the executive’s contribution, and fair to shareholders and employees, while providing payouts that are clearly aligned with actual performance.
  3. Companies should avoid controversial pay practices, unless special justification is present.
  4. Compensation committees have a critical role in restoring trust in the executive compensation setting process and should demonstrate credible oversight of executive compensation. To effectively fulfill this role, compensation committees should be independent, experienced, and knowledgeable about the company’s business.
  5. Compensation programs should be transparent, understandable, and effectively communicated to shareholders. When questions arise, boards and shareholders should have meaningful dialogue about executive compensation."

The white paper expands upon these five principles, and offers guidelines for the design and implementation of executive compensation programs.

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