Fair Pay, Fair Play: Aligning Executive Performance and Pay

Fair Pay, Fair Play: Aligning Executive Performance and Pay......Page 5
Contents......Page 7
Preface......Page 9
Part One: FAIR PAY......Page 13
A Case in Point......Page 15
The Role of Compensation......Page 16
Old and Persistent Problems......Page 18
What Exactly Are the Problems?......Page 19
Outliers......Page 21
Fair Pay and Alignment......Page 23
Searching for Alignment......Page 24
Analytic Tools Needed......Page 26
Fair Play and Alignment......Page 28
About This Book......Page 29
Shareholders Are Owners......Page 35
The Merits of TSR......Page 36
Financial Performance Drives Value......Page 37
Shareholder or Stakeholder Value?......Page 39
TSR Over Time......Page 40
TSR by Industry Sector......Page 42
Portfolio Approach......Page 43
Alignment Model......Page 46
Virtuous Circle......Page 53
Calculating Performance-Adjusted Compensation......Page 55
Farient’s Data......Page 59
PAC Pay Mix......Page 61
Coming Full Circle......Page 63
Alignment: The Stated Objective......Page 69
The Devil Is in the Details......Page 72
Alignment Defined......Page 73
Alignment Questions and Answers......Page 75
We Don’t Need Perfection......Page 85
Using the Alignment Model......Page 86
Reading the Alignment Report......Page 87
The Gestalt......Page 92
Good Comp, Bad Comp......Page 95
Hitting the Reset Button......Page 96
Restructuring the Company......Page 98
A Story Told......Page 100
More Than One NOzone......Page 103
Compensation Flatliner......Page 104
Compensation Riskseeker......Page 106
Compensation Dogleg......Page 108
Compensation Highflier......Page 111
Compensation Lowlier......Page 114
An Alignment Picture Can Lead to More Questions......Page 115
Good Processes Set You Up for Fair Play......Page 116
Part Two: FAIR PLAY......Page 123
Moving from Hindsight to Foresight......Page 125
A Culture of Misalignment......Page 127
Something Else to Consider......Page 132
Macro to Micro......Page 133
On Being Average......Page 137
The Case for 50th-Percentile Pay Positioning......Page 138
Above-Target Pay for Average Performance......Page 141
Aggressive Target Pay: What to Do About It......Page 154
Big Opportunities......Page 157
Turbo-Charged Upside......Page 158
Alignment Issues with Turbo-Charged Leverage......Page 165
Turbo-Charged Upside: What to Do About It?......Page 166
Goal-Setting Is Frustrating......Page 169
Not Much Guidance......Page 170
Deconstructing the Compensation System......Page 171
The Goal-Setting Inherent in Equity......Page 173
Goal-Driven Compensation......Page 175
The Effect of Conventional Versus Unconventional Goal-Setting on Alignment......Page 179
Absolute Up-Front Versus Relative After-the-Fact Goal-Setting Benchmarks......Page 181
No Perfect System......Page 183
A Range of Possibilities......Page 184
The Alignment Report and Goal-Setting......Page 185
Finally, Better Guidance......Page 189
Conventional Goal-Setting: What to Do About It......Page 190
Adversity Is a Teacher......Page 199
Bad Timing......Page 201
Short-Termism in Executive Pay......Page 202
Deconstructing the Compensation System, Again......Page 204
Option Window......Page 205
Grant Frequency and Performance Cycles......Page 206
Time Horizon and the Alignment Report......Page 207
Short-Term Gain; Long-Term Pain: What to Do About It......Page 208
Design Choices......Page 211
Compensation Flatliners......Page 212
Flattening the Curve: What to Do About It......Page 213
Amplifiers......Page 217
Planned, Bounded Discretion Is Not an Ad Hoc Decision......Page 218
Discretionary Decisions Outside of the Pay Plans......Page 221
Changing the Pay Plans with Economic Conditions......Page 224
Ad Hoc Decisions: What to Do About It......Page 225
Asymmetric Performance Attribution Bias......Page 229
Peer Comparison Bias......Page 231
False Assumptions......Page 233
Individual Personality Biases and Group Dynamics......Page 237
Decision-Making Influences: What to Do About It......Page 238
What I Know Now......Page 243
For the Greater Good......Page 245
Convergence......Page 248
EPILOGUE: Holding Companies Accountable......Page 253
Message to Investors......Page 255
Message to the U.S. Government......Page 257
Vision for the Future......Page 261
Appendix A: ANALYTIC METHODOLOGIES......Page 265
Appendix B: GICS SECTORS......Page 267
Appendix C: LIST OF INTERVIEWEES......Page 269
Notes......Page 273
Acknowledgments......Page 277
The Author......Page 279
Index......Page 281