Fichthorn , vice president in the Philadelphia office of Hay Group, was joined in his presentation at a recent BLR/HRhero webinar by Martin Somelofske, a senior principal in Hay Group’s Metro New York office. Fichthorn suggests that the following trends will characterize executive compensation in the upcoming year:
Don’t be fooled by the modest shareholder reactions of 2011; says Fichthorn. If performance declines while executive pay does not, you can be sure that shareholders will make themselves heard.
Increasingly, he adds, executive compensation packages have to reflect the answers to these questions:
What makes business sense?
What do shareholders want?
Where’s their breaking point?
We’re going to see pay positioning that maps to competitive positioning. So, for example, if pay is targeted to the 75th percentile, performance should be in the 75th percentile to reap the reward.
A balanced approach should reward something evenwhen returns are low, but a lot when the team outperforms plans and the market. Certainly, there should be no bigpayouts when shareholders lose.
Some discretion should be allowed, and again there is the need for balancing financial and strategic measures. Nevertheless, shareholders want formula-driven plans, not casual, discretionary plans.
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Expect a move toward performance vesting linked to key milestones That is, shares vest only when a certain milestone is reached (earnings per share, sales, profits, etc.)
Shareholders don’t like them, Fichthorn says and, typically, perquisites are small compared to compensation. For example, says Fichthorn, shareholders don’t like excessive personal use of the company plane.
Shareholders want the incentive for executives to be aligned with the best interest of shareholders. So, employers are likely to:
Executive pay—a challenge, but certainly not your only challenge. In HR, if it’s not one thing, it’s another. Like FMLA intermittent leave, overtime hassles, ADA accommodation, and then on top of that whatever the agencies and courts throw in your way.
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E-mail review. All e-mail is subject to review by management. Your use of the e-mail system grants consent to the review of any of the messages to or from you in the system in printed form or in any other medium.
Solicitation. In line with our general non-solicitation policy, e-mail must not be used to solicit for outside business ventures, personal parties, social meetings, charities, membership in any organization, political causes, religious causes, or other matters not connected to the company’s business.
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