Our Executive Remuneration Perspective is Mercer's regular publication offering in-depth coverage of performance, measurement and reward topics. Our library allows you to browse through the list of issues and link directly to those that interest you.

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Featured here are the issues from 2008.

ER Perspective #77: Weathering the storm – part I: Equity compensation actions for 2009

This Perspective is one in a series of articles that addresses these topics. In this article, which focuses on considerations for LTI awards in 2009, we first discuss considerations for assessing the appropriate magnitude of incentive awards. For many organizations that deliver LTIs to a targeted value, 2009 presents a conundrum of balancing delivery of competitive pay with the potential for a dramatic increase in the number of shares required for equity grants. Second, we offer considerations for evaluating the balance of LTIs for the 2009 grant as a near-term action. While these actions may reflect a short-term fix for current issues, we anticipate that companies will be taking a hard look at their LTI programs as part of the total reward strategy to develop more systematic responses as the situation unfolds. We conclude with a list of action items to consider for 2009. Future articles in this series will examine a number of these items in more detail, including considerations for a systematic executive pay program review, implications of reduced retention value of current programs, and the potential impact of increased regulatory and institutional shareholder scrutiny of executive compensation.

  Perspective #77

ER Perspective #76: The evolving role of the chief financial officer: A study of pay and turnover trends

In this Perspective, we will show that both CFO pay and their turnover have increased at a greater rate than those of chief executive officers (CEOs). We
will discuss the likely contributing factors (such as more prominent role, increased responsibilities and increased transparency of CFO pay required by the Securities and Exchange Commission’s (SEC) new proxy disclosure rules) and future implications, including succession planning and compensation program construct. While not reflected in this study, the current turmoil in the financial markets and government involvement in executive pay may further impact CFO pay levels and program structure.

  Perspective #76

ER Perspective #75: Economic turmoil and its impact on the human capital strategies of financial services companies: One on one with Vicki Elliott

In early October 2008, we spoke with Vicki Elliott, worldwide partner and leader of Mercer’s global financial services industry network. Our interview took place just one week after Mercer sponsored a banking client roundtable, which Vicki hosted, and which was wedged between client calls following the credit crisis and subsequent passage of the Emergency Economic Stabilization Act of 2008.

 Podcast interview with author in production. Please visit us again.

 Perspective #75

ER Perspective #74: End of year planning for compensation committees

This issue contains a checklist of action items for compensation committees in the next few months, especially in the light of the recent global economic slowdown and ongoing stock market volatility.

 Perspective #74

ER Perspective #73: Director compensation: Reflecting on the role’s growing demands and risks 

In this Perspective, we explain the new director compensation paradigm in greater detail, including how certain trends are playing out among companies of varying sizes and industries. We will also identify specific situations that might warrant a break from these best practice trends and introduce several considerations for companies in setting director compensation policy for 2009.

 Podcast interview with author (3:25)

 Perspective #73

ER Perspective #72: The seven deadly sins of performance measurement

One of the greatest challenges faced by both boards and management teams is effectively measuring and rewarding executive performance. Developments over the past decade have further heightened the focus on performance measurement issues, including an increase in the use of performance-based long-term incentive plans and new disclosure rules requiring a more detailed explanation of how compensation decisions are linked to performance results.
 
Despite the increased usage and attention, many companies continue to struggle with defining and managing their performance measurement system. Much conventional wisdom has developed based on individual experiences, but what works for one company might fail for another. The performance measurement system must reflect each organization’s unique industry dynamics, business strategy and management style.
 
In this Perspective, we’ll examine seven deadly sins that can befall organizations when selecting performance measures and setting targets. You’ll learn how to avoid these “sins” by following the “virtues” that lead to the right performance measurement system – and obtain the right results. 
 

 Podcast interview with author (9:54)

 Perspective #72

ER Perspective #71: Executive retention during major ownership transactions

Retaining business leaders and other key executives is a critical issue for organizations going through ownership transactions such as mergers, acquisitions, private equity investments and divestitures. Stability of the executive team is typically a necessary condition to completing the transaction and, depending on the nature of the deal, to fully delivering on its expected value. However, ownership transactions by their very nature create a period of uncertainty that can affect the transaction value – through reduced motivation and, in many cases, greater executive turnover. To fully realize the value of the transaction, companies must address executive retention early in the due diligence phase. This includes candid communication about the nature and objectives of the transaction, the executives’ roles going forward and ongoing compensation opportunities, as well as specific compensation programs.

This Perspective describes the factors an organization should consider in establishing an executive retention program, as well as the features in the design process that can support transaction objectives.

 Perspective #71

ER Perspective #70: Preparing CD&A disclosure for 2008: Complying with the SEC staff guidance

Many companies spent months preparing their 2007 proxy disclosure to comply with the new SEC disclosure rules on executive and director compensation. The preparation of this year’s disclosure should in theory be easier, now that companies are more familiar with the new requirements and have already been through the process. Even though companies have one year of the new rules under their belts, they may still need to invest significant time preparing their 2008 disclosure. The SEC staff’s examination of 2007 proxies has surfaced some aspects of disclosure they would like to see strengthened. Plus, the stakes for inadequate disclosure are likely to be higher this time around because of the heightened expectations the SEC staff has for 2008 proxy statement disclosure on executive and director pay.

To prepare their 2008 proxy statements, companies should take a fresh look at their 2007 disclosure in light of the SEC’s guidance to see how the SEC staff has interpreted the new rules. This will allow them to revise their 2007 proxy statements to ensure it is consistent with the interpretive guidance as they prepare their 2008 disclosures. This Perspective summarizes the key themes in the SEC’s guidance on the Compensation Discussion and Analysis (CD&A) rules to assist companies in drafting their new CD&A disclosures for 2008.

 Perspective #70

ER Perspective #69: The new director compensation paradigm

In Mercer’s 2005 Perspective on director compensation, we predicted an evolution in director compensation in response to increases in time commitments, responsibilities and risks associated with board service. Our prediction has proven true. Our research on the director compensation programs of 350 US public companies (split into three reference groups: the Jumbo 50, Large 150 and Mid-size 150)shows that a new paradigm for director compensation has emerged – one that reflects the unique governance role of the board.

In this Perspective, we will explain the new paradigm in greater detail, including how specific trends are playing out among companies of varying sizes and industries. We will also identify specific situations that might warrant a break from these best practice trends and introduce several considerations for companies in setting director compensation policy for 2008. 

Despite the generally weak economy and weakening corporate performance, corporate director pay has continued to increase. Diane Doubleday talks with Richard Klein about results of a recent Mercer survey and shifts in the risks and rewards of serving on corporate boards. To listen to this interview click here.

 Perspective #69