Executive compensation in a worsening U.S. economy will be a lightning rod of tension this proxy season as corporations revise incentive goals credible in both short- and long-term financial outlooks and even possibly pay well for negative absolute performance, according to a proxy season preview report by Mercer LLC's executive compensation group.
Some companies are examining whether there is a compelling rationale in light of the stock market decline for repricing stock options for all holders, not just executives, the report said. The idea would require shareholder approval, the report said. It remains to be seen whether shareholders will acquiesce at a time when their returns are down.
Shareholders experiencing deteriorating returns have become more activist than ever calling for compensation linked to sustained corporate performance, the report said.
Companies are taking a hard look at the drivers of real long-term economic value, reassessing their performance metrics and realigning their variable compensation with financial, strategic and operational measures, as opposed to more traditionally used metrics such as earnings, the report said. But with so much uncertainty created by the financial market crisis, companies are struggling more so than ever with setting credible goals.
Pay for performance will be a focal point, the report said. We expect to see "disconnects' where awards based on 2007 performance are reported in 2008, a time of depressed share prices and perhaps poor Q1 earnings and revenue reports. Companies will have a difficult time getting their pay-for-performance story heard.
Contact Barry B. Burr at [email protected]