The roundtable discussion will explore the perspective that the most effective executive compensation programs reflect the company’s business volatility and the intentionally selected degree of risk/return alignment between shareholders returns and leadership compensation.
The level of uncertainty of financial outcomes (business volatility) may range from the relative predictability of a regulated utility to high stakes wagers of commodity price driven companies or pre-revenue biotech companies that make large investments on highly unpredictable outcomes well into the future. And industry designation does not always mean similar volatility. As a basis for effective incentive design, the Compensation Committee should first assess the volatility of its particular company and set the compensation philosophy concerning its executives’ risk/return proposition relative to what the shareholders are experiencing. Once the degree of risk/return alignment is articulated, incentive design alternatives will narrow and in some cases become obvious.
The roundtable discussion will begin with Meridian briefly providing study insights on the correlation between business volatility and related incentive program design.
The group will then explore the following questions:
Where are your companies positioned on the volatility continuum and has it changed over time?
How has the executives’ risk appetites and related impact on company culture been addressed by the Committee?
To what degree should the executives’ rewards be subject to their shareholders’ risk/return proposition?
How are programs designed and calibrated to deliver the desired level of alignment with the anticipated business volatility?
How can overall volatility or range of possible outcomes of the executive compensation opportunities be assessed and compared?
MUST BE AN NACD MEMBER SERVING ON A COMPENSATION COMMITTEE TO ATTEND
Meridian Compensation Partners has a singular focus: to provide the most effective solutions and independent advice in executive compensation and corporate governance consulting.
With over sixty-five associates in eleven offices in the US and Canada, Meridian provides top management, boards and compensation committees with core services that include board level advisory services, compensation program design, research and competitive market intelligence on executive pay and governance matters.