Public Companies: Sound off - The Business Review (Albany):

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Even before the recent public outragw overthe bonuses, many businesses were lookingv at restructuring executive pay, given the In fact, the Virginia-based consulting firm surveyedx large U.S. businesses in March and found that 38 percenty of them are making changes to performance measuresa in their annualincentive plans. Compensation has becomee a publicrelations matter, too. With stock prices generally down and companie scutting jobs, there’s been anger over what’s deemed excessive pay.
We wantecd to know how companies could deal with executive compensatiojn in anew era, and asked several experts at local colleges to weigh in on the Here’s what they had to say: Q: Considerinfg the recent outrage over corporate what can a business do to protect its images when it comes to executive compensation ? Title: F. William Harder professor of business Location: A: The business must base bonus planeson pre-determined formulas tying amounts to readilyt observable and desirable results. In the financialo services industry, “results” should be qualifies by risk.
If a person is paid to originat e a loan or otherr financial productinvolving risk, the bonus shoulcd be paid over time so that a futurs loss will impact the bonus This is easier said than done. Many productes have long lives, and bonuses must be paid promptly afteer results in order to be effectiver motivatorsfor employees. Some suggest that a portion or all of a bonua should be paid incompany stock. Stock, is rarely the best reflection ofan individual’s I think that at least half of any bonux should be deferred, and the deferredd amount should be at risk itself based on the performanc over time of the product in Eric E.
Lewis Title: Professor, schoool of management College: Location: A: Much of the criticism of corporates bonuses arises from the perception that some companies choos e to reward their executiveswith “extra” compensation regardleses of the performance of the operations or business segments for whichy they are responsible. While cash bonuses are given to key employees for a varietuof reasons, a company’s decision to enhance compensation in this fashion can trigger a backlashu from stakeholders of businesses that are struggling with A company can avoid some of this criticism by structurint managers’ bonus compensation as either a direct reward for the recentt performance of the company, or as an incentivre that links the financial rewards of the compensation to the futuree performance of the company.
Some businessee accomplish this by granting options or issuingb shares of stock as part of their executivecompensatioj packages. When properly structured, this form of extr compensation can very effectively aligbn the financial interests ofa company’s managers with the long-ternm interests of its When companies make that connection clear, they tend to suffer fewetr criticisms of their compensation structures. Title: Location: A: The businesse must prove to the public that its executives are wortgh the compensation paidto them.
If the compensation is the worth of their services must be similarly It is the manifest absence of proportion between incomea paid and outcomes produced that attractspublicd attention. What makes that perception especiallhy galling is that in a time of economic contractiobn foreveryone else, highly placed executiveds are perceived as abusing their power of settintg their own salaries to protect their own financial interests.
In the financial sector especially, a system was set up whereby the rewards from an expanding economyh were reaped by the executives who deviser newfinancial “products,” while the risksd of failure from over exuberance turn out to be bornwe by everyone else. The appearance of accountability must be restore d before image and reputationb canbe protected. Title: Professor and Economics Department College: A: It is difficult, under any to justify paying multi-million-dollar salaries and bonuses tocorporatse executives.
In an era of fallintg stock prices, government bailouts and worker layoffs, it is even more In general, any large businessx should follow a few simple principles in determininvgexecutive compensation. 1) The board of directors shouldf be advised by an independent groupl whose members haveno connection, either personal or professional, with the executivd whose pay is being reviewed. 2) Compensation, particularly in regards to bonuses, should be tied to firm Further, performance measures should reflect long-ru n accomplishments, rather than short-term gains or which as we have seen, are oftej fleeting.
3) Increases in executive compensation should reflect both the increasesin non-executivee compensation, as well as the return to 4) Companies should be very open in sharinbg their rationale for determining executive including honest evaluations of firm performance.