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22 Oct. 2009 | Comments (0)

Executive Compensation Principles

G-20 Summit Financial Stability Board Principles for Sound Compensation Practices (Released Sept. 25, 2009) 1.) Financial institutions should have an independent board remuneration (compensation) committee that oversees compensation policies. 2.) Compensation should be aligned with long-term value creation by avoiding multi-year guaranteed bonuses and requiring a significant part of variable compensation be deferred, tied to performance and subject to clawback. They should also take into account current and potential risks. 3.) Financial institutions ensure that compensation of senior executives and others who have a material impact on risk exposure align with performance and risk. 4.) Financial institutions disclose compensation policies and structures to guarantee transparency. 5.) Variable compensation be limited as a percentage of total net revenues when it is inconsistent with the maintenance of a sound capital base.

The Conference Board Task Force on Executive Compensation (Released Sept. 21, 2009) 1.)  Compensation plans should establish a clear link between pay, strategy and performance. 2.)  Provide compensation that is fair, affordable and clearly aligned with actual performance. 3.)  Eliminate controversial compensation practices that conflict with the notions of fairness and pay for performance – such as excessive golden parachutes, overly generous severance arrangements, gross-ups of parachute payments or perquisites, and golden coffins – unless specific justification exists. 4.)  Demonstrate credible board oversight of executive compensation. 5.)  Foster transparency with respect to compensation practices and appropriate dialogue between boards and shareholders.

  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

    Full Bio | More from Gary Larkin

     

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