07 Jan. 2010 | Comments (0)
1. What are the principles established by The Conference Board Task Force on Executive Compensation?
Compensation programs should be designed to drive a company’s business strategy and objectives and create shareholder value, consistent with an acceptable risk profile and through legal and ethical means. To that end, a significant portion of pay should be incentive compensation, with payouts demonstrably tied to performance and paid only when performance can be reasonably assessed.
Total compensation should be attractive to executives, affordable for the company, proportional to the executive’s contribution, and fair to shareholders and employees, while providing payouts that are clearly aligned with actual performance.
Companies should avoid specified controversial pay practices, unless special justification is present.
Compensation committees have a critical role in restoring trust in the executive compensation-setting process and should demonstrate credible oversight of executive compensation. To effectively fulfill this role, compensation committees should be independent, experienced, and knowledgeable about the company’s business.
Compensation programs should be transparent, understandable, and effectively communicated to shareholders. When questions arise, boards and shareholders should have meaningful dialogue about executive compensation.
2. Why should I endorse these principles?
A significant regulatory reform debate has begun, and while the government has important responsibilities, trust in our corporate institutions can only be fully restored if private sector institutions take meaningful action. A key issue that private sector institutions must address is executive compensation.
We believe the Report establishes a set of guiding principles and recommendations, which, if appropriately implemented by private sector institutions, can restore credibility with shareholders and other stakeholders, and increase trust in executive compensation pay processes and oversight.
Further, there has been widespread recognition of endorsing companies’ proactive role with regard to executive compensation, through print, online and broadcast media coverage, continued profile raising with key influencers, among other efforts. This momentum will continue beyond the launch and into 2010.
3. Which organizations have endorsed the Task Force’s principles?
AFC Enterprises, Inc., AT&T Inc., California State Teachers' Retirement System, Cisco Systems Inc., Hewlett-Packard Co., NASDAQ OMX Group Inc., Securities Industry and Financial Markets Association (SIFMA) and Tyco International Ltd. Many other organizations are in the process of endorsement or are considering beginning the process.
4. What does endorsement mean?
It means that the organization has determined that the principles are rational and reasonable and agrees that it has already, or will shortly implement the principles into practice. The Task Force recognizes that actual implementation of the principles will vary based on their needs and context.
5. Who in my organization should be involved in the endorsement process?
Typically, bringing the question of endorsement of the principles can be brought forward in a myriad of ways—from individual directors or management or committees of the board. Ultimately, endorsement of the principles is a decision for the full board of directors. To assure the board has a full understanding of the principles and their implications for the company, the office of the Corporate Secretary, Chief Governance Officer or General Counsel typically evaluate the principles along with the relevant members of management and provide a report to the board, which includes the input of the CEO.
6. Do we need to completely comply with each of the Task Force recommendations to officially endorse it?
It is expected that implementation will vary by company and be dependent on the relevant company-specific facts and circumstances. The Conference Board doesn’t place parameters on how the implementation of the principles is accomplished, nor refuse endorsement based on non-compliance of a single component of the recommendations. Given the public scrutiny of executive compensation, however, each company should be prepared to explain its rationale for how it implements the principles.
7. How will my public endorsement be communicated?
A list of public endorsements of the Task Force principles will be posted on The Conference Board Governance Center Web site and within all Task Force-related press releases. Any media questions about individual company endorsements that come to The Conference Board will be directed to the company.
8. What documentation will be required to endorse?
Once the organization has determined it will endorse the principles, The Conference Board will ask for a letter from the Chief Executive Officer or a board resolution indicating the company’s endorsement. The Conference Board has not dictated the form of this endorsement confirmation. We have, however, provided a sample board resolution for your reference.
9. Who should I contact to about an endorsement?
Contact Paul DeNicola, Director of The Conference Board Governance Center. He can be reached by calling (212) 339-0221 or email@example.com.