Obama's executive compensation plans
The US Treasury has released "five principles of compensation" to align compensation practices with sound risk management and long-term growth in US listed companies. In the main the principles are intended to be advisory not binding. The principles are:
1. Proper measures and rewards for performance: Compensation plans should be performance-based and conditioned on a range of internal and external indicators, not just stock price.
2. Structured to account for time and risk: Compensation should be focused on long-term value and not on short-term gains. For equity based plans, companies should consider longer stock ownership holding periods.
3. Aligned with sound risk management. Compensation packages should not encourage imprudent risk-taking.
4. Retirement packages and golden parachutes: the interests of executives and shareholders shoul be aligned. The Treasury notes that in some cases executives are rewarded even if their company's shares have lost value.
5. Promoting transparency and accountability. It is proposed that there should be an annual non-binding vote on executive compensation. In addition, shareholders should have a non- binding vote to approve or disapprove golden parachute compensation. The SEC is directed to promulgate rules providing compensation committees with greater independence.
UK RemComs will be familiar with these principles since similar standards are enshrined in the Combined Code and the ABI Guidelines. For further information on how these regulations might affect your company, call us now on 020 8949 5522.