The Aspen Institute Business & Society Program, in partnership with Korn Ferry released “Modern Principles for Sensible and Effective Executive Pay,” outlining a new path for executive compensation that moves from a shareholder-centric approach to including other priorities, such as fairness, employee well-being and other commitments to ensure long-term business success. The report points to key areas that must be addressed to align pay and incentives with Board responsibility and the changing role of the CEO.
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“From the Business Roundtable to the World Economic Forum, the leaders of America’s largest corporations have committed to serving the interests of workers, communities, customers and the environment, along with shareholders” said Judy Samuelson, Executive Director of the Aspen Institute Business & Society Program. “Yet the strongest signal in the pay packages of C-Suite executives is overwhelmingly the stock price. Fixing this misalignment is possible, but it will require a fresh conversation in board rooms about real value creation – for the company but also the society that offers the license to operate.”
Don Lowman, global leader of Korn Ferry’s Rewards and Benefits Practice, states, “CEOs are increasingly understanding that in these incredibly uncertain times, they are not just leading a business. They are leading a more integrated community of employees, partners, investors and those acting on behalf of significant and growing environmental and community needs.”
Today, most executive pay programs are firmly aligned with total shareholder return (TSR) as the center of their performance measurement universe. However, a recent Korn Ferry analysis of proxy statements of 150 large U.S.-based companies found that approximately 20 percent now have some form of purpose-driven strategic objectives, including ESG measures (environmental, social, corporate governance) as key performance metrics for executive pay.
The first principle ties CEO pay to the company’s purpose and the drivers of long-term value.
“While much more needs to be done to align purpose with pay, we are absolutely seeing a trend toward a more holistic view of what defines executive – and corporate – success,” said Lowman. “When Boards consider what is needed for organizations to flourish over the long term, non-financial drivers of performance become more apparent.”
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