We are moving into that time of year when employee evaluations happen, and companies start thinking about pay raises. As usual, there will be a lot of scrutiny of top executives pay packages. And executive compensation is usually based on comparisons with other companies in the same industry - benchmarking. So peer pressure regulates/justifies the raises. The composition of the peer group can skew the results. Size matters, so does complexity, international exposure. I would argue that the situation of the company - in a growth phase, in a slump, downsizing, turnaround, in a merger negotiation, etc... - should also be part of the considerations.
The SEC seems to want to improve the disclosure of how the compensation was set - which is going to be a step in the direction of transparency. It really does not matter how they justify the packages - there are a lot of people who think the compensation is excessive. In the end, shareholders might want a bigger say in this matter. If the compensation decision is taken over by the shareholder meeting, then boards will have proven that they are not doing what the shareholders have elected them for. More on the subject in the New York Times.
Comments