How to independently and efficiently benchmark executive compensation for Say-on-Pay
1. Look for tools that support peer group modeling functionality
2. Access the same peer groups as leading proxy advisor Glass Lewis
3. Ensure Pay-for-Performance alignment and benchmarking tools are included
4. Check the quality of data available in the software platform you choose
We live in a digital age where access to information has never been easier. No longer having to scroll through complex and endless spreadsheets and obtain an analytical degree to understand trends – insights and information is at our fingertips.
For Compensation Committees, Heads of Rewards and Benefits, and Compensation Professionals it is no different.
Ensuring executive compensation, bonuses, and incentives are in line with market standards, has never been so important.
Activist activity has increased in 2020, with traditional investors changing their position from passive to active engagement and focusing on executive pay. In a recent article by the Financial Times, it was reported that misalignment of incentives and negative say-on-pay votes at annual meetings increase the likelihood of a company suffering share price underperformance.
Software that provides flexibility for assessing compensation in comparison to peers, and supports say-on-pay resolutions, is available and increasingly implemented by companies, activist investors, and proxy advisors.
When a user begins searching for compensation software there are questions typically asked:
Sustainable and justifiable decisions surrounding executive compensation has kept rewards and benefits professionals up at night, with additional key questions that should be asked:
Transparency encourages market confidence. With the current pandemic causing havoc on stock prices and resulting in employee layoffs, salary and bonuses paid to executives has again been pushed to the front and center.
Compensation policies and reporting are continuing to come under scrutiny from investors, shareholders, employees and the media. Boards must have clear and transparent compensation processes in place that allow for investors to see a fair comparison has been made of executive payouts and promised rewards, against peers and taking into account the broader market context.
How peer companies are adapting their executive compensation practices and adopting new measures needs to be clearly understood for socially responsible decisions about executive pay – continuing to be highlighted again by the events and happenings of 2020.
Decisions made need to be based on fact, not fiction, with easy to understand explanations for investors to digest. Granted, no one wants to become a media headline or attract attention from activist investors.
Generating your own peer groups allows for benchmarking and comparison on a like for like basis. Companies that have very few similar peers in their region, index and sector might need to look further afield to design an appropriate group to justify the competitiveness of pay plans. Modeling against different peers can significantly change the scenario and perception of pay. Using CGLytics platform, fit-for-purpose peer groups can be created in seconds with access to 5,900+ globally listed companies, for instant comparison of compensation practices.
Do you know how your compensation is viewed by activist investors and proxy advisors? As Glass Lewis and large activist investors are already using data and software provided by CGLytics, Compensation Committees should be doing the same. This allows Compensation Committees and Heads of Reward to proactively plan for, and justify, any compensation decisions that may attract unwanted attention.
Glass Lewis CEO and Executive Compensation analysis (used in their proxy papers globally) is found in the CGLytics platform ready for companies use.
As stated in the recent webinar by Glass Lewis’ SVP & Global Head, Research & Engagement, Aaron Bertinetti:
Using the same data set, peer modeling and analytical tools as Glass Lewis, and leading institutional investors, for reviewing public company CEO compensation and Say on Pay proposals, results in Compensation Committees being market intelligent and one step ahead. This fosters better dialogue with stakeholders and data-based decisions justified with relevant and real-time information.
Compensation Committees and HR Professionals are empowered by modeling scenarios against different KPIs and measurements using software tools. With the recent volatility in market performance, justifying indictors used to design compensation plans mitigates risk. Boards need to be equipped with in-depth analysis of their company’s pay practice and compare against their peers to preempt say on pay risk.
As mentioned by Ronald Kliphuis, Global Head of Rewards at Randstad (a large market leading global HR company):
“In the past only consultants had access to the information that CGLytics provides. We can now play with data and information and make fair comparisons. We understand the potential risks and vulnerabilities a lot better.”
Powerful pay-for-performance benchmarking tools allow for efficient comparison and automated output of CEO and executive compensation against competitors and peers.
Where the data is sourced from and how often it is updated should be a concern when deciding on insights to trust for effective engagement. In addition to how many years of compensation data is recorded in the software platform. A wealth of global and structured data for meaningful comparison of executive compensation practices across industries and borders, should be a large consideration of tools purchased to support compensation decisions.
Compensation Committees, Head of Rewards and Benefits, and other HR Professionals can ensure reliability when using CGLytics software with executive compensation data sourced from millions of publicly listed company filings, proxy materials and social networks, which undergoes rigorous checks by a dedicated team of equity market research analysts 24/7. More than 10 years of historical compensation data is standardized for efficient comparison of 5,900+ companies’ pay and rewards across different regions, industries, and sectors.
Downloadable data and insights in an array of formats (such as excel) allow compensation professionals to model and easily transport charts directly into their board decks and presentations, for the ultimate time and cost savings.