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When it comes to executive-pay strategy, boards of directors need to put the spotlight back on building great leadership teams to drive their companies’ long-term success, according to a recent white paper from compensation consultancy Pearl Meyer & Partners.
“In today’s economic and governance environment it is essential that companies go beyond best practices, beyond data, beyond check-the-box compliance and beyond the obvious,” said David N. Swinford, the firm’s president and CEO.
In recent years directors have increasingly been focused on satisfying proxy advisory pay standards and compliance requirements, driving many companies to “conform to the norm,” Swinford noted. The result is copycat pay programs that are based on current pay trends, peer practices and competitive data.
“Simply following the crowd ignores the huge impact that a differentiated compensation strategy can have on building a strong management team that’s focused on that company’s business strategy,” added Swinford. “An effective executive-pay program should send a strong signal to employees and to the marketplace about that company’s goals, priorities and vision.”
In The 2013 Compensation Committee Agenda: Go Beyond, Pearl Meyer &Partners outlines five approaches to help directors ensure that executive-compensation programs—including the use of performance-based incentives—will drive the strategic priorities. The five key ways to support a complex set of strategic needs are:
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