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1、Corporate Governance and Executive Compensation,Current Compensation Committee and Executive Compensation Issues,Executive Compensation is in a State of Flux,Institutional Investor Activism,NYSE no experience in Repaps industry Summary of his contract: A multi-million dollar “market capitalization b
2、onus” not linked to financial performance Shares and options amounting to 13.4% of the companys stock Immediate pension credits of 8 years A “single trigger” change-of-control severance package worth about $27 million Ontario Trial Court Judge set aside Chairmans compensation agreement because the d
3、irectors had not spent sufficient time analyzing and discussing the contract In doing so, she set aside the “business judgment rule” that normally protects directors from being second guessed,YES, Executive pay is under the microscope, BUT .,Canadian and U.S. Watson Wyatt studies* show that: Higher
4、CEO compensation opportunity is correlated with higher Total Shareholder Returns (TSR) Higher CEO and Executive stock ownership is correlated with higher TSR, EPS, ROE, ROA Higher stock option opportunity is also positively correlated with higher TSR, EPS, but There is an optimal level of stock opti
5、on “overhang” above or below which shareholder value is eroded,* “Corporate Governance In Crisis; Executive Pay/Stock Option Overhang 2003” and “Monitoring Canadian CEO Pay and Performance, 2002”.,Enter the Compensation Committee.,15,Purpose of the Compensation Committee,The primary purpose of the C
6、ompensation Committee of the Board is to determine and oversee the compensation policies of the organization Duties include: Developing and setting compensation philosophy and policies Deciding upon compensation levels and incentive opportunity levels for officers Reviewing performance levels of com
7、pany and compensation mechanisms and levels CEO performance evaluation Management development and succession planning Communication to the full Board Compensation of the Board,Strategic Executive Compensation Framework,Critical Factors,Specific Executive Compensation Philosophy,Strategic Implication
8、s on Programs, Policies, Practices,Strategies/ Plans,Management Philosophy,Organizational Design,Ownership Structure,Marketplace Dynamics,Companywide Linkage,Objectives for Pay,Compensation Elements,Competitive Positioning,Commitment to Communication,Base Salary,Short-Term Incentives,Benefits/ Perqu
9、isites,Long-Term Incentives,Strategic Executive Compensation Framework,Specific Executive Compensation Philosophy,Supportive of Companys mission and values Consistent with Total Compensation Philosophy Flexible to adapt to unique organizational and individual circumstances,Companywide Linkage,Object
10、ives for Pay,Differentiate from competitors Focus on company goals Align with organizational success Attract new talent Motivate and reward improved performance Retain high performers and key contributors Provide security and wealth-building opportunities Ensure executives understand and appreciate
11、compensation and benefit programs,Competitive Positioning,Establish relevant peer group(s) and reference points Appropriate positioning relative to reference points Methodologies and sources of market data,Compensation Elements,Desired pay mix (fixed vs. variable, short vs. long-term) Role of base s
12、alary Objectives for short- and long-term incentives Selection of incentive plan performance measures and goals Competitive benefits and perquisites,Commitment to Communication,Companys philosophy on executive compensation Linkage between corporate strategies and rewards Objectives for program eleme
13、nts Processes for managing pay Performance measures that affect compensation Total compensation personalized communications,Strategic Implications on Programs, Policies, Practices,Strategic Executive Compensation Framework,Best understood element of pay Represents a significant portion of compensati
14、on opportunity Serves as an index for incentive and benefit values Affected by: Philosophy External competitiveness Internal considerations Incumbent experience and performance,Base Salary,Short-Term Incentives,Objectives Eligibility Award potentials Performance measures and goals Award determinatio
15、n Form/timing of payment Affected by: Company strategies Compensation philosophy Market values Measurement tools,Long-Term Incentives,Objectives Eligibility Award potentials Program vehicle(s) Performance periods, measures, and goals Retention elements Affected by: Company strategies Compensation ph
16、ilosophy Market competitiveness Availability of stock or equity substitute,Benefits/ Perquisites,Objectives for Health care Retirement income Survivor income Disability income Deferred compensation Affected by: Company strategies Compensation philosophy Statutory considerations Perceived value,Watso
17、n Wyatts View,In the final analysis, executive compensation arrangements must reflect good governance principles Strength and independence of the Board is key Credible and consistent compensation data and advice is crucial Accountability to owners and transparency is more important than sophisticati
18、on of design and tax advantages Options will continue to be used, but more prudently,Practical Things to Review,Where is your stock option dilution level relative to the market and institutional shareholder comfort levels? What is your executive pay mix? Have you disclosed your executive compensation policies to your shareholders in the manner required by the regulators? What impact could stock option accounting expense have on your P&L? Who is on your Compensation Committee and what is his or her relationship to the company? Does your Compensation Committee have a up to d
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