Oversight of Executive Compensation: Establishing the Compensation Philosophy

 

Key Takeaway: Start with Strategic Priorities, Then Design the Pay Program

• A compensation philosophy should translate the company’s strategy into clear design priorities.
• The committee should align across the key choices that shape compensation: retention versus performance; fixed versus variable pay; short-term versus long-term focus; and company, business-unit, team, and individual accountability.
• The committee can then determine the appropriate pay level, mix, incentive vehicles, and performance measures.
• Market data helps the committee understand how much compensation may be required to compete for talent.
• Internal strategy, culture, leadership needs, and value-creation models help determine how compensation is delivered.