Mercer Executive Remuneration Perspective

Mercer Executive Remuneration Perspective

 

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Executive remuneration, performance measurement and pay disclosure have been hot topics for many different stakeholders throughout the last several years. There is little doubt that interest in these topics will dissipate anytime soon.

 

Below are recent executive remuneration thought pieces in the form of articles, surveys, podcasts and webcasts. Consider bookmarking this page as content will change frequently.

 

For Better Or For Worse: Say On Pay Comes To Canada

Although a shareholder advisory vote on executive compensation, or “say on pay” (SOP), is not mandatory in Canada, many Canadian companies have voluntarily adopted SOP policies. An advisory vote does not bind a company to take action but allows shareholders to provide input on the executive compensation program as set forth in the company’s proxy circular. Interest in SOP has grown significantly as Canadians watch how the Dodd-Frank Act’s SOP mandate for US public companies has played out over the past three years. The advent of SOP in Canada is not only placing more power in the hands of shareholders but also increasing the influence of the already-powerful proxy advisory firms to influence pay program design and governance practices.

 

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Proxy Season 2014: Moving Beyond The Mandates

As proxy statements continue to evolve from SEC compliance documents to shareholder communication vehicles, it is more important than ever for companies to make them easier to read and navigate. This Perspective lists steps that companies can take to improve their proxy disclosures and shaeholder communications.

 

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Executive Remuneration Disclosures in Asia

In light of increased focus on executive pay practices, shareholders and regulators in Asia are demanding more comprehensive disclosure on the pay levels, compensation package designs, and performance assessments for key executives. This Perspective article provides a comparative study of remuneration disclosure requirements across Asian jurisdictions and the steps necessary to become disclosure-ready.

 

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Enhancing Corporate Governance in Asia Through Better Executive Remuneration Disclosure

Executive remuneration issues are closely scrutinized by shareholders, proxy advisors, and the business media. However, shareholders often express concerns about the amount and clarity of information provided on this subject. This executive remuneration perspective suggests six effective tips for boards of Asian companies to enhance their remuneration-related disclosures.

 

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The Role of Realized and Realizable Pay in Disclosure and Beyond

Across most Western jurisdictions (particularly the US, UK, Canada, and Australia), companies are increasingly disclosing "realized" or "realizable" executive pay levels to help tell their pay-for-performance story. Companies contend that these pay calculations provide more valid comparisons for performance than the compensation disclosure according to accounting standards, which may include amounts that executives will never receive. For most Asian companies, the issues of realized and realizable pay disclosures are probably a few years away. However, aligned with corporate governance best practices, it is likely that remuneration disclosures will evolve in this direction over time. This article discusses the reasons for using realized and realizable pay, how they differ from disclosure according to accounting standards, their growing credibility, and the advantages and disadvantages of using each. It also provides examples of how they are typically disclosed.

 

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Proposed Pay Ratio Rule: Mercer Recommendations Would Reduce Cost, Improve Efficiency

This Perspective summarizes the key provisions of the proposed pay ratio rule, explains Mercer's recommendations to the SEC, and list some potential implications of the disclosure requirement as proposed.

 

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The Role of Realized and Realizable Pay in Disclosure, Performance Measurement, and Compensation Planning

This Perspective presents the concepts of realized and realizable pay as companies typically use them in practice, explains how proxy advisory firms use and define them, and also provides guidance on how companies can create their own customized definitions to clarify the pay/performance relationship.

 

In this article, you will find answers to:
• Why are companies disclosing realized/realizable pay in their proxy statements?
• How do proxy advisors use and define realizable pay?
• How might the SEC use realizable pay in Dodd-Frank pay-for-performance rules?
• What should companies consider in developing robust definitions of their own?
• How can realized/realizable pay be used in performance measurement and compensation planning?

 

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Total Shareholder Return: Making It Work

TSR is the dominant measure used to determine vesting in long-term performance share plans in major listed companies in Singapore. It is also common in the US, the UK, Australia, and Canada. Many organizations have been quick to hail TSR as the ultimate and only measure of a company’s performance; however, it may not be the panacea for ensuring pay for results over the long term.

In this article, answers to:

  • What are the shortcomings that can undermine relative total shareholder return (TSR) and how can we avoid them?
  • What factors should companies consider when measuring the absolute shareholder value created?
  • What are the considerations in determining whether to use local or common currency in an international peer group?

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14 for ’14: Observations and Expectations for the 2014 Proxy Season

Shareholder dialogue and corporate governance issues continue to influence company compensation programs and decisions. Concerns raised by institutional investors are keeping executive pay and equity plan design in the limelight; it has become increasingly important for companies to identify these concerns and emerging trends well in advance of the proxy season. Based on observations from the 2013 proxy season and changes in the executive pay marketplace and equity plan environment, Mercer has identified several trends in investors’.

 

In this article, answers to:

  • What will be the most significant concerns and emerging trends of the 2014 proxy season?
  • How will institutional investors and proxy advisors influence pay decisions and plan design in 2014?
  • What can companies do to better prepare for the 2014 proxy season?

 

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Health care reform requires new governance paradigm

Health care reform is radically altering the economic model for most providers. The fee-for-service (FFS) model is being replaced with fee-for-value (FFV), where revenues come in the form of bundled or shared payments for the care of a population. It is radically different: a doctor may get paid as much for one test as for 50 — a 180-degree shift. Among the many implications of this shift are new business models for providers, need for more active involvement of boards of trustees, and compensation program redesign. Sustainable and successful providers must implement models that provide high-quality care while managing costs effectively.

 

In this article, answers to:

 

  • What are the new business models for health care?
  • What should trustees be considering?
  • How is compensation changing in a FFV world?

 

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Executive Pay Regulation: The Potential Impacts of Proposed European Reforms

The political impetus to regulate executive pay has accelerated in Europe. Recent regulatory developments that will give shareholders greater oversight of executive pay and cap bonuses in the financial services sector, reflect a hardening of attitudes among European politicians and the public. In an era of low or nonexistent economic growth, consumer price inflation, and falling average real wages, executive remuneration will continue to be a sensitive issue.

 

In this article, answers to:

  • How are differences in regulations creating an unlevel global playing field for talent?
  • What unintended consequences could result from additional regulation of executive pay?
  • What are the potential consequences of a binding say-on-pay vote?
  • What should companies do to ensure successful say-on-pay votes?

 

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Webcast recording

 

Succession Planning When An Executive Can't Retire

Retirement can be a friend or a foe of an effective succession planning strategy. Organizations bemoan the difficulty of replacing an established and effective executive or member of senior management (collectively, an “executive”) who retires, but just as often, retirement opens up opportunity for high-potential leaders and new ideas and skills. Either way, retirement is a key driver of succession processes in most organizations.

 

But what happens if current executives are financially unable to retire when planned? Indeed, more and more executives — not unlike the rest of the workforce — are struggling with personal retirement issues. In recent years, many employers have scaled back on generous retirement programs, creating a gap in retirement readiness for many executives.

 

In this article, answers to:

 

  • How to prepare for an effective succession planning process.
  • How retirement readiness can support succession strategies.
  • The role of deferred compensation in enabling retirement readiness.


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Tax Exempt Organizations: A 2013 Agenda For Organization Managers

The heightened scrutiny of tax-exempt organizations (TEOs) is showing no sign of abating. The IRS, state and local officials, and the media continue to test TEO executive pay against new and changing norms of acceptable practice. Many of those norms are coming from the for-profit sector where stakeholders have wielded their influence to strengthen corporate governance, enhance disclosure, and eliminate problematic pay practices. This article reviews items that we believe TEO boards should include in their 2013 agendas.

 

In this article, answers to:

 

  • The changing norms of best practice.
  • The Form 990 as a communication vehicle.
  • Tips for a prudent governance process.

 

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Blueprint for a Better CEO Evaluation Process: Unlocking Real Value

Boards of public companies face unremitting pressure to step up to the challenge of corporate governance. How have they responded? By all indications, boards are more independent today, with stronger lead director and nonexecutive chair roles, meaningful independent director meetings, and increasingly rigorous risk management, audit, compensation, and governance practices.

 

In this article, answers to:

  • What criteria should be used in evaluating CEO performance?
  • What roles should board members and executives play in the evaluation process?
  • What factors contribute most to an effective evaluation?
  • What are the organizational performance benefits of a robust evaluation process?
  • What are the inherent challenges of CEO evaluation and how can they be addressed?

 

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Ten tips for a trouble-free 2013 proxy season

As companies prepare for the 2013 proxy season, say on pay (SOP) continues to influence pay decisions, drive shareholder engagement efforts and encourage pay and governance disclosure enhancements. With no sign that shareholder activism in the executive pay arena is lessening, companies should understand shareholder and proxy adviser voting policies, tell their pay-for-performance story, explain their peer group selection process, reach out to shareholders and proxy advisers, and highlight best pay and governance practices in annual proxy statements.

The following 10 tips should help companies experience a less stressful 2013 proxy season.

 

In this issue, answers to:

 

  • What can companies do to prepare for the 2013 say-on-pay vote?
  • How can companies better tell their compensation story?
  • What is the best way to understand shareholders’ concerns?
  • How have the proxy advisers influenced executive pay?

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C-Suite Turnover and Impact on Stock Price

In recent years, high profile C-suite departures have made headlines and created concern that stock price will be adversely affected. Some departures do seem to have a short-term effect on stock price, but is this a consistent effect and for what time frame? How much do other factors determine the stock price effect? For example, does it matter whether it is CEO or CFO turnover, whether the change was planned or not, whether there is a capable successor immediately named, or the manner in which the company/Board manages the communication of the situation?

 

In this issue, answers to:

 

  • What impact does CEO/CFO turnover have on a company’s stock price?
  • Why is succession planning essential risk management for Boards and CEOs?
  • What is an “emergency replacement plan” for future CEO/CFO turnover?

 

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Current trends in director's compensation

In recent years, public expectations around the roles and responsibilities of boards of directors have grown substantially. The stewardship of corporate assets, particularly with respect to the management of risk, is a matter of concern for management, executives and directors alike. The shared responsibility between the boardroom and the executive suite means that some of the criticism around perceived issues with executive compensation and corporate governance may be aimed toward directors, whether justified or not.

 

In this issue:

 

  • How has the value of directors’ compensation changed?
  • What’s happening to incremental meeting fees for board and committee service?
  • Are companies continuing to differentiate pay for members of specific committees (e.g., audit, compensation)?
  • How are companies using equity for director compensation?

 

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Regional Perspectives

 

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