It is boom time, particularly in the tech sector, and CEO compensation is climbing. Comp consultants are in their heyday. Twenty-five years ago, comp consultants were hired by management; today they are hired by boards of directors to figure out what to pay the C-suite.
At last Tuesday morning’s breakfast meeting of National Association of Corporate Directors/New England, an expert panel discussed the factors that enter into fixing CEO comp. Needless to say, there were no pat answers. However, certain themes emerged.
First, what are you aiming for? What does the company need? Is it all about the price of the stock? To what degree does ESG enter into the equation?
Second, you are after all dealing with people. Before getting embroiled in the metrics, what about the personality, and the goals and passions, of the CEO?
The experts guiding the discussion wanted to focus on current compensation (base salary and target bonus) and then long-term incentives, and whether those incentives should be tied to performance or longevity. The answer, not surprisingly, is that each category needs to be filled to some degree. There was also an expression of fear with respect to explaining to proxy advisors what the public company board was doing. There was an undercurrent that if you did your job you could explain it to ISS, and a counter undercurrent that sometimes ISS didn’t listen.
One significant consideration: it is very expensive to hire a new CEO, someone who is making a lateral move is likely to be seeking a step-up in salary. There is a balance to be struck between paying for the performance you are getting and paying more for an unknown level of performance.