Page 617 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 10. The Board of Directors 603

Table 10-8. (continued from previous page)

Action Basis Proposed by Approved by
Establish targets Competitive data CEO Board of Directors
Company short- ↓
range forecasts Executive compensation
committee
Allocate divisional Unit and corporate CEO Executive compensation
funds performance committee
Grant individual Individual CEO Executive compensation
awards performance ↓ committee (for CEO)
Division president Employee compensation
↓ committee (other
Director, Compensation corporate officers)
and Benefits Employee compensation
Immediate Supervisor committee (others
above $100,000)
Division president (others)

the organization? What are the major strategies the company needs to undertake to address
the resulting issues?
Directors will evaluate the plan, helping the CEO consider strategies from different
perspectives. Once the board approves a plan, it will expect periodic progress reports from
the CEO.
The second step is to evaluate performance in terms of the expectations laid out in
the business plan. Pay actions will be based on these assessments. CEOs must know which
objectives will be evaluated, and the board must ensure consistency with approved plans.
The board should also articulate how it expects these objectives to be accomplished.
Accomplishments should embody honest and ethical behavior. Furthermore, the CEO
must convince those in the company (and on the board) of his or her full commitment to
achieving the vision.

Administering the Approved Plans
In Table 10-3, a resolution stated “that said committee shall be responsible for implement-
ing plans approved by the board (and in some cases the shareholders).”
Administration of the actual pay program will focus on all five components of the offi-
cers’ pay package, including their relative mix. It is therefore assumed the committee will be
responsible not only for approving any recommendations on salary increases but also the
units of participation under both the short- and long-term incentive plans. This committee
would also determine modifications to basic employee benefit plans (such as allowing an
unfunded plan to restore benefits curtailed by the maximums of the Employee Retirement
Income Security Act) and eligibility for specific perquisites.
Competitive Data. In Table 10-3, the board stated that “said committee will review
competitive pay practice and peer company performance in approving components of the
compensation program as well as specific pay actions for certain executives.” Therefore it
would be appropriate for the compensation committee to request an analysis of competitive
position of pay for at least the CEO and four other executives named in the proxy. Table 10–9
shows how this summary might look for the chair/CEO (from Chapter 4).