Page 662 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 11. The Past, Present, and Future 647

Good Practices Not-So-Good Practices

1. Pay for performance 1. Pay for existence
2. Include all employees in incentive plan 2. Limit incentive plans to executives

3. Base pay on stock 3. Base pay on cash
4. Establish stock ownership guidelines 4. Consider stock as cash compensation and no
policy encouraging stock ownership
5. Base pay on performance 5. Base pay on surveys

6. Use same employment guarantee for all 6. Give employment contracts to executives only
7. New plans modify and/or replace 7. New plans added on top of old plans
outdated plans

8. Realistic severance pay plans for all 8. Unnecessarly rich change of control contracts

9. Issuing stock options on a regular basis 9. Instituting cancel-and-reissue stock options
10. Making stock options effective date of grant 10. Backdating effective date of stock options
11. Linking shareholder and executive with 11. Paying solely on internally established
stock price performance financial goals
12. Request shareholder approval of tightly 12. Instituting omnibus plans permitting
targeted designed plans virtually any type of program
13. Request shareholder approval of shares 13. Adopt evergreen plans that automatically
when needed replace stock used
14. Reload options using only mature stock 14. Reload options using cash

15. Performance-based restricted stock 15. Non-performance-based restricted stock
awards awards
Table 11-4. Good and not-so-good executive pay practices

Executive pay changes will be shaped by a number of factors, namely, significant world events
and the items shown in Table 11-5.
The old adage “Everything old is new again” certainly applies to executive pay. One only
has to compare the incomes of Astor, Carnegie, Frick, Morgan, Rockefeller, and Vanderbilt
with current highly paid CEOs, and this after a host of laws and regulations intended to limit
executive pay. However, there is one major difference: 20th-century CEOs made millions
from dividends on stock they owned; 21st-century CEOs make their millions by selling their
stock. The first group acted as owners; the current group acts like hired guns.
Executive pay trends that may continue for some time include the following:
• Less emphasis on salary and more on variable pay
• More emphasis on long-term incentives and less on short-term incentives