When we think about executive pay today, most of us think of outsized pay packages, stock option plans that seem unrelated to any reality we are familiar with and an overall disconnect between what CEOs and other executives get in relation to the performance of the companies they manage for investors. When evaluating executive pay from a shareholder perspective, I ask myself:
- What I intend to accomplish in my analysis of the compensation scheme I am reviewing?
- Am I voting on a TARP-related pay proposal or
- Am I evaluating a proposal to approve an executive stock plan?
- Am I considering a shareholder proposal calling on the company to give shareholders a "Say-on-Pay."
Whatever the circumstance, there are a few things that I should consider besides my general rage about the generally gross payouts doled out by boards to executives at most public companies today. While I wouldn't rule out my anger as a barometer for evaluating a pay plan in whatever forms it takes, in the final analysis, this should be one of several considerations that I should use when voting on pay-related items contained in my proxies that I vote each year.
The primary consideration in evaluating executive pay is its relationship to company performance. Basically, if an executive's pay goes up (it usually does) and the company's performance goes down (this has been the trend for the last couple of years), then your task is made simple. Simply say NO.
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