Published in Workspan - May 2010

Defining Executive Pay for Performance

By Matt Turner

Ensuring the validity and appropriateness of performance-based executive pay programs is one of the most important responsibilities of the Compensation Committee. In considering the choice and level of performance metrics, Directors must take into account practical considerations, as well as the perspectives of executives and shareholders, in addition to the company's strategic needs.

Managing Director Matt Turner suggests a three-step approach to how companies can effectively structure and manage executive incentives:

1. Validating the performance metrics used in the incentive compensation framework
2. Agreeing on a specific definition of performance
3. Establishing performance goals that are grounded in multiple perspectives and context