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Putting metrics in place that align executives’ interests to the long-term performance of the business and shareholder value is an increasing priority. The influence of shareholder activism and ISS’s new scorecard approach to equity plans is expected to be a hot topic in this year’s proxy season.
In a recent NACD webcast on aligning compensation with strategy, Steven Van Putten, managing director at Pearl Meyer & Partners and head of the firm’s Boston office, said that compensation programs have to evolve to meet the ever-changing external environment and business strategy. Van Putten said that if a compensation program does not evolve to meet the business strategy, it may undermine strategy because incentives may be in place that could encourage outcomes, behaviors and actions that are inconsistent with the business strategy.
Van Putten adds that companies that have good pay-strategy alignment use a balance of financial result metrics, such as total shareholder return, and metrics that take into account strategic drivers in the business, such as innovation and customer satisfaction.