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Now that more companies are using total shareholder return (TSR) as a metric for measuring CEO performance, compensation committees are being urged to determine if the way TSR is being applied is having the desired effect.
While consistent market growth over the last several years has made it easy for boards to see TSR’s main benefit as being a relatively simple way to tie an executive’s pay to company performance, compensation experts say using TSR is more complex than that.
“I think now is probably a good time for comp committees to rethink whether or not [TSR] is the most effective metric,” says Peter Lupo, managing director and head of the New York office for Pearl Meyer. “It’s not ideal for a long-term incentive plan, but it can still be an important component.”