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Beyond branding, the biggest concern facing board members is how to determine executive compensation — a procedure that is often skewed when committees set salaries based on incorrect or poor benchmarks. There are a lot of outside influences involved in the process, including everything from the input of advisory firms and institutional investors to regulatory actions and even activist shareholder activities, noted Melissa Means, a managing director at Pearl Meyer & Partners.
The compensation packages at other companies also come into play, she said. “There is a lot of pushback on selecting the right peer company to compare yourself to, but boards need to remember that is just a piece of information,” said Means.
Means argued that boards need to realize that just because a peer company may pay its CEO $500 million, that shouldn’t automatically become the magic number for their own CEO. Instead, she emphasized that boards need to gauge factors such as how a company has performed relative to its peers.