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July 21, 2009

Golden Parachute Tarnish or Varnish – A Brief on Executive Pay

There seems to be a lot of talk today about executive pay, bonuses and some of this conversation has turned quite nasty. Nobody minded as much when things in the economy seemed to be chugging along but now it's different. 

I just read a survey of directors on corporate boards who say U.S. companies need to change the programs as an almost direct result of our current recession. Most workers would agree it seems. 

The consulting firm Watson Wyatt states:

- 70 percent of directors expect executive pay opportunities to decline during the next two years

- 68 percent of the directors are not concerned or moderately concerned about the retention of high-performing executives

- 63 percent of outside directors stated that U.S. companies should modify executive compensation programs to adapt to economic realities

The survey report, Effect of the Economy on Executive Compensation Programs: The Board View, also says 6 percent of companies plan to make salary reductions, reduce long-term incentive award levels or target bonuses in the next six months. Another 48 percent of companies are entertaining serious thoughts about reductions within six months. 

This downward trend now is being supported by some legislative movement that is only proposed for now. According to Steven Miller in SHRM's HR Magazine, the survey members or a majority of directors doubt the proposed legislation will significantly impact improving executive pay for performance with its potential "say on pay" or "golden parachute" limitations. 

Despite these proposed changes and legislation what does seem to be happening is that executive boards will hold management more directly accountable for their performance. In that way I do wholeheartedly agree with Ira Kay, the global director of compensation consulting at Watson Wyatt. 

But I would also add that the trend away from what the public perceives as overcompensation at the top will be popular fodder during any recession or economic downturn. This is also a major public relations and personal branding opportunity for C-level executives to win loyalty from their employees and even customers.

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