Human Capital & Careers

Boards Getting Creative With Exec Comp

In: Signing bonuses, restricted stock. Out: executive loans, stock options.
Lisa YoonFebruary 3, 2003

Corporate directors are feeling like they’re stuck between a rock and a hard place when it comes to executive pay.

On one hand, board members are wary of the bad press that revelations of exorbitant pay packages for top executives can invite. What’s more, with Congress outlawing loans by companies to executives and directors, and growing pressure from shareholders to expense options, components of the executive pay package are growing increasingly limited.

On the other hand, directors also fear that substantially reducing executive-compensation packages will limit their companies’ ability to hire or retain talented leaders.

To stay competitive, companies are looking to get creative in souping up executive pay to lure top talent, according to a report in the Washington Post..

Though we won’t know for sure until the spring proxy season, the Post says there’s anecdotal evidence that changes are already is afoot — changes like more signing bonuses, outright cash to replace loans, and more restricted stock.

There is disagreement on what the year will bring, says the newspaper. Paul Hodgson, an analyst at the Corporate Library, told the Post that the use of options, while decreasing, probably won’t disappear. He said that companies might begin considering a different tack: performance shares, popular in the U.K. Since performance shares work like a reward — paid to executives as they hit performance targets — Hodgson believes they’d fly with investors.

Restricted stock is another popular one, especially since it’s favored by corporate-governance advocates, because by requiring that executives hold them for a fixed period, often two to three years, they encourage executives to focus on long-term growth and profitability.

Like fashion trends, different styles of stock grants come and go, says the Post. And interestingly, in the swinging polyester days of the late 1970’s restricted stock was considered square, for the very reason it’s making a comeback today: because it didn’t provide enough incentive for fast growth.

But with all the complications of compensation issues at public companies drive many executive job hunters to privately held outfits? One consultant thinks so: Dan Moynihan of Compensation Resources Inc. told the Post that since private companies aren’t beholden to the same rules (like offering executive loans) as public companies are, they will be able to offer a lot more to star executives.

Here’s hoping they don’t push leisure suits on the new talent.

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