Governance of Executive Com pensation: Key Trends and Em erging - - PowerPoint PPT Presentation

Governance of Executive Com pensation: Key Trends and Em erging Practices

John Hammond, Towers Watson Phil Barnett, Talisman Energy August 26, 2014

The Canadian Society of Corporate Secretaries

1 6 th Annual Corporate Governance Conference

Banff Springs Hotel | Banff, AB | August 24 - 27, 2014

I n this Session

• Canadian market practices

& trends (proxies & surveys)

• Recent experiences,

considerations, decisions and lessons learned Current Trends Talism an Experience Evolving Practice

• Consulting insights
• Client feedback
• Highlight evolving executive pay governance “hot topics”:
• 1. Shareholder engagement
• 2. Other executive compensation (EC) governance tools
• 3. Management / HR Committee (HRC) interaction
• 4. Pay for performance
• 5. Effective incentive plan designs
• For each topic we will use the following framework:

Talism an Considering

• What’s next?

1 . Shareholder Engagem ent

• Voluntary Say on Pay;

140+ companies in Canada

• Monitoring proxy advisors’

voting guidelines

• Comprehensive proxy

circular EC disclosure

• Say on Pay experience
• Changes to executive

compensation programs

• Increased focus on EC

disclosure

• Direct shareholder

engagement by Board

• Direct engagement with

ISS, Glass Lewis, investor activists and Kingsdale Current Trends Talism an Experience Evolving Practice

• Use of proxy solicitors

(e.g., Kingsdale)

• Meetings with principal

investors on EC topics

• Articulating key elements
• f EC programs & rationale

Talism an Considering

• How proactive do we

want to be?

2 . Other EC Governance Tools

• Voluntary Clawback Policy;

more than 70% of TSX 60

• Higher levels of minimum

share ownership

• Voluntary deferral of STIP

payments in DSUs

• Executive DSU plan
• Clawback Policy
• Increased SOG
• Decreased CEO severance
• Pay-for-performance (P4P)

disclosure (realizable pay)

• Peer group update
• Re-focused STIP metrics
• Relative TSR in LTIP

Current Trends Talism an Experience Evolving Practice

• Ongoing alignment with

shareholder interests, i.e., share retention ratios, post-departure share

• wnership, “career shares”
• P4P, “cost of EC” and CEO

pay ratio analyses Talism an Considering

• Post-departure holdings
• LTIP vesting on CIC

3 . Managem ent / HRC I nteraction

• Structure and processes

for HRC annual calendar

• Clear responsibilities and

approval authorities (e.g., two consultant model)

• CHRO dotted-line

accountability to HRC Chair Current Trends Evolving Practice

• HRC mandate beyond

traditional EC topics

• Greater time and attention
• n EC governance and P4P
• Interaction / overlap with
• ther Committees
• Approved work plan
• More HRC engagement on

P4P and governance

• Two consultant model

– Autonomy / confidentiality of HRC

• vs. duplication of work

– Comms. more complex

• HRC mandate beyond

compensation Talism an Experience Talism an Considering

• How to better manage

two consultant model

4 . Pay for Perform ance

• Ensuring incentive plans

motivate desired outcomes

• Ensuring appropriate

weight on “pay-at-risk”

• Preparing for ISS and

Glass Lewis assessments Current Trends Evolving Practice

• Reviewing “realized” and

“realizable” pay vs. target

• Assessing “performance”

through multiple lenses

• Stress testing pay
• utcomes and overall cost
• Re-set of previous PSUs
• “Audit” of P4P in 2013

– Re-focused STIP metrics and added relative TSR metric to PSUs (50% weighting)

• Judgment vs. discretion
• ISS and Glass Lewis
• Review of realizable pay
• vs. performance

Talism an Experience Talism an Considering

• Future performance

metrics for PSUs

5 . Effective I ncentive Plan Designs

• Structured STIP / LTIP

design with tools for HRC judgment / discretion

• Less weight on options
• Rigorous metric selection

and target setting Current Trends Evolving Practice

• Financial / operating metrics

beyond TSR in LTIP

• Differentiating LTIP grants

for corp. / individual perf.

• Reviewing value for spend
• Customizing pay programs;

“best fit over best practice”

• Designs to fit Company

strategy

• STIP: focus on

quantitative metrics (retain discretion for HRC)

• LTIP: 100% PSUs (50%

relative TSR, 50% business metrics)

• P4P and impact on

behaviour and retention Talism an Experience Talism an Considering

• Linkage of PSU metrics to

business strategy