Tax reform will have many companies rethinking how they go about executive compensation this proxy season. Pay for performance, bonuses, CEO Pay, higher salaries and new compensation deduction limits are just some of the areas of consideration for companies as they rethink the structure of their compensation programs. The new federal tax law might even allow companies to walk the opposite direction in tying performance based pay to executives. Companies have a number of options available in rethinking their own structures, and stakeholders will be paying close attention to whatever changes are made, especially as it relates to proxy disclosures.
It will be advantageous for companies to begin gathering feedback during shareholder engagement meetings to ensure new executive compensation considerations don’t have an adverse reaction from shareholders and on vote outcomes as a result of any changes made.
Check out this insightful blog post which gives an overview and detailed outlook on what companies might be considering as they rethink executive compensation design in light of the new tax reform requirements.
The Conference Board’s Douglas Chia weighs in on the discussion in a blog posted by the Xpert HR Blog:
“Because corporations have many options with respect to compensation design, Chia explains that “it’s hard to predict what changes are going to be made. Companies are trying to figure it out.” But even if these deduction limits don’t decrease executive compensation to a level that satisfies critics, Chia notes that “moving away from equity compensation is a good thing overall; too much of executive compensation is tied to equity-linked instruments.”
Chia clarifies that an overreliance on non-cash stock-based compensation may lead to an “obsession with stock-price,” and to a corporation that is “hyper-focused” on making decisions that make sense in the shorter term. A balanced approach to compensation planning that includes a move away from stock options and restricted stock may result in corporations “investing for the long term,” Chia states.
In addition to an increased emphasis on taking the long view, Chia has confidence that corporations will make informed, “enlightened” choices. He says companies often “do what’s best” from a corporate governance perspective, taking into account investor feedback and compliance requirements.”
Read the full blog post here: Why Companies May Be Rethinking Executive Compensation in 2018