Pay for Success III

The stories about CEO pay we read in the press are all about excess, greed, outrageous perks, and pay for failure. But that doesn’t mean that all CEOs get bonuses for nothing and commute between their four homes on the corporate jet. There are CEOs out there who get paid for success and who have compensation committees that actually do what most boards just claim they are doing—set pay responsibly, set challenging performance targets, and provide the CEO with just the benefits that the whole workforce is getting.

Our findings include:

• while most of the companies in the report used pay surveys, only a few used compensation consultants, with many relying solely on the common sense of the compensation committee to design effective pay policies (including FMC Technologies, PACCAR)

• many companies approached executive pay much as they approach the pay of other managers and professionals at the company, setting salary ranges, using company-wide bonus plans, etc. (including FMC Technologies, PACCAR, and Humana)

• for many of the same reasons that they use company-wide pay plans, many companies have a “no executive perk” policy, such as Apple, National Oilwell Varco, PACCAR, C.H. Robinson, and Nucor

• many of the group have introduced clawback provisions—Humana, Darden Restaurants, and PACCAR, for example—while such companies are still in a minority even in the S&P 500

• few companies employ executive employment agreements ( Apple, AutoZone, and C.H. Robinson, for example, have none)

• unlike many companies in 2008, Pay for Success companies that did not meet target performance either drastically reduced bonuses or eliminated them altogether, like Darden Restaurants and Owens-Illinois

• all of the Pay for Success companies set targets—both annual and long-term—that were truly stretch targets, requiring significant outperformance of prior year results; in addition, maximum bonuses are paid out only if performance significantly exceeds target

• the vast majority of the CEOs and other named executive officers have significant service with the companies (Nucor, PACCAR, FMC Technologies).