All in Long Term Incentives

At the companies who eschew variable pay altogether, the problem can be worse. Many of these companies pay base above the median. Over the year, the compounding growth in base pay outpaces the market, their needs, and the companies’ budget. High base pay can be a great approach, but it must be managed and explicitly communicated. Errors in this philosophy can be hard to correct.

As compensation professionals, it is our responsibility to educate people about our tools. Perhaps we have been a bit complacent over the past decade. The people who represent us, our companies, and our employees have an obligation to know what makes us successful. Those of you who have tried to teach yourself about equity compensation may have found it was not an easy task. Imagine if you were a politician and this was item 133 on your priority list!

My name is Equity Compensation and I have recently read of my passing and that of my family. I am happy to announce that I am alive. Dan Walter, the President and CEO of Performensation wrote my obituary a bit prematurely ("Obituary for Equity Compensation"). Like any famous personality I fully expect people to have an obituary ready to go, but I dislike having it published before I am actually gone.

Stock Options, Restricted Stock Units, young Performance Units and their cousin Non-Qualified Deferred compensation tragically died in 2017 as an unintended consequence of colliding with the 429 page U.S. tax reform called the ‘‘Tax Cuts and Jobs Act.’’ It should be noted that Employee Stock Purchase Plan is currently in critical condition at a local hospital.

Executive compensation is always in the spotlight. With all of that attention, mostly focused on supposed failures, you’d think that we would have seen some fairly dramatic changes over the past decade. The truth is, even with lots of new regulations, some fairly visible failures in governance and annual increases that surpass the rank and file every year, executive pay has stayed fairly consistent.

Your new CEO wants the old LTI plan replaced before the start of the new year. The head of Business Development needs a new sales incentive plan by the end of the month. People know exactly what needs to be fixed but may not have a complete understanding of what it takes to fix them. We can build temporary solutions quickly, but doing things correctly often requires starting with the foundation.

IPOs and equity compensation have become almost mythical in the media and entertainment. Because of this they are often mythical in the eyes of your employees. We have all read about the massage therapist, artist or receptionist who became multimillionaire when their company went public. We have all see the headlines about twenty-something billionaires.

A growing best practice is building regular reporting summaries at critical decision and measurement points. These summaries often include pictures or easy data visualization because our brains are best at remembering images. These summaries become a diary of our past. At their best, they also include the "why" of each decision. This approach to remembering history is seen in things like "Facebook memories" and old family videos but is very new to the world of total rewards.