US Executive Pay Governance Trails UK Practices

Companies in the United States tend to provide long-term incentive payments for achieving absolute goals, such as stock price or earnings per share growth, whereas companies across the pond tend to pay out long-term incentives for performance relative to competitors, using measures such as total shareholder return relative to a group of similar companies. This means that the incentive pay of US executives is less differentiated on the basis of their relative performance than those of executives in the UK, according to a report by consulting firm Performance and Reward Governance International (PARGI).

Further, the incentive pay structure in United States-based companies gives the impression that most have performance that is “above average.” However, not reflected in this assumption is that half of the companies do better than the other half, the study found.   Especially when measured next to pay practices in the United Kingdom, PARGI finds there is a lot more US companies can do to ensure that executives are paid fairly for the performance they deliver relative to other companies.

Much of the contrast in compensation policies though could be traced to the fact that UK governance codes have advocated relative performance measurement since the Cadbury report was published there in 1992, PARGI points out. By comparison, it was only in August last year that the New York Stock Exchange (NYSE) explicitly supported the consideration of relative shareholder return for long-term incentives to chief executives.

More information is available by contact Michael Robinson at PARGI at (415) 819-0740 or via email at michael-robinson@pargi.com.