While the Tax Cuts and Jobs Act has brought some positives to the economy and certainly to select individuals, it has also brought some challenges to compensation committees as they try to figure out the correct balance for long-term incentives as part of the executive pay package. In this episode, Bob Romanchek, partner with Meridian Compensation Partners, joins host TK Kerstetter to review the landscape that today’s compensation committee members are now navigating.
For a while, [relative TSR programs] worked–but now think of the volatility we have in the stock market…Imagine if you were the executive and I said, ‘Here’s a share, and the payout is dependent on our stock price relative to these other 25 companies that we really don’t have anything to do with. That’s your biggest payout.’ And there’s some squirrely results now that companies are three or five years out and getting a payout that’s not [necessarily] matching their performance.
In this episode, Romanchek explains why and how companies are rethinking relative TSR, which has been the largest component of long-term pay packages for many companies. He also highlights how compensation committees can take advantage of tax reform to redesign their CEO incentive plan.