Explorations in Executive Compensation

Interview with Carol Bowie and Martin Nemeth Provide feedback on the Compensation Project

Executive pay is a perennial hot button issue for shareholders, corporations, regulators, the media, and the general public.

This project is part of RiskMetrics Group's efforts to stimulate dialogue and new thinking among investors and corporations as they approach this critical issue. Three white papers provide essential guidance on trends and best practices. We also offer two new techniques for looking at the pay-setting process.

We encourage and invite feedback on these ideas. Please let us know what you think.

Get started with the executive summary Download the full package of white papers
Considerations
We offer three papers providing essential guidance for all market participants as they assess today's executive compensation practices and consider emerging best practices and trends.
Evaluating Executive Pay Components
This white paper reviews the components of executive pay packages, with an examination of the issues each raises for investors.
Executive Summary White paper
Key Considerations in Executive Pay
This paper examines key ways markets approach executive pay, including pay benchmarking, stock ownership guidelines, the use and disclosure of performance metrics and goals, internal pay equity and accumulated wealth analysis.
Executive Summary White paper
Equity Compensation Plans
This white paper provides a detailed view of equity-based compensation, methods for measuring its cost, and trends in equity plan terms. The companion technical paper explains the use of binomial option pricing as a technique for measuring the shareholder value that is transferred through equity grants.
Executive Summary White paper
Innovations
We propose two techniques for analyzing and evaluating executive compensation packages.
Peer Benchmarking Methodology
Pay package design often begins with benchmarking — targeting executives' total pay and various pay elements at a specific percentile with respect to a group of peers.

This paper presents a quantitative model for evaluating the quality of a company's peer group and benchmarking process.
Executive Summary with interactive introduction White paper Technical document
Executive Compensation Risk Modeling
Investors benefit by understanding how closely key managers' pay is aligned with their interests and attendant risks, but the market currently lacks a standard to assess that.

This paper proposes a language and common set of measures that can be used to quantify an executive's risk profile and compare it to that of company shareholders and to peers.
Executive Summary with interactive introduction White paper