Achieving Pay for Performance

Director Notes, No. DNV4N24, December 2012

12 Pages Posted: 29 Jun 2013  

Stephen F. O'Byrne

Shareholder Value Advisors, Inc.

Date Written: December 1, 2012

Abstract

This paper uses historical data on relative pay and relative performance to quantify three dimensions of pay for performance: pay leverage (a measure of incentive strength), pay alignment (a measure of correlation) and the pay premium at peer group average performance (a measure of performance adjusted cost). The paper shows median pay leverage and alignment for CEOs, top 5 executives and directors of S&P 1500 companies for the period 1996-2011. The paper also presents a simple pay plan with annual grants of performance shares that provides “perfect” pay for performance (i.e., leverage of 1.0, alignment of 1.0 and a pay premium of 0.0).

Keywords: executive compensation, management incentives, pay for performance, pay leverage, director compensation

JEL Classification: G30, J33, J41, J44, M52

Suggested Citation

O'Byrne, Stephen F., Achieving Pay for Performance (December 1, 2012). Director Notes, No. DNV4N24, December 2012. Available at SSRN: https://ssrn.com/abstract=2287205

Stephen F. O'Byrne (Contact Author)

Shareholder Value Advisors, Inc. ( email )

1865 Palmer Avenue, Suite 210
Larchmont, NY 10538
United States
914-833-5891 (Phone)
914-833-5892 (Fax)

HOME PAGE: http://www.valueadvisors.com/Contact.htm

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