Reflection Paper on PPT Sessions
Number of words: 1562
Session 3: compensation Committees
Compensation committee structures are the company board of directors which has the mandate of reviewing and approving the compensation of the company CEO and other executive officers. In carrying out its responsibility, the compensation committee starts assessing the board using critical steps, including planning where the compensation sets the annual calendar and agrees on the appropriate process to follow. In the second step, the committee designs a survey to determine the targets using interviews. In the third step, in understanding the board, the compensation committee analyzes the results through comparisons and discusses the results. Lastly, the committee reports the findings through developing a plan and assigning work to certain individuals. Also, the compensation committee on the board’s performance to determine whether it is a high-performing board or not (Bueno, 2021). A high-performing board concentrates on the following tasks, such as Responding to the organizational strategy. Also, the board identifies the risk and the opportunities which the management may overlook.
Furthermore, the board monitors the implementation of the strategy through operational plans and oversees leadership quality. They also engage in safeguarding the company’s reputation through maintaining a governance framework. The compensation committee also plays a significant role in selecting the peer groups (Bueno, 2021). These peer groups are reviewed annually in keeping the business model perspective of the industry. Also, the council manages the tension that may arise due to the long-standing and short span interests of the investors. Also, the Board has a role in linking the succession to compensation by integrating the CEO’s conversation to succession planning.
High-performing boards possess features such as focused on well-defined governance. During their meeting, there is an extensive questioning deliberation, and the debates are always welcomed. Compensation committees have broad roles. These roles come along with barriers that hinder them from performing effectively (Bueno, 2021). These barriers include ineffective in Nominating committee, ineffective board chair, the board having small members, thus insufficient numbers for diversity, and the committee being tempted to focus on trivial subjects while neglecting the main agendas and lack of strategic plan.
The compensation committee should ensure there are educational strategies to facilitate ongoing education to the directors. Most of the leading companies ensure there are several education strategies for the directors. Some f the strategies used include encouraging committee chairs and the directors to attend seminars ad conferences rich are of relevance and interest. They are also maintaining membership for each director infirm who is dedicated to corporate governance. Using outside experts to come and present in first another strategy is through providing the directors with material concerning the corporation and the industry operates in topics of compensation and governance (Council, 2021). The compensation committee is also entitled to oversee the compensation charter in determining the areas which need improvement and performance. On the questions regarding board education, leadership development and succession planning, organizational design review, pay and performance benchmarking peer groups and why the peer groups are relevant, disclosure of whether the committee considered the implication of risks associated with the companies compensation practices and policies and lastly offset a degree in the market value of the equity granted as compensation all these improvements are required. There are questions such as company disclosing total payments benefits payables that are a result of termination scenario, compensation decision on how compensation relates to overall stewardship and the governance of the company, board remuneration, employment contracts and pension and benefits question are performing well.
To strengthen the board, the company is involved in recruitment and orientation, education and development, succession planning, and evaluation. During the recruitment and evaluation phase, the company ensures that it has the right individuals on the board. This is regarded as the most critical development practice. The recruitment and nomination process lays the groundwork for improved board performance (Council, 2021). During recruitment, the compensation committee considers the independence of the board and its directors. Also, symbolic factors such as stakeholders in test, geography and diversity. The compensation committee also emphasizes the time commitment since is essential in assessing the directors. Additionally, another consideration s on the investment in the organization.
Since directors are retained based on their intellectuals, they should bring their skills, knowledge and experience. Also, a balance in skills, experience and temperament is regarded as effective for the board in overseeing responsibilities. On education and development, education based on corporate governance, finances and risk management is essential. On the phase concerning succession planning, there should be clear accountability of the board chair succession. Also, evaluation of the existing board of chairs after every three years (Council, 2021). The independence of the board of the chairs in the United States should be increased.
The last phase involves the evaluation process. This phase helps the committee in developing the process, which ensures there effective evaluation process. Development of action plans and assessments against these action plans. The last meeting with the chair and recognizing the focus on disclosing the board sills and evaluation.
Session 4 Reflection on Proxy Advisory Firms
Proxy advisory firms helps institutional shareholders with data, and sanctions on executive and investor proxy views that are arranged on in the company’s general meeting. The top proxy companies are the ISS and the Glass Lewis and other institutional shareholders. These firms have arisen due to market failures on the voting and border system of the cooperate governance. However, independent proxy firms indicate market failures of their own (Igopp, 2021).One of the proxy advisory firms is Glass Lewis which s a portfolio company of the Ontario teachers’ pension plan board founded by the finance, accounting and legal professionals in 2003. The firm supports the establishment and conservation of long-term shareholder significance through a superlative proxy voting resolution and high value. The firm also supports independence analysis on the governance finance, accounting and political risks which might arise in public companies.
Institutional Shareholder Service of companies was formed in 1985. It serves as the reference point for companies and investors for making sound decisions. It is the leading provider of corporate control and investment solutions and editorial content for institutional shareholders and corporations worldwide. ISS operates independently and its executives are put in place before the acquisition is made. With support from the capital partners and deeply strategic, financial and operating expertise, ISS continues to improve existing products and invest in the coming generation of products and services. Its clients include many top world investors.
The proxy firms work under the guidance of the national policy. The policy guide both ISS and Glass Lewis when addressing conflict of interest between the shareholders and the compensation committee. The policy also develops the transparency and accuracy of the votes recommendations. The policy also guides the proxy firms’ advisory on the development of proxy voting guidelines. Also, how should these proxy advisory firms communicate with their clients, their participation in the market, and the other stakeholders. Based on the Say on pay policy, the two proxy advisory firms have contributed positively (Larcker, 2021).these firms voting recommendations have led to changes before the Say on pay vote, with changes in pay plan experiencing a low level of support from the proxy advisory firms. The proxy advisory firm votes against performance share units, CEOs bonuses payout, tied to the CEOS compensation.
Proxy advisory firms had several impacts on the introduction of SA on pay, such as increased litigation before and after, say on pay Votes whereby several companies were sued, such as Symantec for not disclosing enough information on compensation pay, apple being sued for the usage of insufficient language and Cincinnati bell’s board (Larcker, 2021). Also, there has been an increased influence on shareholders advisory firms since Say on Pay was introduced.
Glass Lewis proxy advisory firm will vote against Say on pay since the overall structure and design of the company executive compensation program were not well defined. Also, say on pay did not emphasize the quality and content of the firm’s disclosure. Also, Glass Lewis due to the quantum which was to be paid to the executives. Lastly was to vote against due to the link which was to be established between compensation and performance.ISS guidelines are generally against the Say on pay proposals; first, a significant difference between the CEO pay and the company’s performance. Secondly, if on adopting the ISS, the company maintains difficult pay practices. Thirdly, the ISS board shows a poor level of communication expertise and poor responses to the investors (Igopp, 2021). Recently Glass Lewis proxy advisory firm has made several changes regarding the compensation on the performance decision. These changes include the board skills, environmental and social risk oversight, and compensational clarification on the other executive from the CEO. Guidelines regarding contractual payment and arrangements.
Bueno, R. G. (2021). Evaluating Pay for Performance Alignment. Retrieved from https://www.issgovernance.com: https://www.issgovernance.com/file/policy/active/emea/European-Pay-for-Performance-Methodology-Overview.pdf
Council, A. (2021). The Evolving Role of the. Retrieved from https://www.nacdonline.org: https://www.nacdonline.org/files/FileDownloads/PDF/Dec2012MasterClass/TMC-NACD-CompAdvCouncil-Nov-Dec-2012.pdf
Igopp. (2021). The Troubling Case of Proxy Advisors. Retrieved from https://igopp.org: https://igopp.org/en/the-troubling-case-of-proxy-advisors/
Larcker, D. F. (2021). How Do Proxy Advisory Firms Develop Their Voting Recommendations? Retrieved from https://www.gsb.stanford.edu: https://www.gsb.stanford.edu/faculty-research/publications/then-miracle-happens-how-do-proxy-advisory-firms-develop-their-voting