A recent WSJ article noted that ISS has recommended a vote against Exxon’s executive pay plan. Their key objections were that Exxon’s pay is not suitably correlated with Total Shareholder Return (TSR) on a 1 and 3-year basis and places too much emphasis on time-vested stock instead of performance vested stock. Exxon is a massive organization that makes very large and long-term capital investments all over the world that are subject to economic and geopolitical risk on a scale that few other companies can appreciate. The Company makes an excellent defense of their plan in a supplemental proxy filing and the description of their plan from their original proxy filing. There is no need to repeat the arguments here.
But this incident points out the obvious issues with using a one size fits all set of “objective” criteria to assess executive pay. Objective garbage is still garbage. No Compensation Committee wants to see its executive pay program criticized by a proxy advisory firm. But if your company is different in a significant way than the norm (as is Exxon), it is better to get that “No” recommendation for designing a program that is right for your company, than it is to get a “yes” by going with the flow and instituting a plan that doesn’t address your issues but passes the “objective” tests. In my experience as an executive compensation consultant, having designed plans for a broad range of industries and company sizes, there is always something unique about each company that must become the lynchpin of their executive compensation program. The art in this business is finding that unique element and designing accordingly. Even if it breaks the rules.
– Paul McConnell is a Managing Directors of Board Advisory, LLC