Archive for November, 2014

Performance Metrics and long term alignment (I)

November 29, 2014 6 comments

In our previous post on performance metrics related to compensation schemes, back on January 2013,, we analysed different financial and non-financial metrics that are often used to assess corporate performance.

We particularly refered to the many critics that had been issued against financial metrics as for their incapacity to force managers to focus in the long-term sustainability and prosperity.

Several years after the 2008 crisis started,  financial metrics are still by far the most used to evaluate the corporate and managers` performance.

In The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design, (1) authored by Organizational Capital Partners and commissioned by the Investor Responsibility Research Center Institute (IRRCi), Mark Van Clieaf, Karel Leeflang, Partner and Stephen O’Byrne tried to shed light on the relationship between company economic performance, shareholder return and executive compensation.

We will in this post review the performance metrics recommended by the authors to measure “value creation and performance”.
Read more…


Managers` total wealth analysis: should companies follow it in connection with stock price?

November 16, 2014 Leave a comment

Is looking into the annual compensation enough to get an idea of how incentives are working? Shouldn`t companies look at stock related pay received in previous years, and assess if wealth invested in the company provides an adequate incentive? In fact, for larger companies, wealth invested in the company is usually is much bigger than annual compensation, so that a 50% movement in the stock price could engender a wealth effect as big as six times the annual manager`s compensation

These data were provided by Larcker and Tayan (1), who analysed the topic back in 2012. They gathered data, (available from the proxy statements) about annual compensation and stock and options held by managers. They found large differences in those ratios among companies, in what they think is a cumulative effect of shares and options granted through the years: at the end the incentives could be very different to those originally intended by the company.

Larcker and Tayan used “convexity” to compare pay structures; Read more…

Who should be covered by Corporate Governance Codes?, by Icaew

November 15, 2014 Leave a comment

The Institute of Chartered Accountants in England and Wales recently published a brief commentary on “who should be covered by Corporate Governance Codes”, (1).

They suggest a Framework Code should be drafted that covers all groups concerned with Corporate Governance.

Of course directors are affected by Corporate Governance principles and other legal obligations. But there is a growing number of codes and guidelines being published by other groups, such as auditors, institutional investors, executive firms, pay consultants, and the like. Read more…