A SERIES OF ARTICLES FRoM THE 2011 EMEA CoMPENSATIoN ...

HOLISTIC EVALUATION OF THE
REMUNERATION POLICY
Companies must consider all pay elements to ensure
that they have properly assessed the alignment
between pay and performance. Arraying these
elements by their timeframe and performance
alignment helps to illustrate their importance in telling
the story of pay/performance alignment.
From a conceptual standpoint, companies will tend to
achieve better alignment when the mix of awards
provided is based largely on longer-term objectives
and performance.
be a reflection of the overall market’s performance.
In some cases, TSR is influenced more by financial
conditions affecting the broader economy or the
industry than by the company’s performance.
Pay for Performance (P4P) Balance Framework
Shareholders
Performance perspectives
Measures
Competitors
P4P
BALANCE
Timeframe
Target setting
Internal goals
MULTIDIMENSIONAL PERFORMANCE
MEASUREMENT
Rather than rely only on one or two key measures,
companies today must take a multidimensional view
of value drivers. For example, from the perspective
of shareholders, TSR is the primary measure of
performance. However, since shareholders have varying
investment time horizons, opinion will differ regarding
the appropriate timeframe.
In addition, it is less clear from management’s
perspective that TSR, in either the short term or the
long term, is always a reflection of the company’s and
management’s performance – it could, in fact, simply
As such, other financial measures – such as operating
income, revenue growth, return on assets, etc. – should
also be considered in evaluations, as they may be better
measures of performance and are arguably more within
the control of the executive team. A multidimensional
approach should create a balance between shareholder
returns as well as absolute, relative and internal
performance (compared with the prior year or budget,
for example).
2011 executive remuneration trends in Europe show
that companies are already taking a multidimensional
view of performance. The number of performance
measures used in annual bonus plans is increasing
– many companies use more than three, with
nonfinancial measures now augmenting financial
measures in order to ensure a more holistic view of
performance.
Due to the uneven global recovery in 2011, individual
business units of any one company may be facing very
different economic environments, with the biggest
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