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The Next Challenge for Compensation Committees – Ensuring Pay and Performance Alignment in 2011 & Beyond. October 12, 2010. Panelists. Compensation Committee Chairman, Peter Compsay played by Jim Coppersmith

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october 12 2010

The Next Challenge for Compensation Committees – Ensuring Pay and Performance Alignment in 2011 & Beyond

October 12, 2010

panelists
Panelists

Compensation Committee Chairman, Peter Compsay played by Jim Coppersmith

  • Mr. Coppersmith is or has been a director of the Pizzeria Uno Corporation, Chyron Corporation, Kushner/Locke, BJ’s Wholesale Club, the Boston Stock Exchange, Sun America Asset Management Corporation, the Corporation of Boston’s Northeastern University and the Board of Trustees of Boston’s Brigham and Women’s Hospital.

Chief Executive Officer, Joe Stickler is portrayed by George McClelland

  • George McClelland serves on the Boards of Safeguard Scientifics, Friends of the Children Boston and F Squared Investments. He also serves on the Advisory Boards of Windward Investments and Executive Resources International. Currently he is Chairman of the Nominating and Governance Committee and a member of both the Audit and Compensation Committees of Safeguard Scientifics.

SVP HR, Jane Fairness is portrayed by Allison Quirk

  • Allison Quirk is an executive vice president at State Street Corporation and is head of Global Human Resources, responsible for all aspects of Global Human Resources company wide. Ms. Quirk is or has been a director of Boston Financial Data Services, the Boston Ballet, the Massachusetts Conference for Women, and Ellis Memorial House.

Compensation Consultant, Mike Paydoc is played by Steve Van Putten

  • Steve Van Putten is Managing Director in the Boston office of Pearl Meyer & Partners. His primary focus and expertise is on advising compensation committees and senior management on executive and director compensation matters. Mr. Van Putten consults across a range of industries working extensively with Fortune 1000 companies primarily at the Board level.
sti trends in the marketplace
STI Trends in the Marketplace

Performance Metrics

  • Earnings-based metrics remain most prevalent of financial measures
  • Revenue growth also common, typically combined with pre-tax profit growth
  • Most companies have a combination of metrics, including strategic or individual goals

Shareholder Value Correlation Analysis

  • One of the few industries where short-term revenue growth has the highest correlation with long-term value creation
  • Interesting to note that pre-tax profit has a higher correlation than EPS growth (Superior’s current metric)

Other Notable Items

  • Use of Committee discretion becoming more prevalent
  • Relative measurement not common in STI, but seen in LTI programs

Correlation Analysis

lti trends in the marketplace
LTI Trends in the Marketplace

LTI Vehicles

  • After experiencing a downward trend, stock options increased in prevalence in 2009-10
  • Time-based RS continues to decline as a piece of the value delivered

Vehicle Combinations

  • As companies struggle with goal setting, options and TBRS continue to be the most prevalent combo
  • Interestingly, 1 in 5 companies do not use stock options at all

Vehicle Combination Frequency

pay for performance p4p analysis
Pay for Performance (P4P) Analysis

Short-Term Pay for Performance Assessment

Short-Term P4P

  • Strong correlation between short-term EPS performance and total STI payouts to Named Executive Officers
  • However, Superior performed poorly relative to peers on revenue growth and TSR

Long-Term P4P

  • Again, strong correlation between EPS performance and total realizable value
  • However, Superior underperformed the peer group in terms of TSR
  • Misalignment between realizable value and TSR reflects:
    • Higher CEO LTI values
    • Max payout on EPS shares
    • Timing of option grant at low price

Long-Term Pay for Performance Assessment

pay for performance analysis focus on alignment with total shareholder return
Pay for Performance Analysis: Focus on Alignment with Total Shareholder Return

Long-Term P4P Alignment

  • Evaluated solely on the basis of relative Total Shareholder return, the Company delivered more in realizable value to executives than warranted based on relative TSR performance. Data points reflect Superior and Peer Companies pay for performance alignment.
management recommendations 2011 sti lti
Management Recommendations: 2011 STI & LTI

STI Program

  • Shift from EPS to a combination of EPS (50% weight), Revenue (25% weight) and individual performance (25% weight)
  • Flattening EPS slope for 2011 versus 2010

LTI Program

  • Continue with mix adopted in 2010, comprised of 50% stock options and 50% time-vested restricted shares
  • Consider pool of shares for use by CEO and SVP HR to recognize top performers below Director-level
follow up items next steps
Follow-Up Items & Next Steps

Management

  • Assimilate feedback from Committee into recommended 2011 STI and LTI design recommendations for Committee approval in December
  • Develop proposed performance goals and performance-award slopes for Committee consideration in December
  • Provide the Committee an overview of the performance management system and the linkage to reward differentiation

Consultant

  • Prepare market analysis to assist with sizing STI and LTI award levels
  • Conduct overall dilution assessment to evaluate competitiveness of proposed share pool
  • Provide update on latest regulatory and external developments