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CCCA_V5No1_Dept-ExecComp-FIN.qxd:CCCA_V1No2_Dept-CourtLeg-V1.qxd 2/1/11 6:06 PM Page 12 Executive Compensation scorecard is a snapshot that shows expected Commit stakeholders will always be substantially larger objectives, the associated performance hur- If a performance management plan is design- than the actual bonus expense. Poorly dles, and how attainment of each perform- ed properly, incentives will be strongly tied to designed compensation plans only look at ance level will be rewarded. performance; where necessary, objectives will bonuses relative to executives at other related Once established, the board and executive be linked to an associated value;bonus expens- companies, and don't necessarily link these will have a clear“performance map”that can es will always be large enough to incent payouts to overall stakeholder benefit. be referenced throughout the year. desired behaviours; and the realized benefit to Wherever possible, effective plans should enable board members to understand the absolute cost-benefit associated with their bonus payouts. Effective compensation plans should enable board members to confidently /SGOODES tell stakeholders that their executive(s) received a bonus of “X-amount” and that they, the stakeholders,received a return of 10,50,100 or 0ROFESSIONAL ,,- 200 times that amount in direct savings and/or increased revenues. Overall, it is important for board members and stakeholders to under- stand that performance bonuses are not a neg- 8SFRPLQJ([HFXWLYHVW\OH3URJUDPV ative thing, but a means by which they can realize substantial savings and benefits. )DOO Under the terms of a performance man- !LTERNATIVE $ISPUTE 2ESOLUTION !$2 agement plan, some executives may do well "USINESS ,AW financially, but only if stakeholders do sub- 'ENERAL stantially better.Thus it is essential that board 3ECURITIES ,AW members understand these plans and be pre- 4AX,AW pared to defend them when necessary.With a proper plan in place, compensation plan :LQWHU details will be easier to articulate or disclose. !DMINISTRATIVE ,AW Framework details will help to answer the #RIMINAL ,AW “why” questions from governments, regula- 'ENERAL tors, and stakeholders and improve organiza- tional transparency. A performance management plan is a tool that not only enables the incentivization of k$Q\RQHZKRHYHUVDLGWKDWH[SHULHQFHLVWKHEHVWWHDFKHUQHYHUWRRN positive performance and the achievement of Fj^ff[\Ëj//0 SURJUDP7KHFRPELQDWLRQRISUDFWLFDODQGDFDGHPLF strategic goals,it also aids in addressing stake- OHDUQLQJZLOOWDNH\RXUSUDFWLFHWRDQHZOHYHO7KLVLVKRZODZVFKRRO VKRXOG KDYHEHHQWDXJKWy holder expectations and strong disclosure and 63&)681900-2001192-'-4%00%; transparency practices.There is no doubt that %''- 0%;71-8,:%0)6-38)004 having one in place aids corporate counsel in disclosure oversight by providing a strong 2VJRRGH3URIHVVLRQDO'HYHORSPHQWRIIHUV framework that aids in the justification of H[HFXWLYHVW\OH//0SURJUDPVYLDYLGHRFRQIHUHQFH organizational activities and the articulation GLUHFWO\WR\RXUKRPHRURIoFHRULQSHUVRQDWRXU GRZQWRZQ7RURQWR&RQIHUHQFH&HQWUH of compensation decisions. 9LVLWZZZRVJRRGHSGFD WROHDUQPRUHDQG WRUHJLVWHUIRUDQ,QIRUPDWLRQ6HVVLRQ Parts of this article previously appeared in the Institute of Corporate Directors’ November edition of “Director Journal.” Brad Kelly, director of Global Governance Advisors, can be reached at (416)707-4614 or brad.kelly@ggovernanceadvisors.com. 12 CCCA Canadian Corporate Counsel Association SPRING 2011