Executive Compensation: Strategies And Frameworks Program Playbook Activity 1

Playbook Activity 1.1: Experience with Executive Compensation Plans

Reflect on a past professional experience or an organization you have heard about from the media that had what might be considered a controversial executive compensation structure for a CEO or executive. Think about any undesirable outcomes or unintended consequences this compensation structure created.

Respond to each prompt with your experiences.

Was the compensation structure revised?

Describe the structure, components, and measurement criteria of the controversial plan based on your professional experience or using the example of a familiar organization.

If so, describe the changes and improvements, including the desired outcomes.

Were any executives unhappy with the new compensation structure? Identify their roles and explain their reasoning

What was the outcome of the revised executive compensation plan?

Playbook Activity 1.2: What Contract Components Does Your Organization Offer?

Attracting and retaining qualified senior executives are critical to the success of any organization. To do so, you need to design a well-structured contract that meets the mission of the organization and the expectations of the senior executives. What components would your organization include in an executive compensation contract?

Instruction

Reflect on the types of compensation your organization or an organization of your choice offers to senior executives.

Describe how your organization compensates senior executives.

List the types of compensation that should be included in an executive compensation plan.

What structure do you recommend?

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Playbook Activity 1.3: Relevant Stakeholders in your Organization

To start the executive compensation planning process, you will need to determine which of your organization’s key stakeholders to involve. Will you require the services of a compensation consultant?

Do you have a compensation committee established within your organization?

Consider your organization’s needs. Do you already have an executive compensation planning infrastructure in place? If not, identify which stakeholders should you include in addition to any outside resources.

Use the following table to list the roles of the internal and external stakeholders that are already involved or need to be involved in the executive compensation planning process.

Playbook Activity 1.4: Compensation Committees

Corporations of all sizes wield enormous power worldwide. The power to direct and oversee an organization's long-term success comes primarily from its board of directors.

The board of directors is legally responsible to the organization's key stakeholders. As such, it uses its powers of oversight and its best judgment to lead the organization in the direction it deems most appropriate.

In a publicly traded U.S. organization, the compensation committee must be listed on a stock exchange, and its duties are typically described in a committee charter.

For a board of directors to do its work effectively, members must understand their individual responsibilities and the roles of the committees. This section focuses on the committee primarily responsible for executive compensation oversight. The compensation committee comprises members of an organization's board of directors and oversees the organization's compensation and incentives for senior executives.

The board of directors must work closely with the CEO and other C-suite executives of an organization to offer strategic guidance and oversight. The directors strive to attract the best possible executive candidates using generous compensation packages.

A compensation committee charter assists the committee members in fulfilling their responsibilities of approving and evaluating the officer compensation plans, policies, and programs of the organization, reviewing and recommending compensation plans for the organization's employees and directors to the board, and administering equity compensation plans. The charter aims to ensure that the organization's compensation programs are competitive and designed to attract and retain highly qualified directors, officers, and employees. It encourages high performance, promotes accountability, and ensures that employee interests align with the interests of the organization's stockholders.

Compensation committee responsibilities:

Review Coca-Cola's talent & compensation committee charter

• Setting the C-suite's (top five officers') compensation
• Ensuring compensation aligns with the strategic focus of the organization
• Setting the compensation philosophy and developing specific plans for the organization
• Setting the objectives for the CEO
• Evaluating progress
• CEO succession planning
• Publishing the compensation discussion and analysis (CD&A)

Respond to the prompts below:

According to the committee charter, what are the key responsibilities of Coca-Cola's compensation committee?

Compare the charter with that of your organization or an organization of your choice.

Note — If you do not work for a public U.S. organization, approach this assignment from the point of view of your nearest public competitor or a similar organization in your industry. If this is not applicable, you may opt to use Netflix for this exercise. Follow this link to view Netflix's compensation committee charter.

What are some key differences? (List at least one.)

Identify whether anything is missing from your chosen organization's charter.

Why is it important to review and understand your organization's compensation committee charter?

If your organization does not have a compensation committee and/or charter, what steps would you take to develop one?

What guidance or processes could you put in place to execute an effective and compliant compensation committee charter?

Consider the composition requirements of your compensation committee.

• Are your committee's key responsibilities aligned with the NYSE and the NASDAQ?

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