There are lots of considerations at play when setting executive compensation programs at public companies. You want to be able to retain and motivate your executives without making your shareholders and proxy advisors balk. On the flip side, we normally think private company compensation is a bit more unfettered — committees have a bit more breathing room when it comes to creative pay packages.
Below is an excerpt from a blog post by Bill Reilly at Pearl Meyer, where he discusses that despite that freedom, private company compensation committees are taking a page out of the public compensation committee playbooks.
– Goals and Metrics. As public companies begin to incorporate more qualitative, nonfinancial incentive metrics (often focused on environmental, social, and governance issues) into executive pay plans, private companies are gradually increasing their focus on long-term incentive awards. This is bringing private company pay practices more in line with the public companies that are competing for the same talent.
According to the survey, 100 percent of public company respondents said their organizations provide senior executives with a long-term incentive opportunity. Private, for-profit companies aren’t far behind at 76 percent. In fact, private, for-profit organizations were twice as likely as public companies—30 percent of respondents versus 15 percent, respectively—to have recently increased (or be planning to increase) long-term incentive participation levels.
– Structure and Governance. To further improve their executive pay programs’ effectiveness, private companies are increasingly adopting broader market corporate governance practices. These include having formal, documented compensation philosophies, adopting clawback policies, using tally sheets, and having oversight from a truly independent compensation committee with a charter that clearly outlines its role and authority.
— Emily Sacks-Wilner, CompensationStandards.com, March 24, 2022