Executive Pay for Performance
A recent article in the San Francisco Business Times tells us that executive pay is getting closer and closer to reflecting actual job performance. The article identifies that there is a trend to reward upside performance, but alas, it is not as clear with regard to downside performance. In other words, some execs see the upside in their compensation when they do well, but not the down side when they do poorly. Here are some interesting trends identified in the article on executive pay with respect to stock options:
"Nationally, corporate boards are moving away from stock options as compensation, especially with the expensing of options kicking in next year for most companies. These companies are opting for restricted stock grants or comparable performance units, tying pay closer to performance."
"With options expensing imminent, the next year or two will determine how much progress corporate America will make in tying pay to performance in the corner office."
I think this whole notion of expensing stock options which is coming around the bend has a lot of people confused. I think the old says of doling out stock options without regard to measurable performance (and a corresponding downside for failure to perform) may be nearing an end. As organizations want to continue to reward their executives with ownership, restricted stock appears to be the new trend.