| This study develops a core set of fundamental principles to be used by boards of directors for the governance of executive compensation at publicly traded U.S. corporations. The four core principles, Purpose, Engagement, Accountability, and Alignment, capture the objectives and ideals that corporate boards seek or should seek to achieve in compensating, motivating, and rewarding a company's CEO and senior management team. The principles are arranged in a simple system that reflects their interrelationships. Each principle has several key elements that help define the aspects of compensation and governance included in it. The system of principles and key elements is intended to give boards of directors and others a common language and conceptual framework for designing, evaluating, administrating, and making decisions about senior management compensation. Principles for the governance of executive compensation were initially developed as the result of a series of individual and group meetings with over 200 independent board members conducted over 18 months in 2008 and 2009. The initial principles were then customized and adopted by 3 publicly traded U.S. corporations and used to evaluate each company's executive compensation programs. This study used the Delphi method to evaluate, validate, and modify the initial principles. A panel of 14 corporate governance experts was assembled and each expert was presented with 2 rounds of written questions about the principles. The experts participated anonymously, but were provided with a summary of the answers in order to facilitate a convergence of opinion. There was a significant convergence of opinion among the experts, resulting in the system of 4 principles and key elements for each principle. The system of principles and key elements are rooted in the academic literature on executive compensation, the theory of the firm, behavioral economics, and self-determination theory. The principles are also consonant with and expand upon a significant body of treatises on corporate governance and executive compensation produced by U.S. and international governance and business organizations. The system of principles and key elements developed in this study should be the basis for improved governance of executive compensation by boards of directors, and enhanced communication from the board to shareholders and others about how, how much, and on what basis it pays senior management.;Key words: Principles, corporate governance, executive compensation... |
