With shareholders having more say on executive compensation than ever before, companies have been forced to reevaluate and in some cases overhaul existing executive pay schemes in response to external pressure. Based on interviews with 25 corporate counsel, corporate secretaries, and heads of investor relations at North American firms, Toppan Merrill’s Market Pulse: Executive Compensation examines the ways in which companies are seeking to navigate this changing landscape.

To find out how the executive compensation landscape is evolving, Toppan Merrill commissioned Mergermarket to survey corporate respondents in North American firms for their insights.

Focusing in on specific criticisms from shareholders, the majority (48%) are calling for a greater emphasis on performance pay as opposed to base pay. A further 28% believe that different metrics in evaluating performance as a guideline for compensation, i.e. using actual shareholder returns instead of earnings per share or stock price. And a fifth feel that pay packages are just too high in general.

Structural changes to executive pay at industry-leading companies demonstrate the lengths firms will go to in order to address these issues. American Airlines and Toyota have both made bold moves to align pay and performance, with American Airlines CEO Doug Parker opting to forfeit his own paycheck and be paid entirely in stock, and Toyota CEO Akio Toyoda announcing plans to pay executives partly in restricted stock as opposed to all cash. Both gestures represent efforts to encourage longer-term thinking on the part of leadership, and to showcase a greater commitment to aligning the interests of top management with those of shareholders and employees.

According to Tim McIntyre, Executive Vice President of Communication, Investor Relations & Legislative Affairs at US-based chain Domino’s Pizza, it is important for shareholders to see a clear mix of short-term and long- term incentives: “[Long-term incentives] create stability among our leaders [while] annual bonus targets are designed to create a 'sense of urgency' at the same time,” he says. “We see a blend of long-term thinking and short-term objective-setting as important to our culture. The short-term incentive plan is EBITDA-based for all employees and leadership, consistent and bottom- line driven. Given our shareholder return track record of the past few years, we think we’re on track.”

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