Wednesday October 17, 2012, 2pm EDT/11 am PDT, To register for this complimentary webinar, click here.
Shareholder value growth is the core challenge of every business and the ultimate responsibility of every Board. The key question is how? What are the drivers of value creation and how should risks and tradeoffs among them be managed? And how can companies grow value with the global and financial headwinds facing US businesses over the next decade?
These questions are even more important today. For most of the last 30 years, companies have benefited from “tailwinds” in growing shareholder value—consistently declining cost of capital, robust global growth and significant company cost reduction opportunities. But companies now face a future of severe “headwinds”—market growth is slowing, cost reduction efforts are reaching their limits, and global competition is intensifying as low cost countries move to higher value-added products. Most importantly, the cost of capital is at a 60 year low and set to rise dramatically. Tomorrow’s boards will face a world where growing enterprise value, establishing the right executive performance goals and communicating with shareholders will be much tougher than in the past.
Yet most companies struggle to even define where and how value is created. In the absence of valid and effective measures of shareholder value creation, it is exceedingly difficult to manage for value. Thus, a prerequisite question most companies face is quite basic—how should shareholder value be measured and how can value and value creation risks be managed with these measures across the company?
The good news is that there are proven approaches to these challenges. Valid and practical measures of shareholder value can be implemented by adjusting the financial reporting systems in place today. The value contribution of each business unit and market area of the company can be determined as well as useful projections of future value contributions. Most importantly, the enterprise value of future growth opportunities can be accurately assessed along with the risks associated with these growth opportunities.
- 60 minutes–maximum value for time
- Completely free to attend
- Time for questions and comments
- All participants receive a copy of the webinar materials after the event
- Unbiased third party director education
This free webinar is brought to you through the sponsorship of Brand Velocity and Directors & Boards.
The Investor Responsibility Research Center Institute (IRRCi) will host a webinar on a new study authored by Charles M. Elson and Craig K. Ferrere of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
Wednesday, October 17, 2012 at 2 PM ET. Register Here
Executive Superstars, Peer Groups and Over-Compensation – Cause, Effect and Solution finds that an over-reliance on peer group compensation benchmarking is central to the persistent issue of rising executive pay in the United States.
- Download the full study here.
- Read The New York Times coverage of the research here.
- Read the press release here.
- Register here.
While other research examines flawed peer group methodology, this new study makes it clear that peer grouping with minimal board discretion is a seriously flawed methodology even when the peer groups are fairly constructed. The study also is the first to document that peer group benchmarking – now so widely utilized that it is enshrined in federal regulations – has accidentally become the de facto standard even though it never was designed to determine CEO compensation.
- Charles Elson, Co-Author and Chair in Corporate Governance and Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
- Craig Ferrere, Co-Author and Edgar S. Woolard Fellow in Corporate Governance at the Weinberg Center.
- Jon Lukomnik, IRRCi Executive Director
The research paper argues that:
- Theories of optimal market-based contracting are misguided because they are based on the notion of vigorous, competitive markets for transferable executive talent;
- Even boards comprised of the fiduciaries faithful to shareholder interests will fail to reach an agreeable resolution to compensation when they rely on the flawed and unnecessary process of peer benchmarking;
- Systemically, a formulaic reliance on peer grouping will lead to spiraling executive compensation, even if peer groups are well constructed and comparable; and
- The solution is to avoid arbitrary application of peer group data to set executive compensation levels. Instead, compensation committees must develop internal pay standards based on the specific company, its competitive environment and its dynamics. Relevant considerations include an executive’s current and historic performance and internal pay equity. Some reference to peer groups may be warranted, but the compensation process must maintain the flexibility necessary to arrive at a reasonable approximation to what is absolutely necessary to retain and encourage talent.
This research adds to the body of executive compensation research funded by IRRCi. A previous IRRCi study available here identifies companies with high pay that is not aligned with high performance. The Harvard Executive Compensation Research Series is available here.