The Aspen Institute, in partnership with Korn Ferry, released its Modern Principles for Sensible and Effective Executive Compensation this week, with the Center’s Charlie Tharp contributing as a participant in Aspen’s executive compensation roundtable.
Aspen states the rationale for the development of the 2020 Principles is the belief that “re-imagining executive compensation is key to re-imagining capitalism in the United States.” The Principles represent an evolution of Aspen’s 2010 publication Long-Term Value Creation: Guiding Principles for Corporations and Investors (2010 Principles) which advocated alignment of company and investor compensation policies, avoiding short-termism and requiring a meaningful proportion of executive compensation be equity-based. While the 2010 Principles gave passing reference to the need for companies to balance the interests of multiple constituencies in the pursuit of long-term value creation, the 2020 Principles have evolved from an investor-centric focus to a view that companies must be responsive to the “rapidly evolving relationship between business and society.” In contrast to the 2010 Principles, which relied mostly on the input of companies, investors and corporate governance experts, the 2020 Principles included executive compensation consulting and legal experts, compensation committee members, academics, and investors.
- Pay is unambiguously tied to the company’s purpose and the drivers of its long-term success.
- Executive pay outcomes are fair.
- Goals used in incentive plans are credible and their outcomes difficult to manipulate.
- The executive pay program is fully described in clear, jargon-free language.
- The Board bears ultimate accountability for making decisions about executive pay and for aligning pay with the long-term health of the enterprise.