Though Congress is weighing legislation the would enforce such reforms, the Conference Board's Task Force on Executive Compensation said Monday that publicly traded companies and institutional shareholders shouldn't be hamstrung by burdensome regulations.
Though abuses in executive pay have contributed to a loss of trust by shareholders and the general public, "a rules-based, 'check the box' approach cannot substitute for thoughtful board action discussed with shareholders," said Robert E. Denham and Rajiv L. Gupta, co-chairmen of the group's task force on executive compensation, in a statement.
"Real -- and perceived -- abuses in executive compensation have contributed to this loss of trust, and the task force report provides a practical set of guidelines that, if appropriately implemented, can make significant progress in restoring credibility in our corporations," they said.
The group nonetheless acknowledged that government has a role to play in keeping abuses in check. Among proposals Congress is weighing are greater scrutiny of executive pay and a provision to give shareholders a non-binding vote on compensation packages, an idea President Obama backed in a speech to Wall Street last week.
Other companies that signed onto the guidelines are Hewlett-Packard (HPQ), AFC Enterprises (AFCE), California State Teachers' Retirement System, Securities Industry and Financial Markets Association, Nasdaq OMX Group (NDAQ) and Albemarle Corp. (ALB).
Here are the principles the Conference Board task force said public companies should establish in its report:
- Establish a clear link between pay, strategy and performance.
- Provide compensation that is fair, affordable and clearly aligned with actual performance.
- Eliminate controversial compensation practices that conflict with the notions of fairness and pay for performance – such as excessive golden parachutes, overly generous severance arrangements, gross-ups of parachute payments or perquisites, and golden coffins – unless specific justification exists.
- Demonstrate credible board oversight of executive compensation.
- Foster transparency with respect to compensation practices and appropriate dialog between boards and shareholders.