Hugessen Consulting Inc.’s Post

Name: Hugessen Consulting Inc. explains executive compensation dynamics | Hugessen Consulting Inc. posted on the topic | LinkedIn
Uploaded: 2024-02-26T20:39:52.277Z
Channel: Hugessen Consulting Inc.

Hugessen Consulting Inc.

8,147 followers

8mo

🔍 Discover why 𝗿𝗲𝗮𝗹𝗶𝘇𝗲𝗱 𝗮𝗻𝗱 𝗿𝗲𝗮𝗹𝗶𝘇𝗮𝗯𝗹𝗲 𝗽𝗮𝘆 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀 are essential tools for boards and compensation committees in shaping future compensation plans and enhancing transparency around executive pay alignment. 📺 Don't miss out on this insightful exploration of executive compensation dynamics brought to you by Hugessen Consulting Inc.’s Richard Liu. To receive future Compensation Fundamentals explainer videos directly to your inbox, subscribe here: https://lnkd.in/g4-ZAv7c #ExecutiveCompensation #RealizedPay #RealizablePay #HugessenConsulting

Transcript

Welcome to Hugessen's Compensation Fundamentals video series. In this video I'll be discussing realized and realizable pay analysis. Executive pay is typically represented by the annual target value of compensation provided to an employee. Often this consists of a base salary, target short term incentive and target long term incentive. The latter two are variable or at risk in that their values are ultimately subject to company and or individual performance. But what happens to these variable components of pay over time? How much does the employee actually receive in comparison to the target value? And how can we know whether pay is ultimately aligned with performance? A realized and realizable pay analysis can help uncover the answers to these questions. At the beginning of each compensation period, a target value is set which represents the pay opportunity for the employee. Over time, the fixed portion of pay is paid out and the variable components of pay are realized and paid out to the employee based on performance. Realized pay can consist of base salary, cash bonus and payouts of long term incentives such as restricted share units, performance share units, and gains from exercises of stock options. Realizable pay is the estimated value of compensation that is still in flight and subject to future performance. This can consist of long term incentives such as unvested restricted share units, unvested performance share units and outstanding and unexercised stock options. The values of these in flight awards are estimated based on the current company share price. Together, realized and realized what pay represent the actual values of compensation that an employee has already and is estimated to attain from the pay program. A comparison between the target value of compensation with the realized and realizable value in each given year can reveal a number of insights. For example, is the employee achieving the target value of their compensation, is a greater or lesser than target? Moreover, a comparison between the employees realized and realizable pay experience to shareholder experience can help inform whether over a period of time, the employee's pay is aligned with performance. Additionally, this analysis can be replicated for a company's peers to understand the relative pay and performance experience. Many boards and their compensation committees review realized and realized pay analysis for their top officers to help inform their views on the effectiveness of the pay program and to make informed decisions about future compensation plans. While in Canada there is no current disclosure requirement for realized and realizable pay analysis, some publicly traded companies have elected to provide this information on a voluntary basis to help shape their narrative around the alignment of executive pay with company performance in the annual proxy statement. Huggesen Consulting works with clients across a range of industries to navigate the complexities of executive compensation. We hope you found this educational video helpful. Should you have any questions, please feel free to visit Hugessen's website For more information about how to contact our team of expert compensation consultants.

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