The Conference Board called on Sept. 21 for new guidelines governing executive compensation that would establish a "clear link" between pay and performance. The group said that new practices are needed "to restore credibility and increase trust in pay practices and oversight."
The report comes days before a summit of the Group of 20 leaders where executive pay and bonuses is expected to be a hot topic, with pressure to curb outsized compensation linked to risky financial practices, especially among banks.
The Conference Board said public companies and institutional shareholders "should take meaningful action to restore the trust that has been lost during the economic crisis."
"Shareholders of American companies and the public deserve to see executive compensation programs that serve shareholders' interests and are explained to shareholders in thoughtful dialogue," said the report from a committee chaired by Robert Denham and Rajiv Gupta. Denham is a lawyer who has advised Warren Buffett's Berkshire Hathaway holding company and has been on other corporate boards. Gupta is former chief executive at Rohm & Haas.
Among other committee members are executives or directors from Delta Air Lines, Hewlett-Packard, Caterpillar and PepsiCo.
The report called for "guiding principles" to establish a "link between pay and performance, adopting best practices, eliminating controversial practices, demonstrating effective board level oversight of executive pay, and ensuring transparency and an appropriate dialogue between boards and shareholders regarding executive compensation."
"Just as the business strategies of most companies will and should be focused on building long-term shareholder value, incentive compensation should also be designed to reward long-term value creation," the report said.
The Conference Board, a nonprofit business research firm backed by some of America's biggest companies, said that compensation "should not encourage excessive or inappropriate risk taking, nor discourage an appropriate level of risk taking that the board determines is necessary to accomplish the company's strategy."
Copyright Agence France-Presse, 2009