Current Developments On Executive Compensation

Introduction

Excessive risk taking was one of the major factors that led to the financial crisis of 2007/08. Prior to this period, executives operated nearly without proper supervision by the Boards of Directors (BoDs). They were mainly driven by greed and the unhealthy desire to significantly increase their incentive pay. Most of the incentive schemes did not comply with the basic design principles of defining threshold, target and superior performance and specifying the appropriate pay for those levels of performance. Where the design principles are complied with, the BoDs (through the Remuneration Committee) completely abdicated their responsibilities of setting key performance objectives for executive performance and measuring results against those objectives.