For investors, the advent of advisory shareowner votes on executive compensation — at more than 300 companies in 2010 — is an opportunity and a challenge. These votes can be catalysts for shareowner discussions with directors and management about pay concerns, including the structure and size of executive compensation. But they also oblige shareowners to analyze compensation in a thoughtful way.

Many investors, however, lack the time and resources to do deep dives on compensation at each of the hundreds of companies in their portfolios. They need rules of thumb to identify executive pay programs that are ticking time bombs. Poorly-designed incentives can promote excessive risk-taking and get-richquick mentalities — key contributors to the financial crisis.

Accordingly, the Council has developed the following list of red flags to help members target companies where pay deserves careful scrutiny and where dialogue may be most urgent. The list was crafted by Council staff after a thorough review of Council policies and comment letters on executive compensation, checklists developed by other organizations and the recommendations of 15 pay experts who briefed members in a series of teleconferences in 2009.

The list is a guide to problematic pay practices but is not meant to be exhaustive.

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