The optimization of pay structures for executives and upper-level management has played a prevalent role in the duties of compensation committees in recent years. From the restructuring of the compensation portion of the proxy statement to the introduction of Say on Pay and everything in- between, checks and balances regarding compensation have come in waves,

and shareholders have increasingly held boards more accountable because of it. As a result, board members—and specifically compensation committee members—have had to walk a thin line between attracting talent and overpaying executives, and the most effective strategy to achieve that has been basing rewards on company performance and the creation of shareholder value.

Designing an effective long-term incentive plan (LTIP) can be very difficult, as boards must be aware of the potentially high costs that come with an over- zealous LTI design. Similarly, boards must be privy to the gains associated with an effective plan, both for shareholders and the executives themselves. Consequently, compensation committees must work diligently to determine multiple factors in an LTI plan. Committees must select the correct metric(s) on which to base performance, the weighting of that metric compared to total performance, set the targets, thresholds and maximums for each award and lastly measure these goals to appropriate payouts.

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