美世 - Incentive Compensation：Summary of Current Practices.ppt

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2018-01-15 发布于江西
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美世 - Incentive Compensation：Summary of Current Practices.ppt

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美世 - Incentive Compensation：Summary of Current Practices

Incentive Compensation:Summary of Current Practices for Acc. 640B01 December 2004 Introduction Compensation Consulting Industry “Big 4” $2.7B: Mercer $1.1B: Watson Wyatt Worldwide $1.0B: Towers Perrin $0.7B: Hewitt Executive Compensation Components Fixed: Base salary Variable: Short-term incentives (1 year performance) Variable: Long-term incentives (1 year performance) Variable Compensation is the Largest Portion of Pay Aggregate for top executives: 70% of target compensation Short-term incentives: 20% of target compensation Long-term incentives: 50% of target compensation Introduction Introduction Why do we link pay to performance? Shareholders: Increase market value of firm Board of Directors: Protect firm’s reputation and control costs Executives: Superior performance should yield superior pay How do we measure performance? Short-term: Accounting- and economic measures Long-term: Market value of firm How do we link short- and long-term performance? The most important question in performance measurement systems Long-Term Performance How do we measure long-term performance? Usually determined by stock price * outstanding shares Private firms typically use a multiple of earnings or book value What comprises market value? Invested Capital or book value of the firm MVA, or present value of expected future cash flows What drives market value added (MVA)? Market perception is evident in market value of company Determining drivers of market perception is as much art as science Long-Term Performance What tools determine drivers of market perception? Performance Sensitivity Analysis Value Driver Analysis Long-Term Performance What is Performance Sensitivity Analysis? Isolates three components of market value volatility Computationally intensive Requires “significant” stock trade historical data What are the components of market value volatility? Market volatility: cannot diversify Industry volatility: can sometimes minimize through diversification Firm volatility: dr