Executive Compensation (Executives, Board of Directors)
Executive Compensation Policy
Senior Executive Compensation refers to the senior executive group in the organization, including Directors, Chairperson, CEO, Vice Presidents, Directors of Subsidiaries, Business Division Managers and more. The regulation of executive compensation is a sensitive and challenging issue. It requires systematic management and the design of clear, targeted plans for implementation, while creating a coherent combination of a variety of relevant aspects – strategic, business, financial, regulatory, human, cultural and applicative.
The salary level, the bonus plan, the equity compensation plan including various components – these are the core components in senior executive compensation. Formulation of a compensation policy document helps regulate and define the various compensation components, and their adaptation to the full range of considerations.
Over the years, we at Compvision have accumulated a great deal of experience in supporting hundreds of public and private companies in designing compensation policies and plans for their various senior executives. The uniqueness of our skilled, professional team is in its broad, integrative vision and in its ability to provide our clients with comprehensive guidance while taking into account all relevant aspects and addressing them – from the policy formulation phase to the design and implementation of actual compensation plans.
Salary Comparisons - Benchmark
The salary comparison process (benchmark) is an objective process of reviewing Total Reward packages and their external fairness. The process and its products help the company’s decision makers to make informed decisions regarding salary updates, new appointments, changes in compensation terms and more, while taking into account the prevailing market conditions. Beyond that, a benchmark helps companies address market competition for quality executives. In public companies, salary benchmark is used as a tool for directors in their decision-making process, in determining the compensation package for senior executives.
There are several notable benchmark types:
· Actual Compensation Benchmark – Reviewing of the compensation actually paid in a specific year in the company’s peer group detailed by position.
· Executive Compensation Policy Benchmark – a benchmark report covering the main components of executive packages – base, bonuses, and equity, that the companies have defined in their policy document – this is an important document for companies interested in updating existing policies or drafting policies for the first time (before an IPO).
· Terms of Office and Employment Benchmark – Relevant to the positions of Chairperson and CEO and presents the compensation package, and other benefits, as approved for the executive in the agreement at the time of appointment to the position.
• Directors Benchmark – Reference to the Directors’ compensation package, which includes the fixed component, the variable component and sometimes also an equity compensation component.
As part of our support process at Compvision, we study the characteristics of the company and the market in which it operates and formulate a relevant comparison group for the company. We use public-domain data as well as the unique database that has been built in Compvision, which includes data that has not been placed in the public domain, from hundreds of companies. From there, we summarize, analyze and rank the published compensation data among the peer group. We formulate the data obtained into detailed, structured comparison document, which serves as a basis for making decisions on all compensation issues. The process is carried out in collaboration with the company’s Compensation Committee.
IPO Processes
It seems that the Startup Nation has recently been establishing a refreshing alternative growth path to the exit path which has dominated the industry so far – through the issuance of equity.
The transition to a public company is no trivial matter. There are many aspects to be taken into consideration. One of the most important is the compensation policy for the company executives. Salary and compensation (money!) are always an important, sensitive matter, and it is important to familiarize oneself and prepare for the post-issuance changes. Outstanding among these is the fact that every publicly-traded Israeli company is subject to Amendment 20 to the Companies Law, which requires publicity regarding the compensation of company executives. It adds new formal approval processes inside and outside the company (the Shareholders’ Meeting).
Everything becomes public – including the company’s financial statements, including the salary and compensation data of the 5 highest-paid employees, which are made available to the general public each year. The company will be required to publish the compensation policy for the company executives, and it is not possible to deviate from it without the approval of the General Meeting. Companies going to IPO have a special window of opportunity to formulate a 5-year compensation policy (instead of 3 years for already-trading company), without being required to receive approval from the General Meeting. Therefore, despite the time constraints for publishing the prospectus, it is important to formulate a policy, which conforms to the company’s needs and future strategy and attach it to the prospectus, in accordance with market norms and the requirements of the Israel Securities Authority.
We at Compvision are involved in our clients’ end-to-end IPO processes, according to their various needs, from the presentation of comparative data (benchmark), through accompanying the discussions and approval processes of the policy with management representatives, the Compensation Committee and Board of Directors and institutional authorities and bodies, if necessary, up to an orderly infrastructure for managing the issue of salaries, including detailed, transparent bonus plans and more.
Equity Compensation - Options and Stocks
Equity compensation is compensation derived from the expected appreciation in the company’s value later on or from the change in the share price in relation to the set exercise price. Equity compensation plan creates a potential for significant compensation for managers and employees in case of improved performances in the long run.
Options, Restricted Shares, Restricted Shares Units, Performance Share Units, phantom units – these are common tools in stock-based plans. Choosing the right and appropriate compensation tools for each company has a great impact on the level of compensation, the value perceived by the employees, the percentage of dilution, the level of accounting expenses and more. Therefore, organizations should give a lot of thought to choosing the right compensation tools for them.
Structuring an orderly equity compensation plan makes it possible to link the compensation of managers and employees to the success of the company, create an identity of interests between managers and employees in the company and shareholders, increase motivation to create value and increase company value, retain human capital in the long run and improve competitiveness of human resources.
We at Compvision specialize in formulating equity compensation policies in organizations and companies and in building transparent and detailed plans for implementation and execution. Our assistance process begins with a review of equity compensation tools that are usual in the market and their characteristics, including presenting the pros and cons for the company, assisting in selecting the compensation tools to be used, accurately defining all parameters in the program, identifying those eligible to participate in the program and quantities granted to them, including building an allocation matrix accompanied by detailed simulations and more.
Regulation
Public companies are subject to Amendment 20 to the Companies Law, which requires that the General Meeting of Shareholders approve the compensation policy and also requires the publication of the compensation policy for company executives.
Moreover, any compensation component that the company wishes to grant to its executives, and which is not listed in the compensation policy, will require special approval by the General Meeting of Shareholders. Decisions on executive salaries require a separate approval process by the Compensation Committee and the Board of Directors and sometimes even a General Meeting. Financial corporations, institutional entities and banking corporations may be subject to additional requirements. All of these require close familiarity with the legal requirements, and professional knowledge necessary for making the required adjustments to the company’s compensation policy.
