Foster says that sometimes the risk of losing the CEO or mission-critical performance talent justifies such a decision, and the board needs to take responsibility. “I don't like to give CEOs special deals, but if you feel you need to, you should, and you have to be willing to accept some negative feedback on compensation,” he says.
Shareholder anger over compensation practices is sometimes the result of market conditions. “The need to retain key executives amidst increased competition for talent is driving up compensation costs and clashing with investor preferences, putting compensation committees and investors on a 'collision course,'” says Robin A. Ferracone, CEO of Farient Advisors, a partner on the study. “These situations highlight the need for compensation committees to determine whether their typical ongoing compensation programs have systemic retention risks that should be amended and develop strategies to proactively mitigate those risks and avoid the 'collision.'”
Moreover, boards can adopt approaches that make pay retention strategies more palatable to investors, such as limiting the frequency or size of pay, or making pay performance-based (even if individual-based) and clearly disclosing to investors the reasons for this, she added.
Lettier recalls how he did just that at Xerox, which in the aftermath of the pandemic gave one-time special awards to not only its executive team but also to executives several levels below it, despite the loss of revenue from office closures. “COVID basically destroyed all of the LTIP programs that were affected, so we had all of our executives who were not going to get performance-based stock compensation for years,” he explains. “You can say, 'We didn't reward our shareholders either,' but if the entire executive team defected, the rewards for shareholders would be significantly reduced. So, as a countermeasure, we gave them one-time awards to adjust that… Of course, we still got votes against it, but I thought I did the right thing. I still think so.”
But Xerox generally avoids competing for talent, he added. “We try to make sure the compensation is competitive and we give them good stock that gives them good returns, but there's only so much we can do,” Reiter said. “How do we stop them from going to Nvidia? If someone like that comes after them, there's nothing we can do at Xerox. We let you prove yourself here, and if you move on, you move on. We'll do our best.”
“You have to feel that the person's departure would be very damaging to the organization” to even consider making an exception, he said. “It's not worth turning the tables and screwing up the entire executive compensation structure.”
