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Incentive Design

Incentive Design

  • Advice to Boards on Reward Strategy And Practice
  • Executive and Non Executive Pay

Boardroom Practices and Executive Pay

It is a prime tenant of our Boardroom Pay and Executive Pay approach that any form of reward at this level of the company must be carefully tied in to the achievement of both annual and long term sustainability goals of the company, and that if this is not achieved, the opportunity presented by Boardroom and Executive reward has been completely lost.

Unfortunately, it is even more important that reward at this level cannot be linked to outcomes that are not directly linked to organisational strategic direction, because there is clear evidence to show that what you measure and reward, is what you get, and there is a potential for reward at high levels to derail the company.

Our practices therefore take critical success measurables into account in designing the board and executive reward programme, and this broadens our focus to some extent, to include:

Roll out of the Boardroom Strategy

Whilst it is commonly understood that Executive Teams own a strategy that gives direction to the company, it is not always understood that the Board should also have a strategy, albeit one that looks at the positioning of the company in the broader business environment, taking into account the expected unfolding trends, and that this strategy act as the thrust that will be used in determining the company 2 to 5 year strategic plan.

Where required, we assist boards to formulate an appropriate strategy to be used to guide their companies.  Our role is in facilitating, and providing structure to the strategy formulation in full cognisance that a properly constituted board actually understands its direction far better than us as consultants.  We provide the framework for the session and for the formulation.

Board Role Clarity

Part of rewarding boards appropriately is ensuring they are paid for what they are supposed to achieve.  If their role is merely to rubber stamp company decisions, that is one thing.  If however they need to be the architects of the governance, and direction of the company, that is something quite different.  With the latter type of board, different members will be required to bring different strengths to the table, and the board is as strong as the sum of its individual members.  It is in defining the critical contribution of the members, and how this will be divided between the board members tha6t we can bring our expertise to bear.

Boardroom Pay

Given the above, and the principles laid out in King, good governance principles, the company act, and the JSE, one is able to devise the right approach to pay for a board.  Factors such as expected time spent, role, preparations, and eminence (which should be ring fenced) need to be considered, and we will craft a boardroom pay policy to best support the board and company concerned.

Executive Pay

Our executive pay approach is not dissimilar to the principles applied to Boardroom Pay, but the tools used are often different.

Once we have identified what it is that the executive have to be recognised for achieving (i.e. that which supports the company strategy, and nothing that draws focus elsewhere) we will craft the Executive Pay policy and processeds specifically for the company to ensure that a mix of:

  • Guaranteed Pay and Benefits,
  • Incentives,
  • Long Term Incentive,
  • Share or Phantom Share,
  • Roll over Banking Scheme

There are utilised to achieve the optimum mix of pay, where each element can be shown to have a direct and meaningful impact on one or other critical outcome (short or long term, immediate or sustainable) that the company needs to achieve.

This could involve the development of specific short and long term incentive schemes tailored specifically to support the company strategic objectives, and that will address the main measures of success as part of the overall interlinked approach to executive pay.