Pay practices, such as excessive golden parachutes, golden coffins and multi-year employment agreements with generous severances, should be avoided, a report on compensation to be released on Monday said.
The economic crisis has led to a loss of public trust in corporations, and anger at executive compensation, the report, by a task force convened by business organization The Conference Board said.
In order to restore trust in the ability of boards to oversee executive compensation, immediate and credible action must be taken.
Strong links are needed between performance and compensation, the report, supported by companies such as AT&T
Shareholders of American companies and the public deserve to see executive compensation programs that serve shareholders' interests, said co-chairs of the task force, Robert Denham, partner at law firm Munger, Tolles & Olson and Rajiv Gupta, former chairman and CEO of chemicals company Rohm and Haas, in a statement accompanying the report.
Among the recommendations are that companies avoid certain pay practices such as overly generous golden parachute payments -- for when an executive leaves sometimes as the result of a takeover. Others are -- gross-ups for tax consequences of parachute payments; and executive benefits not generally available to other managers.
It also frowns upon stock option reprices or restructurings that are not value neutral, nor approved by shareholders, and golden coffins, referring to payouts that continue after an executive's death.
The report stated that if used, these practices should be clearly and plainly disclosed to shareholders. Everyone else does it or It is market practice are not sufficient reasons, the paper says.
Other suggestions it makes are that a significant portion of pay should be incentive compensation, with payouts demonstrably tied to performance and that payouts are clearly aligned with actual performance.
The report can be found at: http://www.conference-board.org/ectf
(Editing by Marguerita Choy)