Every religion has a creation myth.
Pay-for-performance is the fundamental tenet of the American approach to executive compensation. While groups in Britain and Switzerland have proposed capping executive pay, investors and regulators in the United States are mainly concerned when there’s a mismatch of pay versus performance. As long as a company is doing well, the sky’s the limit.
Congress has embraced pay-for-performance. As mandated by the financial reform law known as the Dodd-Frank Act, the Securities and Exchange Commission proposed rules earlier this year to make it easier to compare actual pay with actual performance. The rules will require public companies to provide a table comparing the amount of compensation paid to top executives with the total shareholder return of the company. Total shareholder return measures the change in the company’s stock price, plus any dividends paid out to shareholders.
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