For CEOs and govt groups worldwide, the primary half of 2025 will probably be remembered most for mounting financial instability, rising geopolitical tensions and unpredictable coverage shifts from the brand new administration.
Amid this turbulence, enterprise leaders have been examined — not simply in navigating uncertainty, however by being tasked with working a enterprise whereas going through intensified scrutiny from shareholders who’re analyzing each choice.
However they are not simply analyzing, they’re expressing their views by voting on govt compensation packages because of “say on pay,” which is a part of the Dodd-Frank Act launched in 2008. Whereas the ultimate votes are nonbinding, say on pay offers shareholders the platform to voice their sentiment, maintain the board accountable, spark dialogue and even affect future selections.
In robust markets, these votes are far much less contentious. In reality, a wholesome inventory worth alone could also be sufficient to earn shareholder help within the type of a passing vote. However when shares underperform, even high-performing CEOs can discover themselves on the mistaken aspect of a unfavourable vote. This presents an actual problem: how do you show to traders, together with activist traders, that the CEO is delivering worth and the compensation committee has sufficiently aligned govt pay with firm efficiency?
That is when the accounting crew can change into a CEO’s greatest good friend.
Accountants are the stewards of the corporate’s most trusted monetary information and may faucet into this data to assist the enterprise ship clear, data-driven insights that present an actual indication of the CEO’s worth.
Ahead-thinking corporations are aligning accounting groups with the companies’ compensation committees, which comprise unbiased administrators from the boards of administrators. Reporting instantly again to their boards, the committees are liable for approving govt pay applications and goal ranges, at the side of reviewing the Compensation Dialogue and Evaluation and govt pay-related disclosures within the proxy assertion.
Accounting brings a stage of expertise in areas reminiscent of efficiency measurement. Extra particularly, it conveys very important details about the enterprise’s compensation plan, together with the metrics used and the rationale behind all selections. This helps make sure that a transparent line exists between govt pay and firm efficiency whereas additionally supporting regulatory compliance at the side of shareholder belief.
Corporations persistently incomes excessive say on pay votes have shifted away from solely utilizing narrative summaries or outdoors consultants to make their key factors. That is the place an accounting crew’s information may also help. Monetary reporting depends on good information to reinforce regulator and investor choice making. Following this identical logic, the accounting crew may also help to floor its disclosures in goal, defensible numbers whereas additionally serving to within the following areas:
Refining and adjusting efficiency metrics
Corporations could depend on the identical metrics from one 12 months to the subsequent when speaking govt pay selections, particularly if their enterprise mannequin, stage of progress or aggressive technique have remained static. Whereas leveraging the identical information every year does not pose a difficulty, it’s crucial that corporations justify their use of those metrics to make sure they’re correct measurements of enterprise efficiency. When synced with management, accounting can guarantee all efficiency objectives align with shareholder worth creation. In a difficult financial local weather, take into account various or nonfinancial metrics, reminiscent of strategic and operational objectives, that are calculated to ship worth sooner or later and may also help drive investor confidence within the firm’s path and its future prospects.
Benchmarking usually
One other efficient methodology for speaking govt compensation is to match it in opposition to related peer teams. By demonstrating that compensation packages are aggressive, but not extreme, corporations can mitigate criticism.
Strengthening inner controls
Throughout downturns, monetary reporting strain can improve, making it essential to bolster inner controls round pay-related information. For instance, accounting can set up and monitor approval workflows for payroll modifications and bonuses. They will additionally usually reconcile payroll data in opposition to timesheets, contracts, and tax experiences to shortly spot discrepancies.
Implementing steady monitoring and forecasting
Whereas for many corporations, say on pay votes happen yearly (some companies conduct voting each two or three years), it is essential for accounting to watch govt pay and efficiency metrics all year long, utilizing real-time information to establish potential points, reminiscent of pay misalignments. This may give management the possibility to keep away from potential end-of-year surprises and investor considerations.
Offering digestible context and justification
When govt payouts are excessive in periods of market decline, it is essential for corporations to clarify their pay selections clearly and credibly. Since many shareholders usually are not monetary specialists, accounting can present easy-to-digest, data-driven visuals, charts and comparisons that successfully exhibit how compensation helps long-term efficiency and technique.
For govt management, enterprise as regular has by no means been tougher or carefully scrutinized by traders. The secret’s to combine the accounting crew with the compensation committee. In doing so, corporations can higher talk selections round govt compensation, proactively assess these figures earlier than any votes are solid and in the end enhance shareholder notion and say on pay outcomes.
