Forward-Thinking Compensation: Crystal Ball Not Required

Challenge: When one of Farient Advisor’s Fortune 500 clients – a chemical company – underwent a major strategic transformation, it needed to rethink its peer group and align executive compensation with business strategy.

Approach: Farient worked with the client to select a peer group that closely aligned with the company’s future business model and would determine the most powerful drivers of long-term shareholder value.

Result: After recognizing that operating income growth and return on assets were the most powerful drivers, we developed a long-term incentive plan (LTIP), and recommended using operating income and a strategic scorecard in the annual plan to complement the LTIP and support the strategic shift. Also important, we lengthened the time horizon of the LTIP program from 1+1+1 to 3-year rolling cycles to ensure better alignment of executive and shareholder interests.

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