As companies prepare their compensation disclosures under the Securities and Exchange Commission’s (SEC’s) new reporting regime, questions arise about the best approach to creating the Compensation Discussion and Analysis (CD&A). An article titled Meeting the Challenges of Drafting a Compensation Discussion and Analysis in the November issue of the Watson Wyatt Insider provides a summary of the rules as well as Watson Wyatt's perspective on the elements that should appear in a company's CD&A.
Among the advice and information offered by the article is a set of questions -- shown below -- which Watson Whatt suggests that every company should answer about its executive compensation program, using a principles-based approach.
- What are the objectives of the compensation programs?
- What is the compensation program designed to reward?
- What is each element of compensation?
- Why does the company choose to pay each element?
- How does the company determine the amount (and, where applicable, the formula) for each element?
- How do each element and the company’s decisions regarding that element fit into the company’s overall compensation objectives and affect decisions regarding other elements?
These questions speak to the very heart of a company's intent and philosophy for rewarding its executives, and would serve any organization well to address, profit or not, publicly traded or not.
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