6 Steps to Design a Relative Total Shareholder Return Award
A relative total shareholder return (rTSR) plan can have dozens of features, every one of which can affect the incentive, payout stability, and accounting outcome. Meanwhile, we’ve seen too many companies slap together some terms in their rush to get a program in place that don’t really fit the context. The result can be an rTSR program that’s entirely at odds with what the company set out to do.
Our experience is that these problems are responsible for much of the bad press around rTSR. The good news is that most of them are avoidable.
In this issue brief, we discuss a different, but equally vital, part of rTSR program development: A methodical design process that uses analytics to form a defensible point of view. This process has six steps, one for each of the risk areas within rTSR. And it’s empirical—all tested and refined over years of working with the best corporate compensation teams the field has to offer.