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Article | Executive Pay Memo Asia Pacific

Introduction to the “Guiding Principles of Executive Compensation”

Governance Advisory Services |Executive Compensation

By Don Delves | February 12, 2018

Executive compensation represents a relatively new and evolving field of expertise. Over the years, we began developing, writing and codifying a set of principles which we will publicly disclose over the coming months. The Willis Towers Watson Guiding Principles provides a seminal and comprehensive effort to create a dialogue and foster excellence in our executive compensation profession.

Executive compensation represents a relatively new field of expertise. It started, more or less, in the 1970s, so it’s probably approaching 50 years old. The profession has evolved a great deal, and has matured considerably in the last 10 to 15 years with the advent of independent board compensation committees with their own independent advisors. Prior to the Sarbanes Oxley Act of 2002, compensation committees were typically not independent and very rarely had their own advisors. The advent of Institutional Shareholder Services (ISS), as well as more consistent, thorough proxy disclosure, has also had a significant effect on the field. For those of us who were around in the 1980s and 1990s, it seems, in retrospect, like the Wild West.

Other, older and more established professions like accounting, actuarial science, medicine, nursing and law (and many others) have established principles, standards and codes of conduct. All of these professions saw, at some point, the need for some common, agreed upon principles and standards of practice. We are probably well past that point in executive compensation.

We began the process of developing, writing and codifying principles for executive compensation almost 30 years ago, and have worked on them sporadically over the years. Every time there is a wave of public outrage over executive pay, we – and many others in the profession – have seen the need to do something to “professionalize the profession” before some government body or other agency harshly regulates us and our clients.

To some degree, we have succeeded by developing principles and using them both internally and with our clients. Other organizations like WorldatWork, the Center for Executive Compensation, the National Association of Stock Plan Professionals, Santa Clara University, the National Association of Corporate Directors and others have also developed principles, and created excellent training and certification programs. We have participated in, contributed to and learned from these and other efforts. With the acquisition of The Delves Group a few years ago, Willis Towers Watson rolled their effort, the Independent Directors Executive Compensation project, into ours. So, the profession has been evolving and maturing.

We in the Executive Compensation profession have, to some degree, failed in developing these principles sooner. One could argue that the increasing power of ISS and Glass-Lewis, the passage and implementation of Say on Pay, and now the CEO pay ratio, would not have been necessary if we had policed and governed ourselves better and sooner.

So, to continue to raise the bar and contribute to the dialogue on excellence in our executive compensation profession, we offer the Willis Towers Watson Guiding Principles, to be released over the coming months in a variety of mediums. These principles establish a solid foundation based on years of reasoned judgment and real client experience, but they are, by no means, etched in stone. We invite discussion, debate and dialogue and look forward to engaging with our clients, colleagues and other professionals in the coming months.

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