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SEC encouraged to consider business performance instead of stock price for rule to report executive compensation metrics


Jon Lukomnik, the Executive Director of the IRRC Institute, has offered the letter below for Forum participants' consideration of the comments he has submitted to the SEC in relation to its Proposed Rule: Pay Versus Performance (File No.: S7-07-15), suggesting their attention to research supporting measurements of business operating performance as an alternative to stock price "TSR" as the basis for management incentives to create long term enterprise value.

For previous Forum attention to the proposed SEC rule and the related IRRC sponsored research (with a link to the full study), see

Forum participants are encouraged to offer their own comments directly to the SEC (here), or to the Forum for either attributed or anonymous reporting.


Source: IRRC Institute, May 6, 2015 email

[For the referenced report that accompanied this letter, click here.]



"Jon Lukomnik" <>




Wed, 06 May 2015 09:18:12 -0400


File Number S7-07-15

To the SEC Commissioners and SEC Staff:

I write with regard to the proposed "pay for performance" rule. 

The Investor Responsibility Research Center Institute (IRRCIi) is a not-for-profit research organization which originates, commissions and disseminates objective research of interest to investors about capital market, corporate governance and sustainability issues.

We are fiercely non-advocacy. For that reason we take no position on the proposed rule. However, we have recently published research which we believe can help inform the Commission in its deliberations on the rule. "The Alignment Gap Between Creating Value, Performance Measurement, and Long Term Incentive Design" was authored by Organizational Capital Partners  It has received much attention in the field for its analysis of the relationship between economic value creation and executive compensation, as well as the findings.

Among the issues analyzed by the report which would seem directly relevant to the proposed rule are:
- Performance metrics, including total shareholder return, relative total shareholder return, economic profit, return on invested capital and others.
- Performance measurement periods

Among the questions the report may engender with relation to the proposed rule are
- Is total shareholder return the appropriate metric and/or whether it should be supplemented with operating metric(s)?
- Is the proposed measurement period -- one-year TSR over each of five years -- appropriate given that the delivered pay may have been triggered and calculated based a rolling three-year three year or longer performance period for most long-term incentive plans?

A full copy of the report is enclosed. Both I and the authors of the study would welcome any questions and are available should SEC staff desire any further information.


Jon Lukomnik
Executive Director
IRRC Institute


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