CEO Compensation Package

Board of directors are tasked with determining the compensation package for their CEO. Most boards link CEO compensation to current performance and future results that impact the fixed pay, variable pay and prerequisites. The compensation package is designed to drive achievement of financial and strategic goals while aligning with the interests of the shareholders. A review of four CEOs and their compensations will aid in drawing parallels and disparities in CEO compensation methods, especially the alignment and misalignment of incentives in similar companies. The compensation of Richard Simons (Hardinge Inc.), Richard Holder (NN Inc.), Jonathan Painter (Kadant Inc.), and Michael Doar (Hurco Inc.) in 2014 will be used for cross comparison and

Variable pay includes elements such as stock options and bonuses which are usually tied to performance metrics and goals. In this sample, the CEO’s variable pay is tied to set performance metrics though the standard and earned incentive differ for each company. In terms of the annual bonuses, Hardinge Inc.’s CEO’s incentive is tied 75% to performance against goals and 25% is tied to individual objectives for the executive paid at a 50% for performance and 50% time-based method. Whereas, for Kadant Inc.’s CEO, the annual bonus is tied to earnings per share performance (EPS) and return on average stockholders’ equity where the two metrics are weighted equally. Hardinge Inc. and Kadant Inc. leverage EBIT and EBITDA targets to incentivize the CEO for long-term growth. For NN Inc.’s CEO, the compensation is tied to set targets with a minimum and maximum thresholds for performance against earnings per share (EPS). Hurco Inc’s executive compensation plan underwent revision in 2014 to align with a performance based incentive structure where 25% performance based equity is time based, 40% performance shares tied to relative return on shareholder equity and 35% performance shares based on performance against the average return on invested capital. The performance based incentive varies for each company with varying targets the boards have set where Hurco Inc. was a late adopter and will continue to refine the performance measurement and benchmarking