Recent years have brought significant growth in the use of relative total shareholder return (TSR) as a performance metric in long-term incentive plans.
While the measure is generally favored by shareholders and proxy advisers for being relatively transparent, easy to track and closely aligned with shareholder interests, is it ideal? Do TSR outcomes in a performance plan ensure strong alignment between pay and performance? Or do they largely reward volatility? This article will highlight some drawbacks with relative TSR plans and suggest ways to enhance their effectiveness in aligning pay and performance.
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