Executive pay what to expect for 2015.

It's that time of year when compensation committees and management teams are contemplating changes to executive compensation for 2015. Committees want the changes to be business-based, competitive, and responsive to the market and investor priorities. While not the only consideration, a key input to committees' decision-making will be looking at hot-button changes on the horizon.

In recent years, executive pay has evolved significantly, influenced by Say on Pay and related investor and proxy advisory firm guidelines. A number of market trends have emerged and taken hold: a decline in the use of stock options, a greater emphasis on performance-based shares, reductions in non-performance based pay such as SERPs, perks, severance, and supplemental benefits, and an undeniable trend toward using relative total shareholder return as the yardstick for performance.

Complementing these design changes are more transparent shareholder communications that discuss the rationale for pay decisions: CD&A's are clearer, and shareholder outreach has become prevalent, proactively, as well as reactively. These trends seem here to stay.

Underlying the trends: Shareholders are becoming less tolerant of continued high pay without demonstrated business results and value growth. Shareholders, now more than, ever, want to see a return for their money.

It would be nice to create a checklist that covers such concerns, tic the boxes, and feel reasonably assured that a company's executive compensation program is consistent with "best practices."

However, that approach ignores the energy behind the shareholder message about linking pay and performance. Therefore, it behooves directors to ask: What are we missing? What trends are evolving and picking up steam? What are we not talking about?

As we look into 2015, we believe compensation committees need to be ready to respond to three areas of concern:

Increased Scrutiny of Performance Goals

The scrutiny of, and pressure on, goal setting will grow Shareholders are essentially drawing a line in the sand: They do not want to reward executives for declining peiformance ... period. Setting relatively low goals, even if based on budgets, doesn't please shareholders. As such, boards will feel compelled to demand continuous improvement in value to support incentive pay. As evidence, over 40 percent of institutional shareholders responding to the most recent ISS policy survey agreed with the following: "If performance goals are...