PotashCorp's Board of Directors has long been committed to linking executive pay to performance, and in recent years has made a special effort to develop a compensation program which gives particular weight to medium- and long-term performance that serves all stakeholders.

"The beauty of the program we've developed is that if our executives really want to increase their compensation, they really have to earn it," said Director John Estey. "It took a lot of work to get a program we felt had the right mix of components for employees and investors, but now we can demonstrate that the interest of the shareholders is served through this process."

The program starts with salary and annual short-term incentives that are based on a median level of what is paid by a relevant group of comparable companies. Executives may achieve total compensation above or below the median of total compensation through medium- and long-term incentive plans that tie their pay to PotashCorp's financial performance compared to stringent financial measures and against the financial results of comparable companies.

Development of the long-term portion of the incentive plan began in 2003 and included a great deal of internal and external research, Estey said.

After much study and analysis, the board determined that stock options were by far the most effective way to deliver value to employees, and motivate them. However, sensitive to shareholder concerns, it also developed a performance-based vesting feature which allows stock options to vest only upon the attainment of certain targets based on the excess of cash flow return on investment over the weighted average cost of capital. To ensure the plan is always in line with shareholder wishes, the board has decided to seek shareholder approval each year for only the number of options deemed necessary for the plan for that year.

Since 2005, this incentive has been available to all executives, senior management and other selected managers, with a three-year vesting period and 10-year option term. The value of vested options is based on appreciation of PotashCorp common stock during the option period – providing executives with an incentive to improve company performance long-term.

"Because the vesting is performance-based instead of just time-based, as used by many companies, employees can't get the best payout from the options just by the passage of time," Estey emphasized. "They need to take a long-term view by investing wisely for the future."

He pointed to the major efforts the company is making to increase potash production capacity as an example of how a long-term emphasis in compensation can empower PotashCorp management to invest in the company's long-term success.

Though the challenges of implementing such a major initiative in the company's compensation plan were large, they were not insurmountable. Considerable work with the committee's independent compensation consultants – a hallmark of good governance – was necessary to determine an appropriate plan design, vesting formulas and thresholds. Once those were determined, management and other stakeholders needed significant education about the details of the plan and the underlying policy rationale.

Though implementation of such a compensation program was not easy, it was the right thing to do as evidenced by other companies whose shareholders have complained about large pay packages that reward executives when the companies under-perform compared to their peers.

Related Link: PotashCorp Board and Management

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