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Upper Saddle River, NJ - December 2, 2009 - On Monday, November 30, Paul Dorf, Managing Director of Compensation Resources, Inc. was invited to participate as a panelist in an audio-training session on Executive Compensation sponsored by the Society of American Business Editors and Writers, Inc. (SABEW). Paul was joined by a distinguished panel of experts, led by Nell Minow, editor and co-founder of The Corporate Library, and Michelle Leder, editor and founder of footnoted.org. The training was moderated by Floyd Norris, New York Times chief financial correspondent. The program was organized by SABEW for its members, consisting of editors, reporters, and writers of major newspapers and business publications. The discussions centered on trying to answer three (3) major questions: (1) Who is to blame for the approval of the current Executive Compensation problems? (2) What can be done to correct many of these ills? and (3) Where can accurate data be found with which to fully understand the value of the Executive Compensation package? 1. "Pointing the Finger" The finger for approval of bad Executive Compensation decisions and egregious packages was fully directed at the Compensation Committee members, who have, in many instances, not yet begun to reel in the exorbitant levels of compensation, nor have they instituted sufficient controls. The inclusion of “Clawbacks”, “Circuit Breakers”, and similar checks and balances is noteworthy; however; the primary responsibility lies with the Compensation Committee for providing transparency, setting realistic and appropriate performance measures, and not capitulating to executive demands by rewarding poor or unacceptable performance, especially when they are in a financial crisis mode. It was noted that there recently has been a significant increase in Board Compensation which is intended to encourage greater involvement and sense of conscientiousness on the part of the Board members. The question that this raised is if the Board members (new and old) actually appreciate their increased role and greater responsibilities to shareholders. Unfortunately, there were a number of cynics who believe that Board members may now be even more reluctant and unwilling to buck the executives, and have yet to institute policies and procedures to curtail “run-away executive pay." 2. Correcting the Ills Since many of the speakers and all of the audience represented the media, much emphasis was placed on shining the spotlight on the “Say on Pay” legislation. Paul Dorf indicated that the rationale behind the actual design of Executive Compensation components is dictated by various government regulations (e.g., Sarbanes-Oxley), accounting rules (e.g., expensing stock options), and tax issues (e.g., limits on the deductibility of non-performance based pay). With this in mind, he suggested part of the answer would be on developing standardized rules that cut across all types of businesses, including publicly-traded, privately owned, and not-for-profits. The penalties already in place for not-for-profits could be extended to others, since these rules have already shown to be quite effective at curtaining runaway Executive Compensation in tax-exempt organizations. 3. Sourcing Executive Pay Data The difficult in gathering data on Executive Compensation was discussed at length, and it became apparent that the most reliable data is contained in annual proxies, although even that information must be carefully read “between the lines.” Other sources include checking 10Q’s, 10K’s, Form 4’s and similar documents, as well as researching company websites and reviewing data provided in specialized studies such as those produced by The Corporate Library and other independent research organizations. Unfortunately, much of the information appears after the fact and only shows what took place, rather than providing timely information that can be used to develop future performance measures and pay arrangements. It was obvious from the discussions that Executive Compensation will remain an extremely hot and troublesome topic, and one that the media will continue to keep in their sights, since they are responding to the concerns and voices of the public at large. This fixation on pay excesses and the misalignment between Executive Compensation and company performance will certainly remain until the economy makes a major course correction, as evidenced by a significant reduction in unemployment levels and a return in consumer confidence. We welcome your thoughts and ideas on this subject.
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executive compensation, SABEW, committee, clawbacks, sarbanes oxley, board,
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