DFW HR ROUNDTABLE
MARCH 9, 2010

Linda A. Wilkins
Linda@lindawilkinslaw.com
214 292 4282

Pearson Partners International
HR Challenges in Light of the Financial
Crisis: Surviving and Thriving in 2010
What we’ll discuss today:
Executive compens...
HR Challenges: the Big Picture
HR managers oversee varied functions, each with technical
requirements and hidden pitfalls!...
Executive Compensation Trends
Public outcry over the level of executive pay
Compensation committees in the crosshairs
• Th...
Executive Compensation Trends
Key lessons arising from the financial “melt-down”
of 2008-2009:
• Short-term incentives can...
Focusing on Long-Term Performance
• Use incentive plan design to mitigate risk factors
tied to compensation:
• Require “cl...
Equity Plan Awards –
Types, terms and costs
Avoid “pay inflation” – consider the value of shares
awarded vs. the number of...
Equity Plan Awards
in Private Companies
Private equity investors recognize the importance of longterm incentives tied to e...
Trends and Issues in Employee Benefit
Plans
Group medical plans
• escalating costs
• COBRA subsidies
• wellness programs –...
Issues in the 2010 Proxy Season
Executive compensation disclosure rules have changed
again!
 Risk assessments
 Stock awa...
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Compensation and Benefits in a Recessionary Economy - a Pearson Partners HR Roundtable Presentation Featuring Linda Willkins, Wilkins Law

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On March 9, 2010, the DFW HR Roundtable discussed compensation and benefits in a recessionary economy. The featured speaker was Linda Wilkins of Wilkins Law. The discussion included:

- Executive compensation trends:
- Long-term performance plans
- Equity awards - types, terms and costs
- Employee benefit plan trends
- Group medical plans: design and cost
- For public companies: points to consider when
preparing your proxy statement

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Compensation and Benefits in a Recessionary Economy - a Pearson Partners HR Roundtable Presentation Featuring Linda Willkins, Wilkins Law

  1. 1. DFW HR ROUNDTABLE MARCH 9, 2010 Linda A. Wilkins Linda@lindawilkinslaw.com 214 292 4282 Pearson Partners International
  2. 2. HR Challenges in Light of the Financial Crisis: Surviving and Thriving in 2010 What we’ll discuss today: Executive compensation trends: Long-term performance plans Equity awards - types, terms and costs Employee benefit plan trends: Group medical plans: design and cost For public companies: points to consider when preparing your 2010 proxy statement Slide No. 2
  3. 3. HR Challenges: the Big Picture HR managers oversee varied functions, each with technical requirements and hidden pitfalls! • Hiring and firing – discrimination, EEOC, litigation • ERISA and employee benefits – costs, complexity, ERISA fiduciary risks, IRS and DOL investigations • Executive compensation – designing long-term incentives, financial accounting aspects, SEC matters • Other? Slide No. 3
  4. 4. Executive Compensation Trends Public outcry over the level of executive pay Compensation committees in the crosshairs • The SEC disclosure rules for executive compensation • Explaining not only what is paid to executives, but WHY? Performance-based pay plans • Variable pay as a major component of the total package • “Pay at Risk” as a new component Slide No. 4
  5. 5. Executive Compensation Trends Key lessons arising from the financial “melt-down” of 2008-2009: • Short-term incentives can create hidden risks. • New SEC regulations require boards to monitor these risks – at all levels, not just the executive suite. • How to identify risk factors tied to compensation? • Involve HR and risk managers up-front in performing a risk assessment. • Look at bonus programs at all levels of the organization. Slide No. 5
  6. 6. Focusing on Long-Term Performance • Use incentive plan design to mitigate risk factors tied to compensation: • Require “clawbacks” where later financial statement earnings restatements occur. • Establish minimum stock ownership requirements and holding periods. – These are often tied to a multiple of base pay. Slide No. 6
  7. 7. Equity Plan Awards – Types, terms and costs Avoid “pay inflation” – consider the value of shares awarded vs. the number of shares in determining award levels. Stock options vs. Restricted stock units?  Downside to options: “underwater” options – an “attrition tool” – not a retention tool  Consider the ratio of options to “full value” grants – 3 to 1?  Determine the financial accounting cost of the awards, and consider how they appear in the proxy’s summary compensation table. Slide No. 7
  8. 8. Equity Plan Awards in Private Companies Private equity investors recognize the importance of longterm incentives tied to equity participation– either actual stock awards or “synthetic” equity awards.  Stock awards often are payable only upon a liquidity event. This “golden handcuff” aligns the executives with the investors’ long-term goals.  Synthetic equity awards are favored – stock appreciation rights payable in stock or cash, for example.  Consider the financial accounting impact of synthetic equity – they are treated as variable awards rather than equity awards. Slide No. 8
  9. 9. Trends and Issues in Employee Benefit Plans Group medical plans • escalating costs • COBRA subsidies • wellness programs – designing incentives to manage chronic illnesses and reduce claims 401(k) and other retirement plans • Cutting back – or eliminating the match? • Automatic enrollment plans Slide No. 9
  10. 10. Issues in the 2010 Proxy Season Executive compensation disclosure rules have changed again!  Risk assessments  Stock awards in the summary comp. table  Issues in the use of compensation consultants Recurring issues:  The “Compensation Disclosure and Analysis”  The role of RiskMetrics in influencing the vote of institutional shareholders  The future of “say on pay” votes – 2011? Slide No. 10

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