1. PAY FOR PERFORMANCE
Compensation
but not necessarily curb executive pay,
the SEC is requiring greater disclosure
on compensation. Early adoption of
that practice is evidenced by the new
GE proxy statement, which is worth a
look if you practice in this area.
On another front, the newly Dem-
ocratic Congress has been much more
active than the SEC on compensation.
RECONSIDERING
Congress has introduced legislation
that will reduce the use of supplemen-
tal executive retirement plans and the
amounts that can be saved in deferred
compensation. While Democratic
COMP
Congressman Barney Frank wants the
shareholder power to veto executive
pay, there is more support for a re-
quirement of an advisory vote.
The United Kingdom has passed
legislation requiring an advisory vote
on executive pay, and it is likely that
Compensation critics are pressuring our House of Representatives will do
the same. This has increased discus-
companies to hold advisory votes sion between compensation commit-
tees and shareholders, and some
on excessive pay. BY ARTHUR KROLL believe that the accountability of
compensation committees is in-
creased by these votes. I believe that
t’s no secret that some institu- ing on the company, the hope is that U.K. total compensation for CEOs of
I tional shareholders, especial-
ly hedge funds, governmental
pension plans like CalPERS
and others, and unions are
speaking out on so-called excessive
executive pay—making the job of
sitting on a compensation commit-
a large vote against excessive pay will
influence compensation committees
and serve to make compensation
more in line with payment for true
performance. Both activists and com-
pensation committees once thought
that stock options accomplished that
public companies has grown faster
than U.S. pay. However, U.K. pay is
still lower than U.S. pay and CEOs
in the U.K. report to an executive
chairman who is not a lead director
but has executive functions.
Stephen Davis, a fellow at Yale
tee even harder. In the past the atti- objective. But because stock markets School of Management’s Millstein
tude was, “Don’t like the CEO have been found to perform well in Center for Corporate Governance
compensation? Sell the stock.” No excess of executive performance and and Performance, believes that legis-
more. At least 60 companies are cur- sometimes very poorly when manage- lation requiring an advisory vote
TODD DAVIDSON PTY LTD/GETTYIMAGES.COM
rently or have recently demanded an ment has done well, this is no longer strengthens the link between pay and
advisory vote by shareholders on the case. What’s more, the latter case performance. An example sometimes
whether excessive pay exists. Their sometimes prompts repricing of used is that salary has not gone up but
targets include Citigroup, Wells Far- options so that executives win if the bonuses, which are based on perform-
go and Company, Aflac, Northrop stock goes up excessively and to not ance, have increased. I take issue with
Group and WellPoint. lose if it goes down. this conclusion because if bonus goals
While the advisory vote is not bind- In an effort to improve transparency are easy to meet or not disclosed, then
30 www.chiefexecutive.net July/August 2007 CEO Magazine July/August 2007 31