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| Best Practices: On the Board: |
Checking Excess
Michelle Leder
09/01/2005
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SEC
rules have long required most publicly traded
companies to disclose
salaries, perks and other forms of compensation for their
top five
executives, as well as for any top executives who have resigned in the
past year. But exactly what warrants disclosure and how best to
accomplish it
has long been a gray area at many firms. While many
compensation committees are
still opting to disclose the bare minimum
required—typically a summary
compensation table and a brief explanation
of how the CEO’s salary was
set—compensation committees at several
large companies have stepped forward to
divulge more information than
required.
• honeywell
international began
providing a separate perks chart in 2003. The perks
chart, which is not
required under SEC rules, lists the value of
10 different perks, ranging from
personal use of the corporate jet to
financial planning services and personal
security services.
•
exxon mobil provides detailed information on
pensions for its top
executives, which makes it easy for investors to see what
retiring
executives will receive when they leave the company. Executive pensions
have long been a black hole at many companies, making it next to
impossible for
investors to figure out what these hefty packages are
really worth.
•
wachovia began providing detailed information
on executive stock options, well
beyond the information required under
SEC rules, which only require a company to
provide potential values if
the stock were to increase 5 to 10 percent.
Lies, Damn Lies and .
. .
As more individual and institutional investors,
as well
as outside groups, begin to pay greater attention to executive
compensation, the spotlight on the compensation committee will only
become more
intense. Lucian Bebchuk, a professor of law, economics and
finance at Harvard
Law School who cowrote the book Pay Without
Performance, has been one of the
most vocal critics of what he says are
still overly cozy compensation
boards.
“Most of these boards are
still often more than happy to go along
with whatever the CEO says,”
notes Bebchuk, adding that it is not particularly
difficult for boards
to conjure metrics that show the company is paying the CEO
and other
top executives appropriately, given the company’s performance. Indeed,
even companies whose revenues and share price are falling can likely
find
another company performing even more poorly with which to compare
itself,
Bebchuk says.
Bebchuk is not a lone voice crying out in
the corporate
wilderness. During the 2005 proxy season, public pension
fund managers at such
prime movers as the New York City Office of the
Comptroller and the
International Brotherhood of Teamsters initiated
proxy votes on issues related
to excessive compensation at Coca-Cola,
among others. Though the measures did
not pass, they helped to focus
more attention on the issue of excessive
compensation.
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