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5 February 2007
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Compensation Moves Front and
Center: Add president Bush to the chorus of critics of CEO comp
Avital
Louria Hahn
(avital.hahn@sourcemedia.com)
President George W. Bush has joined the war
on excessive executive pay. In a speech at Federal Hall on Wednesday, Jan.
31, the president addressed the growing pay divide and spoke of the need to
link executive pay more closely to performance. While few think that the
speech will make a big difference in the rationalization of pay, the
comments will nevertheless have some impact.
"It is escalating the level of attention," says one investment banker who
declined to be identified. "His focusing on this issue reflects an
understanding of the public interest. Whatever you think of the president's
views, the fact that he is making speeches about executive compensation when
he wants to draw attention away from other problems is a pretty good
indication of this issue's importance to the public. That will encourage
more energetic attention to the subject."
One cynical banker, however, wanted to know what company would keep a chief
executive whose approval rating is 28%.
On a serious note, some involved in advising companies on compensation
matters said that the speech will help push along the changes already in
motion.
"There is change taking place," says Steve Hall of compensation consulting
firm Steven Hall & Partners. "Directors are spending a lot more time
studying the issues and are realizing that things are no longer the way they
used to be."
Outcry over the $200 million exit package of Home Depot chief executive
Robert Nardelli in January was all over the media, but the package is a
result of a contract signed several years ago. As new contracts are written,
boards are paying a lot of attention to such sore points as exit pay, Hall
says. They also use tally sheets to understand the numbers better. And they
are going over various scenarios and at times eliminating such items as
automatic vesting of equity upon termination, which used to be a common
feature of fat exit-pay packages only a few years back.
Whether equity vests will depend on whether the board decides the executive
is entitled to it at the time of termination. "Companies are much more
reluctant to sign up for big severance packages than [they were] in the
past," says Hall. "They are tougher and tougher as to what someone gets when
he or she leaves."
To be politically correct, some CEOs forego severance pay altogether. One
example is Nardelli's successor, Frank Blake. He declined a severance
package.
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(c) 2007 Investment Dealers'
Digest Magazine and SourceMedia, Inc. All Rights Reserved.
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