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CCH® HR MANAGEMENT - 09/18/09

Executive compensation reform white paper offers insights on what to expect under proposed reforms

A new White Paper has been released by national law firm Pillsbury entitled, "Executive Pay Reform Poses Complex Risks for Compensation Committees." It explores issues facing compensation committees under the proposed Corporate and Financial Institutional Fairness Act of 2009 (the Act) and other reforms.

"Earlier this week, a judge rejected the settlement made between the SEC and Bank of America to pay Merrill Lynch executives $33 million in bonuses, ruling it was unfair to stockholders," said White Paper author Scott Landau, a New York executive compensation partner at Pillsbury. "So even though the Senate hasn't yet voted to pass the Act, there is no doubt that new federal regulations on how salaries, bonuses and perks paid to senior executives at public companies are determined and awarded are coming, and coming soon."

Executive compensation practices, particularly among financial institutions and investment companies but among other corporations as well, have been widely criticized for contributing to the 2008 economic crisis and subsequent recession.

"The principles driving compensation reform primarily focus on three main ideas:

• that executive compensation should be tied to company performance;
• executive interests should be aligned with those of the corporation and its shareholders; and
• executives should not be incentivized for taking unreasonable and imprudent risks,"

Landau said. "In addition, the process of establishing executive compensation programs should be transparent, protect against bias and provide for enhanced accountability."

The Act would constitute the first broad-based federal legislative effort to promote these goals, as well as build on newly enacted rules for financial institutions receiving governmental assistance under the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009. But these new rules, should they pass, will be in force for all public companies and likely set the tone and base for private ones as well.

Pillsbury's White Paper, co-written with associates Bradley Benedict and Kathleen Bardunias, offers the most comprehensive look so far at the complex governance and compensation matters that those responsible for executive compensation must begin to grapple with, including:

Equity-Based Compensation Policies and Practices

• Share ownership and retention guidelines
• Selecting equity-based awards
• Stock options issues
• Incentive-based compensation

Employment and Severance Agreements Issues

• Clawbacks
• Defining contract terms
• Role of perquisites
• Non-competition, non-disclosure, non-solicitation covenants

Disclosure

• SEC Regulations
• Say-on-pay shareholder voting

Corporate Governance

• Compensation Committee charter
• Committee structure
• General business and decision-making
• Delegations of authority

International issues

To download the White Paper, go to www.pillsburylaw.com/compensationreforminsights.

Source: Pillsburylaw.com

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