CORPORATE GOVERNANCE AND EXECUTIVE COMPENSATION.ppt

L:\non-client records\38897\hcg\2003\ncr100\Exec Briefing-Feb5\Governance Pres.ppt Corporate Governance and Executive Compensation Current Compensation Committee and Executive Compensation Issues Executive Compensation is in a State of Flux… Some of the Governance Concerns that have been Expressed: Executive Pay: Not linked to performance Escalating ratio of executive compensation to the pay of other managers, workers What is a CEO worth? Executive loans Stock Options: Absence of accounting charge has facilitated excess use of options Equivalent cash value of a stock option to an executive is less than its economic cost to the company A rising tide floats all boats Governance Concerns (Cont’d) In the Boardroom: The culture of most Boardrooms makes it easier to go along with Management’s requests than to reject or reduce them Compensation consultants are usually not independent of management Improper use/overuse of compensation surveys cause a “ratcheting” effect in executive compensation Many compensation committees lack the experience necessary to analyze complex proposals and to develop informed opinions, pro or con Meanwhile, Company CEOs also Have Concerns Impact of new legislation and standards on governance and day-to-day operations Articulating corporate strategy in shareholder terms, with more Board involvement Achievement of financial results in an uncertain environment Shortened careers—produce or else Attraction, motivation and retention of key executive talent Cash compensation vs. equity incentives Other issues: succession, etc. Shareholder Objectives for Executive Compensation Build real long-term growth in shareholder value Competitive, performance-aligned compensation Avoid corporate future financial hardship as a result of special compensation arrangements Pricing relative to the market—proper use of compensation instruments Truly independent Compensation Committees Full, truthful and straightforward disclosure of The principles and structures of