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Executive CompensationAfter “TARP”
Executive CompensationAfter “TARP”
Right Management WorkshopJune 2, 2009
Right Management WorkshopJune 2, 2009
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Executive Compensation In the News
Executive Compensation In the News
The U.S. Department of the Treasury today issued interim final rules for reporting and recordkeeping requirements under the executive compensation standards of the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). U.S. Department of Treasury January 16, 2009
“ We all need to take responsibility," he said while announcing the new compensation rules with Treasury Secretary Tim Geithner. "And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses.“ President Obama February 4, 2009
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "Act"), Title VII of which imposes new and more stringent limits on executive compensation for participants in the United Stated Department of Treasury ("Treasury") Troubled Assets Relief Program ("TARP") under the Emergency Economic Stabilization Act of 2008 (the "EESA").
“Where we’re hearing the most broadly talked about change that’s coming is that the TARP (Troubled Assets Relief Program) recipients will now include ‘say-on-pay’ advisory votes on their proxy statements,” . “This is something that the socially responsible investing industry has been pushing for a very long time.” Joanne Dowdell, Senior Vice President and Director of Corporate Responsibility at Sentinel Investments
The U.S. Department of the Treasury today issued interim final rules for reporting and recordkeeping requirements under the executive compensation standards of the Troubled Asset Relief Program's (TARP) Capital Purchase Program (CPP). U.S. Department of Treasury January 16, 2009
“ We all need to take responsibility," he said while announcing the new compensation rules with Treasury Secretary Tim Geithner. "And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses.“ President Obama February 4, 2009
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the "Act"), Title VII of which imposes new and more stringent limits on executive compensation for participants in the United Stated Department of Treasury ("Treasury") Troubled Assets Relief Program ("TARP") under the Emergency Economic Stabilization Act of 2008 (the "EESA").
“Where we’re hearing the most broadly talked about change that’s coming is that the TARP (Troubled Assets Relief Program) recipients will now include ‘say-on-pay’ advisory votes on their proxy statements,” . “This is something that the socially responsible investing industry has been pushing for a very long time.” Joanne Dowdell, Senior Vice President and Director of Corporate Responsibility at Sentinel Investments
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When Do the American Recovery and Reinvestment Act “ARRA”
Executive Compensation Restrictions Apply?
When Do the American Recovery and Reinvestment Act “ARRA”
Executive Compensation Restrictions Apply?
The new ARRA restrictions apply during the entire period in which any obligation arising from financial assistance provided under the TARP remains outstanding (the TARP period). However, the TARP period does not include any period when the federal government holds only warrants to purchase the TARP recipient’s common stock.
The restrictions on compensation under the ARRA focus largely on senior executive officers (SEOs). The new ARRA rules expand coverage for certain purposes to as many as the next 20 most highly compensated employees. SEOs are defined as the executives whose compensation must be disclosed in a public company’s annual filing under the Securities Exchange Act of 1934.
Restrictions under the ARRA may be classified according to the following broad categories:
prohibitions on certain types of compensation, plan design qualitative considerations, compensation clawbacks, income tax deductions, and corporate governance
The new ARRA restrictions apply during the entire period in which any obligation arising from financial assistance provided under the TARP remains outstanding (the TARP period). However, the TARP period does not include any period when the federal government holds only warrants to purchase the TARP recipient’s common stock.
The restrictions on compensation under the ARRA focus largely on senior executive officers (SEOs). The new ARRA rules expand coverage for certain purposes to as many as the next 20 most highly compensated employees. SEOs are defined as the executives whose compensation must be disclosed in a public company’s annual filing under the Securities Exchange Act of 1934.
Restrictions under the ARRA may be classified according to the following broad categories:
prohibitions on certain types of compensation, plan design qualitative considerations, compensation clawbacks, income tax deductions, and corporate governance
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The Why of Executive CompensationThe Why of Executive Compensation
Attraction & Retention
Competitive landscape
Company practice
“I had it before” syndrome
Drive business success
Improve shareholder return (?)
Attraction & Retention
Competitive landscape
Company practice
“I had it before” syndrome
Drive business success
Improve shareholder return (?)
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The What of Executive CompensationThe What of Executive Compensation
Base pay Cash incentives Stock incentives Deferred compensation Retention awards Perks Employment contracts Severance arrangements Change-in-control agreements
Base pay Cash incentives Stock incentives Deferred compensation Retention awards Perks Employment contracts Severance arrangements Change-in-control agreements
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The How of Executive CompensationThe How of Executive Compensation
Compensation philosophy
Mix of compensation
Annual bonus plan
Long-term bonus plan
Legal, tax and financial implications
Board accountability
Compensation philosophy
Mix of compensation
Annual bonus plan
Long-term bonus plan
Legal, tax and financial implications
Board accountability
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What's in Store for 2009 in Executive Compensation The Future State
What's in Store for 2009 in Executive Compensation The Future State
To get a sense of likely 2009 trends in executive compensation, Towers Perrin examined the Compensation Discussion and Analysis disclosures filed by the compensation committees of 135 Fortune 500 companies. For this group, they found:
44% are freezing executive salaries. 10% are reducing executive salaries, with the most common approach a 10% reduction below
2008 levels. 16% saw executives forgo — or compensation committees reduce — payouts of earned incentive
awards in 2008. 14% announced that 2009 annual or LTI awards will be reduced or eliminated. 7% are curbing pay for directors.
These findings suggest that many companies are struggling to strike the right balance between risk and reward. They're wrestling with pay-for-performance issues, along with risk tolerance, goal setting and other challenges in an environment of great uncertainty, where defining meaningful targets is much more difficult than usual.
To get a sense of likely 2009 trends in executive compensation, Towers Perrin examined the Compensation Discussion and Analysis disclosures filed by the compensation committees of 135 Fortune 500 companies. For this group, they found:
44% are freezing executive salaries. 10% are reducing executive salaries, with the most common approach a 10% reduction below
2008 levels. 16% saw executives forgo — or compensation committees reduce — payouts of earned incentive
awards in 2008. 14% announced that 2009 annual or LTI awards will be reduced or eliminated. 7% are curbing pay for directors.
These findings suggest that many companies are struggling to strike the right balance between risk and reward. They're wrestling with pay-for-performance issues, along with risk tolerance, goal setting and other challenges in an environment of great uncertainty, where defining meaningful targets is much more difficult than usual.
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Advice as You Negotiate Your “NEW DEAL”
Advice as You Negotiate Your “NEW DEAL”
Conduct due diligence on compensation philosophy
Review plan documents
Understand payout history on short and long term bonus plans
Ask about perks
Get it in writing
Hire a lawyer for contract review
Conduct due diligence on compensation philosophy
Review plan documents
Understand payout history on short and long term bonus plans
Ask about perks
Get it in writing
Hire a lawyer for contract review
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Human Capital Consulting Partners LLCHuman Capital Consulting Partners LLC
Contact:
Jim GeierPresident and FounderHuman Capital Consulting Partners LLCCell: 267-250-2612Office: 215-244-8110Email: [email protected]: www.hccpartners.com
Contact:
Jim GeierPresident and FounderHuman Capital Consulting Partners LLCCell: 267-250-2612Office: 215-244-8110Email: [email protected]: www.hccpartners.com
