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Investment Dealers' Digest, February 5, 2007 article


5 February 2007

Compensation Moves Front and Center: Add president Bush to the chorus of critics of CEO comp


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.



(c) 2007 Investment Dealers' Digest Magazine and SourceMedia, Inc. All Rights Reserved.




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