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Feature

Don B. Lindner
Executive Compensation Practice Leader
WorldatWork

We’ve Got the Questions. Do You Have the Answers?

All signs indicate government and media scrutiny on executive pay will intensify as the 2008 proxy season approaches. Here is a new tool to help boards and compensation committees identify their top pressure points.

By Don B. Lindner

The focus on executive and director compensation continues to intensify.
In early September, as part of its review of executive and director pay disclosure in 2007 proxies, the SEC Corporate Finance staff sent its first wave of comment letters to 300 companies. The SEC letter focused on disclosure of performance targets as well as use of plain English.

In a challenge for consultants, Rep. Henry Waxman (D-Calif.), chairman of the House of Representatives’ Committee on Oversight and Government Reform, sent letters earlier this year to several executive compensation consulting firms delving into compensation practices and the roles played by consultants.

As the leading association for human resource professionals, WorldatWork created an online resource that poses all the questions boards will have to answer before they approve compensation plans. By clearly identifying every essential factor for rewarding executives and directors, the WorldatWork Executive Rewards Questionary helps comp committees and boards deliberate decisions and criteria in specific areas of executive compensation design.

The Executive Rewards Questionary covers over 200 questions organized into four main sections (sample questions for each section appear below). To view all the questions, visit www.worldatwork.org/execcomptool.

Internal Environment
Directors must conduct a thorough overview of business strategy in order to clearly identify human capital strategy, organizational culture, organizational resources, and parameters.

•    Do you have a performance focus or entitlement orientation in your compensation programs?
•    What are your governance ratings and what impact do they bring to bear on design?

Stakeholders
If shareholder approval applies to the program, then shareholder expectations need to be clarified and their involvement understood and outlined.

•    What are shareholder expectations about your compensation programs and how do they affect plan design?
•    What type of compensation and benefits treatment have other employees recently received?

External Environment
Be sure to compare accounting/tax/legal external environment to your internal environment. Explore issues related to regulatory, economic/industry/labor market and community.

•    Are there anticipated changes on the horizon that could affect the accounting or tax treatment for your program?
•    What is the likelihood of a change of control?
•    What are the sensitivities of the communities or governmental bodies or entities in which the company operates (living wage, executive pay, highest-to-lowest ratio, layoffs, divestiture)?

Disclosure and Transparency
In addition to all of the business and regulatory issues, credibility and effective administration depend on a well thought-out and well-executed communication strategy for all of the constituents. Take time to deliberate issues related to public disclosure/transparency, regulatory findings, and the compensation committee.

•    Have you met with appropriate internal and/or external resources (legal, tax, accounting, audit, HR, shareholder relations, consultant, other) to identify and address disclosure requirements?
•    What are sensitive committee issues that might raise concern with this plan?

While the Questionary does not provide answers to the many issues it raises, it helps ensure that compensation committees review their executive rewards plan from every conceivable angle, resulting in a well thought-out compensation design process with fewer surprises.

Don B. Lindner, CCP, CBP, GRP, is the executive compensation practice leader for WorldatWork and is one of the leading authorities on executive rewards.

He serves as the staff liaison to the WorldatWork Executive Rewards Advisory Board, which operates as the association’s strategic committee for identifying, articulating and prioritizing issues, topics and challenges affecting the profession in the executive rewards area. He also is responsible for developing WorldatWork certification courses relating to executive compensation, mergers and acquisitions, and strategic communication.

He can be contacted at dlindner@worldatwork.org.