TheCorporateCounsel.net

In her NY Times column yesterday, Gretchen Morgenson tackled the topic of pay-for-performance and how Exxon Mobil’s record earnings will undoubtably produce nice bonus windfalls for senior managers at that company.

Gretchen’s last paragraph sums up her message: “It has long been a stock market axiom that a rising tide lifts all boats. But today’s sea, alas, has become two-tiered. While a rising tide does lift shareowners’ boats, those of the me-first managers float far higher.”

For those that have watched our two Executive Compensation Conferences, you likely will be aware that we have been a little leery of the growing mantra of “pay-for-performance”; not based on principle, but because it is so difficult to establish performance measures that can’t be gamed or that directly relate to an executive’s performance.

Obviously, getting beyond a short-term stock price focus is the first step. But we have been unable to find a compensation expert that has expressed a simple-to-understand (and practical) methodology that adequately captures what investors truly are looking for – let us know if you do!

One yardstick that seems to work to address situations like Exxon-Mobil’s is to apply a consistent internal pay equity ratio—as a “governor” to address unforeseen situations. Read more about the challenges of pay-for-performance and how to implement internal pay methodologies in the summary of the “2nd Annual Executive Compensation Conference.”

Court Says SOX Whistleblower Law Doesn’t Extend Outside U.S.

On the whistleblower front, the U.S. Court of Appeals in the First Circuit recently decided – in Carnero v. Boston Scientific Corp. – that Section 806 of Sarbanes-Oxley doesn’t have “extraterritorial” effect. In so doing, the 1st Circuit became the first appellate court to weigh in on SOX’s whistleblower protections by holding that Section 806 does not extend to foreign workers employed by overseas subsidiaries of U.S. companies. We have posted a copy of the decision (and firm memos) in our “Whistleblowers” Practice Area.

This decision raises one of the more interesting statutory interpretation issues that pervades Sarbanes-Oxley. As with other sections, the 1st Circuit applies pretty well-established interpretative principles regarding Congressional intent to a statute as to which intent is often far from obvious. The extraterritoriality decision also raises issues as to where the water’s edge is located. I will be conducting a podcast about this important development soon…

Should We Merge or IPO?

If you do any venture capital work, you might be interested in the transcript from the recent DealLawyers.com webcast: “Should We Merge or IPO?”

Latest Developments on Parallel SEC and DOJ Investigations

Way back on January 25th, the WSJ ran this article on two recent cases where federal judges have taken the SEC and DOJ to task for using what the judges deemed an unfair one-two-punch approach in criminal cases. Here is an excerpt from that article:

“In Oregon this month, a judge dismissed criminal charges against three corporate executives, saying the Justice Department unconstitutionally pursued a stealth criminal investigation under the cloak of a less-threatening civil proceeding by the SEC. And in Alabama last year, a judge dismissed charges that former HealthSouth Corp. Chief Executive Richard Scrushy lied to the SEC, ruling that he should have been warned that the Justice Department already had opened a criminal investigation when the SEC questioned him. In both cases, the judges found the line between the agencies’ roles had become improperly blurred.”

This development will be discussed by four former SEC Enforcement Staffers (and one who just left the DOJ) in the March 7th webcast: “How to Handle a SEC Enforcement Inquiry Today.”