October 12, 2004
Equivalent of Sarbanes-Oxley for Deferred Compensation
Yesterday, the Senate signed off on a massive $137 billion corporate tax overhaul that was passed by the House last Thursday. The legislation repeals the current tax regime that was ruled out of compliance by the World Trade Organization and replaces it with a system that brings the US into compliance – included in the legislation are some pretty dramatic nonqualified deferred compensation provisions that will require modification of virtually every nonqualified plan.
To be clear, this very significant legislation will require every employer in the US with a non-qualified retirement plan or a deferred compensation plan (which is virtually every employer, except small ones) to amend their plans, start a new plan or both.
Learn more about this legislation at next week’s upcoming NASPP annual conference, as it will be addressed by a number of the 45+ panels! Or learn more from the recent NASPP webcast – “The Coming Non-Qualified Deferred Compensation Legislation” and the NASPP Deferred Compensation Legislation portal.
More on Internal Checks
Last week, I blogged about the Council of Institutional Investors’ updated executive compensation policy. One item I neglected to mention is that CII endorses the internal check method – which we recommended as one way to bring CEO compensation back in line – by stating “The committee should also ensure that the structure of pay at different levels (CEO and others in the oversight group, other executives and non-executive employees) is fair and appropriate in the context of broader company policies and goals and fully justified and explained.”
Also notable is that CII not only recommends disclosure of a company’s compensation philosophy – but believes that best practices includes shareowner approval of the compensation philosophy. I agree with the recommendation to disclose, but I think that shareholder approval goes a little too far.
Pay for Performance
In addition, CII recommends that compensation of the executive oversight group should be driven predominantly by performance. Of course, the devil is in the details in this area.
To learn more about pay-for-performance – and how the lack of it has led to excessive compensation practices – I recommend the new book by Professors Lucian Bebchuk and Jesse Fried, “Pay without Performance: The Unfulfilled Promise of Executive Compensation.” We also will provide practice pointers in this area next week at the October 20th compensation conference.