June 23, 2005

Mark it Down – ’33 Act Reform on June 29th

As soon as I blogged yesterday that the rumor about the SEC adopting ’33 Act reform on June 29th might no longer hold water, the SEC announced that the Commission indeed will consider adopting the reform on the 29th. Besides ’33 Act reform, the Commission will consider its outstanding shell company proposal – as well as the cost-benefit analysis and alternatives of the already adopted mutual fund board independence rules (as required by the DC Circuit Court decision that I discussed in yesterday’s blog). Look for sparks to fly on this last agenda item at the open Commission meeting!

Do you know what else happens on June 29th? As reported Tuesday in the WSJ, 60% of the companies listed on the Toyoko Stock Exchange hold their annual stockholders meetings! Talk about bad governance – this practice ensures that investors are not able to attend many of these meetings.

ABA Discussion Paper on Majority Voting

The ABA Committee of Corporate Laws has issued a 32-page discussion paper on majority voting – and now seeks reactions to its objective analysis, as noted on the last page of the paper. A copy of this paper is posted in our “Majority Vote Movement” Practice Area.

Ten Reasons Why You Should Hear What Fred Cook Said!

Fred Cook truly gave a seminal speech – “Fred Cook Speaks to Directors” – on Tuesday during which he imparted wisdom from his 40 years serving as a compensation consultant. Here are 10 Good Reasons why all your directors, staff and advisors should hear what was said during this critical event (the text and video archive now are available on

1. Fred starts off in “The Cycle of Executive Compensation” by explaining how we got here – which is important to understand in order to reverse course. Fred notes “Executive compensation is not “out of control” as some alarmist critics hold. The start point is totally under the control of the compensation committee….”

2. Fred explains how surveys are a major cause of the escalation of CEO pay in “The Problem with Surveys,” by providing a series of candid observations, such as “Why are we so dependent on surveys to set the start point of executive compensation? The answer is that we do not know how to value the job of management.” Fred’s pointers are set forth in an important supplemental two-page paper for directors on the use – and misuse – of surveys.

3. In “How Did Stock Options Come to Dominate Executive Compensation?,” Fred explains the important concept of “equity carried interest” – which is essential for boards and advisors to understand. Fred also provides ten reasons why option and equity grants have grown to such high levels that may not be in a company’s best interests.

4. Noting that many boards are looking for equity alternatives in the face of option expensing, in “A Warning About Restricted Stock,” Fred explains why using survey values to convert options into other grant forms on a dollar-for-dollar basis is a fundamental mistake

5. Perhaps Fred’s most practical and innovative guidance comes during “What’s Another Approach to Equity Grant Guidelines?” as he provides a framework for determining how much equity is appropriate to motivate executives to provide value.

6. This framework is further explained in a supplemental paper, “A Different Approach to Stock Option Grants – Stock Option/Pay Multiple Formula.” Fresh thinking that is a must for all compensation committees!

7. In “Internal Pay Equity,” we expect that Fred’s story about implementing internal pay equity methodology at a leading company should encourage many more of us to ask our HR heads or consultants to implement this important alternative to external peer benchmarking.

8. Fred outlines six common traps during “What Are Some Traps Compensation Committees Should Avoid?”

9. In “What Are Evolving Best Practices in Executive Compensation Governance?,” Fred delves into six practices that are emerging as best practices today.

10. In addition to this seminal speech, much more of Fred’s wisdom – as well as practice pointers from our 75 Task Force members – are available on today. And our “2nd Annual Executive Compensation Conference” – live in Chicago or by video webcast – will feature important practical guidance from luminaries like Fred, John Reed and other notable directors and expert advisors.