January 26, 2006

Congress Moves to Block SERP Payouts at Troubled Companies

Yesterday’s WSJ ran this article about how Congress is seeking to effectively cap payouts under SERPs for executives at troubled companies. According to the article, the limitation is tucked into a pension bill that is expected to be passed into law this spring. Remember my repeated warnings about Congress using executive pay as a political football if boards don’t take matters into their own hands!

Here is an excerpt from the article:

“Congress still hasn’t worked out the final restrictions on executive retirement plans, but they may kick in when a company’s defined-benefit pension plan is funded at 60% or less of its projected liabilities.

Traditional, or defined-benefit, pension plans, in which benefits are based on an employee’s pay and years of service, are considered underfunded if their assets fall short of the sum they expect to pay out in the future. Such plans have been on the decline in recent years as companies have sought to shift more of the burden of retirement savings to their employees, but they are still common in highly unionized industries.

The House plans to press for language in the measure that would block payment of new benefits to every manager covered by a troubled company’s executive retirement plan. The Senate and the Bush administration, according to House and Senate staff members, believe the new rule should apply only to the company’s highest-ranking executives. If a troubled company were to go ahead and fund its executive plans anyway, it would face stiff tax penalties.

The pension-overhaul bill that contains the measure is expected to be sent to President Bush before mid-April. when many companies are required to make contributions to their defined-benefit plans.”

Delaware Supreme Court Considers Disney Appeal

Yesterday, the Delaware Supreme Court heard oral arguments in the appeal of last year’s Disney case. Professor Gordon Smith has all the appellate briefs posted on the Conglomerate Blog – and a number of professors weighed in yesterday with their analysis of the hearing as they watched it via webcast. Here is a Reuter’s article summarizing the hearing. The Supreme Court has 90 days to decide, although a decision is expected sooner.

Don’t forget you can watch Delaware Supreme Court Chief Justice Myron Steele discuss his thoughts on boards and compensation in the archived video from our “2nd Annual Executive Compensation Conference.”

PCAOB Standing Advisory Group to Consider Auditor Liability Caps

Yesterday, the PCAOB announced that its February 9th standing advisory group meeting will include “possible effects of the inclusion of litigation-related clauses in audit engagement letters” on its agenda. That should be interesting!

Here is a 39-page discussion paper on the topic. Coincidentally, I had just posted a new survey on auditor engagement letters and inspection reports. Please participate!