TheCorporateCounsel.net

Cheryl Hall of the Dallas Morning-News devoted her Wednesday column to providing an update on the progress of the House bill on executive pay (here is a blog from November when bill was introduced). Here is an excerpt from Cheryl’s column:

“U.S. Rep. Barney Frank owes Exxon Mobil Corp.’s Lee Raymond a thank-you note. In November, the Democratic congressman from Massachusetts introduced a bill that would force public corporations to give easy-to-read, fully detailed reports on their top executives’ pay, retirement, perks and golden parachutes.

But it was going nowhere fast until last week, when all 33 Democrats on the Republican-dominated House Financial Services Committee forced hearings in the near future on the bill. Mr. Raymond’s stupefying retirement package and high gasoline prices created this solidarity, says Mr. Frank, who sees executive compensation escalation as corporate America’s arms race.

“It’s not simply that these guys are getting large amounts of money,” says Mr. Frank. “But they’re getting large amounts of money at the same time that large numbers of workers are seeing their pensions jeopardized, their wages frozen in real terms, their jobs abolished.”

Not since Enron Corp. and Ken Lay have public angst and outrage seemed so unified. As a result, the winds of change are blowing from various directions at once. Regulators, stockholder groups and now perhaps Congress are saying enough is way too much. Charles Peck, a compensation specialist at the Conference Board in New York, has watched packages spiral upward for decades. “If you do the abnormal enough times, it becomes the norm,” he says. “Shareholders are waking up to the fact that there’s a whole lot of stuff going on underneath.”

Under Mr. Frank’s bill, companies would have to ‘fess up to the private jets, limos, vacations, maids and special considerations that otherwise might have been buried in incomprehensible verbiage. The Protection Against Executive Compensation Abuse Act is similar in many respects to new rules the Securities and Exchange Commission is about to hand down. These mandate a plain-English, single-page tally of top executives’ compensation – present and future. These tough disclosure regulations should be in place for the next proxy season.

So why doesn’t Mr. Frank just wait for the SEC rules to take hold? “Excuse me,” Mr. Frank says incredulously. “You must have a different version of the Constitution than I do. You must have one that says, ‘Article 1: The SEC shall …’ ”

And there is one critical difference. His bill would give shareholders the right to vote on whether the execs deserve the bounty. “CEOs pick the boards of directors, and the boards of directors pick the CEOs,” says Mr. Frank. “They scratch each other’s back. So there is no market mechanism for controlling CEO salaries. The only way to do that is to give stockholders a chance to vote.” This is something the SEC cannot mandate because companies are incorporated under state laws. “We have no jurisdiction,” says a commission spokesman. “All that Frank wants to achieve is unachievable by us.”

Former CEO Ordered to Pay $22 Million in Disgorgement

On Wednesday, the SEC announced that Gemstar-TV Guide International’s former CEO was ordered by the US District Court for the Central District of California to pay $22 million in disgorgement (including interest and penalties) for his role in a fraudulent scheme to inflate the company’s revenues. Now that is a clawback – one of the largest fines ever handed down for an individual charged with accounting fraud! [The SEC had sought $60.9 million but the court did not rule on a $29.5 million severance payment because the former CEO didn’t have access to it.]

If you remember back to the end of last year, this was the situation in which the Justice Department – responsible for criminal prosecution – agreed to a plea bargain in which the former CEO was given 6 months home detention, a $250,000 fine, and an order to make a $1 million charitable contribution. The judge threw out the plea bargain due to its leniency, which the SEC Staff appropriately opposed at the time (as noted in this blog).

Searching for Hidden Treasure

I found the following piece interesting in Susan Mangiero’s Pension Risk Matters Blog: “I’ve spent the last few weeks trying to uncover information about the retirement plan decision-makers at various companies. I’m willing to pay money for this information. Why?

Simply put, I want to know who has responsibility for making multi-million dollar decisions that affect thousands of employees and retirees. Once identified, I’d like to read their bios, understand how they were selected, read about how they are evaluated and identify to whom they report.

Unfortunately, my quest has provided scant results. Here is a summary of what I know. (I welcome comments about possible data sources.)

1. There is no universally accepted organizational structure to determine who is in charge of recommending and deciding on what retirement benefits to offer those outside the executive suite.

2. When a retirement benefits committee exists, it goes by different names, some of which are listed below.

(a) Master Retirement Committee
(b) Trust Selection Committee
(c) Saving and Investment Plan Committee
(d) Pension Committee
(e) Retirement Board
(f) Fiduciary Committee
(g) Benefits Committee
(h) Deferred Compensation Board
(i) Compensation and Employee Benefits Committee

3. Titles of benefits-related decision-makers vary. Some examples follow.

(a) 401K Board Chairperson
(b) Benefits Director
(c) Benefits and Compensation Director
(d) Benefits Administrator
(e) Head of Human Resources
(f) Compensation Committee Chairperson

4. The SEC has proposed a significant overhaul of reporting rules as relates to executive compensation and compensation committees. It appears to be silent with respect to the compensation decision-making process for employees below C-level.

5. Page 1 of Form 5500 requires the identification of the plan sponsor and plan administrator, respectively. Schedule P to Form 5500 requires the signature of a fiduciary and the name of a trustee or custodian. (According to the U.S. Department of Labor website: “Each year, pension and welfare benefit plans generally are required to file an annual return/report regarding their financial condition, investments, and operations. The annual reporting requirement is generally satisfied by filing the Form 5500 Annual Return/Report of Employee Benefit Plan and any required attachments.”)

6. ERISA mandates the distribution of a Summary Plan Description (SPD) to each plan participant and beneficiary currently receiving benefits. Required information includes “the name, title and address of the principal place of business of each trustee of the plan”. Education and experience are not mandatory disclosure items.

The bottom line is that a systematic identification of who does what and why with respect to employee benefits is simply not a reality as things stand today. This makes it difficult (perhaps impossible) to effect change. Hunting for treasure shouldn’t be this hard!”