Title: What's Next in Corporate Pay Practices? an Enhanced Role for Compensation Committees and a Hard Look at Stock Options Are in the Offing
Abstract: EXECUTIVE SUMMARY * RECENT SCANDALS HAVE CREATED A PUBLIC perception corporate executives are putting their own interests ahead of shareholders' concerns. While the Sarbanes-Oxley Act of 2002 does not directly mandate changes in compensation methods beyond placing restrictions on personal loans to executives, its emphasis on corporate governance has been a catalyst for public companies to reexamine how they pay their top executives. * IT'S NOW UP TO COMPANIES TO REVISE THEIR pay methods with CPAs' assistance. On a practical level, greater duties for board compensation committees and a reconsideration of companies' use of stock options will have the greatest impact on how companies compensate their executives. * FOR COMPENSATION COMMITTEES SEEKING GUIDANCE on how to begin, can recommend a list of best practices developed late in 2003 by the National Association of Corporate Directors' blue ribbon commission on executive Executive Compensation and the Role of the Compensation Committee suggests compensation committees maintain their independence, create fair pay packages, focus on long-term shareholder value, link pay to performance and encourage transparency. * CAN HELP COMPENSATION COMMITTEES CAREFULLY examine how stock options should fit into the mix. Option grants became less appealing after the market boom ended. They also were perceived as encouraging executives to focus on short-term results would cause a temporary stock surge and raise the option value just in time for exercise. FASB has introduced mandatory expensing of stock options, which may diminish their appeal for some companies. In a speech last fall, PCAOB Chairman William McDonough said many members of Congress had asked him whether he could figure out a way they could pass a law controlling compensation. In expressing his doubts to the National Association of Corporate Directors annual corporate governance conference, McDonough said he didn't believe any one law could fit each company's unique situation, though that doesn't mean one won't get passed if the American people stay angry enough. Regulators and Congress have begun to scrutinize how public companies pay their executives; the subject remains a sore spot for investors as well. Something has gone wrong with executive compensation in the United States, Sean Harrigan, president of the California Public Employees' Retirement System--the country's largest public pension system and a powerful institutional investor--told Congress last year. Harrigan said it was shocking to see top corporate executives insulating themselves from any risk while shareholders are losing value. This article identifies some of the key concerns on which CPAs--in their capacity as CFOs, human resources professionals, financial managers or consultants--can advise companies as they seek to revise their pay practices. also can offer important advice on tax, financial reporting and compensation issues. In addition, the information in article will be helpful to the who, because of their financial expertise, are increasingly being asked to serve on corporate boards (see CPAs as Audit Committee Members, JofA, Sep.03, page 32). THE CPA's ROLE CPAs employed by companies can take a proactive role in advising their hoards on compensation practices, says Roselyn Morris, CPA, associate dean of the McCoy School of Business Administration, Texas State University at San Marcos. Depending on the CPA's position, this may even be part of his or her job. A CFO, for example, could offer advice and opinions when dealing with the board and other executives. in other areas of the organization not directly involved in compensation can direct governance issues, shareholder advocacy concerns and other questions to the company's ethics hot line. For seeking to guide employers or clients through the compensation minefield, Morris says openness will be a key concern. …
Publication Year: 2004
Publication Date: 2004-07-01
Language: en
Type: article
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