Executive Compensation Best Practices

Executive Compensation Best Practices demystifies the topic of executive compensation, with a hands-on guide providing comprehensive compensation guidance for all members of the board. Essential reading for board members, CEOs, and senior human resources leaders from companies of every size, this book is the most authoritative reference on executive compensation.

Table of Contents:
Preface xi Acknowledgments xvii CHAPTER 1 Introduction 1 Should the CEO be Rewarded or Punished for Events Beyond the CEO’s Control? 1 Warren E. Buffett on Executive Compensation 3 CEO Compensation Theories 4 CEO Forced Exit Packages 6 Private Equity Compensation 8 Entertainment and Sports Celebrities 8 Benefits of Good Corporate Governance 9 CHAPTER 2 Motivating Executive Performance 13 Tying Performance to the Strategic Plan 15 Unintended Consequences 16 Firm Expansion and CEO Pay 19 Equity-Based Compensation 20 A New Role for CEOs 21 Satisfying Investor Expectations 22 Minimum Equity Ownership Requirements 23 CHAPTER 3 Peer Groups and Benchmarking 25 Adjusting the Peer Group 28 Peer Groups for Different Levels of Executives 30 Benchmarking 31 Lake Wobegon Effect 33 Benchmarking with Medians 34 CHAPTER 4 Competing With Private Equity Funds 35 CHAPTER 5 Explaining Executive Compensation to Shareholders 43 Introduction 43 Reconstructing Executive Compensation Disclosure for Shareholders 50 CHAPTER 6 Compensation Committee Ordinary Operations 57 SEC Action Against Tyson Foods 62 Earnings on Deferred Compensation 64 Practical Steps for Compensation Committees 65 Compensation Committees of Non-Profit Organizations 67 CHAPTER 7 Negotiating Executive Employment and Severance Agreements 71 Negotiating with New CEO Candidates 71 Negotiating with Existing CEOs 76 Best Practices Applicable to New and Existing CEOs 77 Council of Institutional Investors 78 Gross-Up Clauses 89 Retirement Arrangements 94 The Grasso Case 95 Section 409A of the Internal Revenue Code 96 Other Best Practices in Negotiating Employment or Severance Agreements 96 CHAPTER 8 Compensation Committee Structure and Process 99 Creating Incentives for Good Corporate Governance 108 Disney Litigation 110 CHAPTER 9 Equity Incentive Choices 113 Overview of Equity Incentives for Key Employees 113 Dilution 114 Stock Option versus Stock Appreciation Rights 114 Restricted Stock versus SARs or Phantom Appreciation Plans 120 Phantom Plans 121 ISOs versus Non-ISOs 122 The Advantage of ISOs 124 Non-ISOs with Tax Reimbursement 125 The Tax Benefit to the Company 127 CHAPTER 10 Option Granting Practices 129 Option Granting Practices 135 The Council of Institutional Investors 142 Equity Retention Practices 143 CHAPTER 11 Director Compensation 145 Retainer and Differential Pay 147 Minimum Equity Requirements 148 Director Compensation Procedure and Process 149 Shareholder Approval 151 Perquisites, Repricing and Exchange Programs,Change in Control, and Severance Payments 151 Disgorgement 152 CHAPTER 12 Negotiating for the Executive 153 CEO Turnover 154 New Candidates for CEO or Other Executive Positions 154 Employment Agreements with Private Equity Buyers of CEO’s Business 161 CHAPTER 13 Executive Compensation and Section 409A of the Internal Revenue Code 163 Background 166 Plans That Do Not Provide for the Deferral of Compensation 168 Nonqualified Deferred Compensation Plan – Plans that Provide for Deferred Compensation 172 Special Rule Applicable to Specified Employees 173 Change-in-Control Events 174 Change in the Ownership of a Corporation 175 Change in the Effective Control of a Corporation 176 Change in Ownership of a Substantial Portion of a Corporation’s Assets 177 Structuring the Payments upon an Event Payment Trigger 178 Specified Time or Fixed Schedule 179 Equity-Based Compensation 179 Section 409A Compliance 181 Appendix A Compensation Committee Charter 183 Appendix B Corporate and Securities Update:SEC Adopts Sweeping Overhaul of its Executive Compensation Disclosure Requirements (September 2006 and revised December 2006) 189 Appendix C Employment Agreement 213 Appendix D Public Company Equity Incentive Plan 233 Appendix E Search Terms Typically Required to be Researched by Public Company in Option Backdating Investigations by the Securities and Exchange Commission 285 Appendix F What an Employee Should Know About His or Her Stock Options 289 Index 309

About the Author :
FREDERICK D. LIPMAN is a senior partner with the international law firm of Blank Rome LLP and also the President of the Association of Audit Committee Members, Inc., a nonprofit organization. He was a lecturer in the MBA program at the Wharton School of Business and at the University of Pennsylvania Law School. A graduate of Harvard Law School, he has more than forty years' experience in areas of corporate governance, M&As, private equity, and IPOs. Mr. Lipman is the author of ten other books including Audit Committees and Wiley's recent Corporate Governance Best Practices. He has appeared on television programs on CNBC, CNN, and Bloomberg as a national commentator on initial public offerings, venture capital, mergers and acquisitions, and stock options. He has been quoted in the Wall Street Journal and other publications and is located in the Philadelphia, Pennsylvania office of Blank Rome LLP. STEVEN E. HALL is founder and Managing Director of Steven Hall & Partners, a compensation consulting firm located in New York City. He has over thirty years of experience in rendering advice to organizations in both the public and private arenas on a broad array of topics, including executive compensation, board remuneration, and governance issues related to the compensation committee. Mr. Hall is also a member of the faculty of the National Association of Corporate Directors (NACD), where he teaches courses focused on the responsibilities of board members in the areas of executive compensation and corporate governance. He is a frequent author and speaker and has appeared as a commentator on CNBC, CNN, and other national networks. He has also been quoted in the New York Times, the Wall Street Journal, and other U.S. and international periodicals.