Craig's Corner For Counsel: Executive Compensation

Tuesday, July 1, 2008 - 00:00

Any executive compensation program is structured to reward executives for their leadership, financial results and operating performance, and to keep them with the company. Corporate counsel are keenly aware that the Securities and Exchange Commission is now closely scrutinizing executive compensation, stemming from the disclosure requirements adopted in 2006.

I had the opportunity to speak about executive compensation with Danielle Benderly, partner with Perkins Coie LLP in Portland, Oregon. Benderly, with colleagues at the firm (including Susan J. Daley, J. Sue Morgan and Kelly Reinholdtsen), is a co-author of Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules from West.

Craig Miller: How have corporate counsel and companies reacted to the SEC's requirements for executive officer and director compensation disclosure?

Danielle Benderly : The SEC's changes to companies' disclosure requirements were significant. The first reaction from corporate counsel and companies was to get educated. Everyone took a serious look at these new requirements and worked hard to learn what the implications of the disclosure would be. The process of going through the disclosure for the first time made a lot of companies look critically at some of the compensation structures they had been using. A lot of them decided yes, this is the right thing we should be doing. But some companies looked at their disclosure and decided that maybe this isn't exactly what they want to do.

Craig Miller: What is the most crucial kind of guidance for executive compensation that corporate counsel can provide to companies?

Danielle Benderly : The main role that corporate counsel provide is one of education and keeping track of the requirements. They also must monitor the SEC staff's current position on what they're looking for in terms of disclosure. Corporate counsel also should help make sure that everyone at companies who need to disclose know and understand all the implications of these requirements. The other role that the counsel can provide is to help companies improve their disclosure. Working with the requirements and crafting disclosure - making sure the disclosure is doing what it is intended to do - is something that the lawyers are well-suited to help with.

Craig Miller: What do you believe are the biggest challenges for corporate counsel right now, when dealing in matters of executive compensation?

Danielle Benderly : The main challenge is the same one it's always been - structuring executive pay packages that work both from an incentive and a retention perspective to encourage the behavior you want from the management team and to keep the people you want to keep.

Craig Miller: Are there any other trends to watch in executive pay?

Danielle Benderly : In addition to looking critically at what the pay structures are and what disclosure is required under the new rules, companies should ask "are we really doing what we intend to be doing?" There are a couple of structures that have become hot topics over this period in response to the new disclosure rules, and also in response to the increasing pressure from the institutional shareholders. The first is pay for performance packages - looking at how much of the management team's compensation is at risk and what the link is between performance and the structure and size of those pay packages. The second is what effect, if any, the stock ownership of the executives has on how their pay package is structured. That comes into play in a couple of ways in looking at whether severance-type packages are appropriate for an executive - looking at how much wealth that person accumulated could be an issue. Also, how much equity has that person accumulated? A lot of companies are looking at stock ownership policies that could take the form of a minimum ownership level or a hold-until policy - I think those have not gotten that much traction yet but it's something that people are talking about.

Thanks to Danielle Benderly, co-author of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules from West. The book is available at west.thomson.com.

Craig Miller's entire interview with Danielle Benderly is featured in Westcast podcast episode #46 at http://feeds.feedburner.com/Westcast.

For additional insight on executive compensation, the following Westlaw databases also are available:

Journal of Compensation & Benefits (JCAB)

Corporate Counsel's Guide to Nonqualified Deferred Compensation Agreements (CCGNDCOMP)

Executive Compensation Strategies Newsletter (EXECCSTGY-NWL)

RIA Executive Compensation Analysis (RIA-EXCOMPAN)

Executive Compensation (EXECCOMP) By Michael S. Sirkin and Lawrence K. Cagney

Compensation Guide (COMP-GD)

Corporate Counsel's Guide to Employment Contracts (CCGEMPLC)

Proxy Rules Handbook (PRXYRH) By Mark A. Sargent and Dennis R. Honabach