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Boardroom INSIDER is the online newsletter for better boards and better directors (www.boardroominsider.com). Ralph Ward, publisher, is also author of the books The New Boardroom Leaders, Saving The Corporate Board, Improving Corporate Boards - The Boardroom INSIDER Guidebook, and 21st Century Corporate Board.
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Boardroom INSIDER News Blog........7/09
WILL OBAMA'S CEO PAY REFORMS REALLY WORK?
In June, the Obama Administration unveiled its legislative shopping list of reforms for top executive pay. According to Treasury Secretary Geithner, the plan will require top exec pay packages to reward only long-term, sustainable results, better factor in risk, and take a tough look at "golden parachutes" and other benefits. Corporate board compensation committees, which actually shape and oversee these pay plans, would face their own reforms under the Obama changes. A shareholder "say on pay" vote would be mandated, along with more committee disclosure and resources, plus stronger director independence.
But this may not be enough to really fix how boards set CEO pay, says the July issue of online board magazine Boardroom INSIDER. Publisher and board commentator Ralph Ward writes that regulators seek "the same professionalism for compensation committees that the Sarbanes-Oxley reforms imposed on audit committees." Yet Ward is concerned that key elements which boosted audit performance are still missing for comp committees.
Audit committees today "face outside auditors who are spooked into fine-combing results." But the comp committee's work will be vetted only through a subjective shareholder Say on Pay vote which, Ward notes, "is strictly advisory." He predicts that a new industry of independent "pay analysts" will rise to meet this need.
Finally, audit committees today must have at least one provable "financial expert." However, the Obama reforms won't require comp committee members to have any proven background or expertise in the hugely complex world of modern executive pay plans. In short, Ward concludes, "two factors that made audit committee reform so powerful are still missing on exec pay."
Also in the July Boardroom INSIDER:
What board comp committees must do now to prepare for the Obama reforms.
After you leave a board, will you still have liability protection?
Try a board "pre-meeting."
Q&A:
Should our CEO join outside boards?
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