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Compensation Committee Handbook. (Director Library).

By James F. Reda

Published by John Wiley & Sons Inc., New York, 358 pages, $60.00

JIM REDA's NEW BOOK is different than virtually all other executive compensation texts written during the last two decades in that it is written specifically for compensation committee members. Reda, a seasoned executive compensation expert (now compensation practice leader with Buck Consultants Inc.), put himself in the shoes of a compensation committee member, and asked, "What would I need to know to do my job well?" The answer to this question became the outline for The Compensation Committee Handbook.

Executive compensation has always been part art and part science. Reda's approach to The Compensation Committee Handbook recognizes this dichotomy. He approaches the "science" side of executive pay throughout the book. A good portion of the book gives detailed background information on the key parts of an executive compensation program, the role of a compensation committee, how to select and train new committee members, how to organize and run a committee, and legal and regulatory issues surrounding executive compensation and the compensation committee. He also includes a 45-page glossary that defines most of the technical terms used by a compensation committee, and a series of technical appendices that are useful reference documents for a committee member.

He covers the "art" side as well throughout the book and in a special section dedicated to five somewhat vexing contemporary issues faced by many compensation committees. The current issues section explains and discusses three issues related to stock: repricing of underwater stock options, using reload stock options (a special form of stock option), and accounting for stock awards. He also includes a section discussing the intricacies of accounting for a business combination using pooling of interests accounting, and, lastly, a section reviewing various aspects of executive employment contracts.

Of special interest, and what makes Reda's book different than other executive compensation texts, is that he devotes seven of his 12 chapters to the compensation committee itself. His opening line in the first chapter states, "One of the most important factors in the best-performing companies is the quality of the compensation committee." Reda makes it clear that good compensation committees do not happen by accident, and he goes to great length to share what he and others think makes for a good committee. Reda provides readers with a number of tools that can be tailored to specific boards, such as an outline for a director orientation program, a sample form for board evaluation, an illustrative compensation committee meeting agenda, an example of a compensation committee charter, and a listing of criteria to consider in selecting new compensation committee members.

Anyone who is involved with executive compensation and compensation committees usually has an opinion on how things should be done and Jim Reda is not an exception to this rule. Throughout this Handbook Reda often states the facts and then follows up with a personal perspective on best or safe practice.

Reda's final chapter is dedicated to a look to the future for compensation committees. Not surprisingly, he thinks things will keep changing -- in his estimation, for the better. He states, "There are many initiatives that almost every compensation committee can take to improve its performance." Reda predicts there will be less emphasis on equity compensation in the years ahead, that nominating committees will become more popular, and that CEO and board evaluations will become normal practices. He further suggests that shareholder advocates such as CalPERS and TIAA-CREF will continue to push for change in the executive pay arena, especially on stock issues. Reda cites the need for deeper and continuing education for compensation committee members, and possibly the emergence of a corporate governance officer within some companies.

The Compensation Committee Handbook plows new ground in providing an executive compensation text written specifically for committee members. The glossary and technical appendices are excellent reference materials for anyone working in the executive compensation arena. Any director serving on a compensation committee will find Reda's Handbook a useful tool.

Michael L. Davis is vice president of compensation, benefits and staffing for General Mills Inc., responsible for the company's overall compensation and benefit strategy and design. He previously was with Towers Perrin for 15 years, and was the firm's worldwide practice leader for executive compensation when he left in 1995.
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Copyright 2002 Gale, Cengage Learning. All rights reserved.

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Author:Davis, Michael L.
Publication:Directors & Boards
Article Type:Book Review
Date:Mar 22, 2002
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