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Executive pay seen as global concern.

Executive pay isn't just a huge issue in the U.S.; it's a big concern of institutional investors globally, who rank it consistently among their top three issues, according to a recent survey by Institutional Shareholder Services (ISS) of 322 investor organizations around the world.

The survey, the first of its kind, according to ISS officials, found pension and investment fund managers fuming over the run-up in pay, especially for multinational corporation CEOs. One issue that drew particular ire: massive numbers of stock options, which several in the survey said was affecting company profitability and diluting their investments.

In the U.S., the new Securities and Exchange Commission rules on executive compensation disclosure, anticipated for the 2007 spring proxy season, are already creating quite a bit of agita, consultants say. Increased disclosure is likely to persuade many companies to offer cash instead of perquisites they would have to disclose, like trips on the corporate jet. Other perks could even include "buying the CEO's newspaper," says Alan Johnson, managing director of Johnson Associates, who adds that with disclosure of certain perks, "many companies could be held up to ridicule."

The SEC's requirement that companies develop a "tally sheet" summarizing all forms of executive comp may not be a major hurdle, however; Derrick Neuhauser, a senior manager at BDO Seidman LLC, says that most Fortune 500 companies appear to be developing them already.

But the numbers on the tally sheets are certain to create a furor at some companies, and "innocent people will get shot," says Tom Wamberg, president and CEO of Clark Consulting in North Barrington, Ill. He sees companies laboring to validate their numbers and their positions, with the help of attorneys, accountants and consultants. "No one wants to be exposed without several layers of backup," he adds.


Wamberg expects that a huge part of top executive pay, supplement executive retirement plans (SERPs), will be altered to put more focus on company performance. In the past, he says, SERPs were generally calculated as a multiple of final average pay times years of service. Now, he says, expect those to be tweaked to include a performance component.

SERPs are considered one of the "core" executive benefit programs, along with nonqualified deferred compensation, executive life insurance and perks. They were developed after the 1974 ERISA law, and were intended to give the top tier of executives "parity" in terms of the percentage of final pay they could receive versus lower-ranking managers, instead of being subject to ERISA pay limits.
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Title Annotation:compensation
Author:Heffes, Ellen M.
Publication:Financial Executive
Geographic Code:1USA
Date:Jul 1, 2006
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