Transparency on Exec-Comp Limits Would Have Been a Bonus
Newly enacted executive-pay restrictions seem to be suffering from a bit of Sarbanes-Oxley syndrome.
The uncertainty that emanated from the Sarbanes-Oxley Act during its lengthy “interpretation” by the SEC in 2002-2003 seems to have come back to haunt the new executive-comp pay curbs contained in the stimulus package.
“It’s creating mass confusion,” a frustrated investment bank HR executive vented to the Journal this morning.
Some compensation experts had harsher words — as well as suggestions for specific elements of the new rules that require, well, greater transparency.
Richard Smith, senior vice president at Sibson Consulting, identifies three areas of the executive compensation provisions that require much more detailed explanations:
First, what does “total compensation” mean? There are many components of compensation that can make up the “total,” but apparently this only includes base and bonus, which are normally cash, not equity. However, the bonus at 30 percent of the total can be paid only with restricted stock that can’t be sold until the government is paid back. What if executives at banks receiving bailout funds take restricted stock and give the bailout monies back immediately or within a year? Can the executive sell the stock immediately thereafter?
Second, the pay restrictions for those banks that accept “extraordinary assistance” can reach deep into the organization. How much is “extraordinary assistance” and how many executives does this affect — all C-level, Section 16, or all upper middle management? Where does it begin, and where does it end?
Third, the restrictions include traders, who are mostly compensated via commissions, with no salary. How does that work?
Smith does not believe that this plan will help goose the financial engine that can rev up the economy; instead, he fears that the pay curbs will spark top talent to depart bailout banks for more lucrative opportunities at other organizations. ###
