Great article today on TheStreet.com today that discusses the House Oversight Committee's dissecting compensation packages of Chief Excutives at 3 major banks: Citigroup; Merrill Lynch; and Countrywide Financial. While the bulk of Nate Worden's article highlights how disconnected company performance and CEO pay at these 3 institutions over the past couple of years, he does include excerpts from the Committee's report that raise some important questions compensation specialists must answer when structuring pay-for-performance deals:
How do you protect shareholders from downside risk when attempting to attract the people you feek have the most potential to add value to the stock prices over the long term? "The companies defended the compensation awarded to Prince, O'Neal and Mozilo as fulfillment of contractual obligations that were put in place in an attempt by their employers to attract talent, years before the housing crisis struck, according to the report. "
Executive roles are undoubtedly critical to company success. But just how critical? "In 1980, CEOs in the U.S. were paid an average 40 times the average worker, according to the report. In 2006, the average Fortune 250 CEO was paid over 600 times the average worker. While CEO pay has soared, employees at the bottom of the pay scale have seen their real wages decline by more than 10% over the past decade."
Do you have any basis for comparison? Can you defend it? In 2006, a new compensation consultant, Exequity, raised new questions about Mozilo's compensation [at Countrywide. The firm said his contract was based on a flawed "peer group" of companies that inflated his pay and inappropriately placed him at the top of the peer group in terms of salary and bonus.
Who is your client? "Although the company retained Towers Perrin, internal emails show that the consultant appeared to serve as Mr. Mozilo's personal advisor with the goal of achieving 'maximum opportunity' for Mr. Mozilo. The final contract was significantly more generous to Mr. Mozilo than Exequity originally recommended, according to the report."
If you are currently attempting to structure such deals for your organization, you may want to put yourself in the hypothetical situation of having to answer these questions on Capitol Hill.