Q. Our CEO came in to rescue the company less than 16 months ago and with an extensive restructuring program now underway, it looks like he’ll be successful. But he has also wiped out our profits and dividends. And now he is planning to leave the company and collect a bonus while we’re still in restructuring. We’ll be announcing this to our shareholders soon. Any tips?
A. Your CEO deserves whatever compensation package was agreed to if he has done the job he came in to do. That is the first message that will need to be driven home when you finally meet up with your irate shareholders.
Message number two is that restructuring is always painful, but hopefully it is short-term pain for long-term gain. More often than not, as with the recent case of the UK’s Hays Group, cash isn’t returned to shareholders until the process is over.
You’ve only got to open the pages of any financial journal to realize that compensation for failure is the media’s plat du jour. Compensating generously for failure may seem difficult to justify, but it is both a common and congruent practice – and your shareholders should know that.
Q. We’re listed on the NYSE, and I have to say that our executive compensation package looks a bit over-generous. Benchmarked against people like Richard Grasso at the NYSE, however, it’s peanuts. Or is the Grasso case too ludicrous to be using as a benchmark?
A. There is no doubt the general public is becoming more hostile towards large executive pay deals. But for the SEC the real argument with Grasso’s pay package is whether or not proper governance procedures were followed.
Providing the correct procedures were followed in your own company’s case, I wouldn’t lose too many sleepless nights over the apparent over-generosity of your executive compensation packages, unless of course they’re utterly crazy and raise the question of the independence of your compensation committee.
Also, Grasso is the CEO at an extremely important, high-profile organization, and big packages are commonplace at this level. In any case, I have my own doubts as to how concerned institutional investors are with compensation issues. Even with the media hype, I haven’t actually heard a single one of them complain so far.
Q. Our remuneration committee is chaired by someone who is known to regularly play golf with our junior executives. In fact they’re all personal friends. I’m finding this all a bit difficult to defend. Any suggestions?
A. You really shouldn’t be defending this person whose actions reflect badly on you and the entire company. Have you brought this matter to the attention of the committee chair in question? He or she can be reminded about best practice in this area, as can the junior executives. Why not print them each a copy of current best practice guidelines on this subject?
Otherwise, I suggest you discreetly raise your investors’ concerns with the chairman of the board – if they haven’t done so already.
E-mail questions to Heather McGregor – [email protected]. McGregor is a former IRO and investment analyst who currently works on IR assignments for Taylor:Bennett, an executive search firm specializing in communications jobs
