Executive Compensation & Benefits

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

Companies Improve Forecasting and Budgeting Techniques.
Report on Salary Surveys; no19-3 pp 9-11 Mar 2012; journal article

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Abstract : A survey from Sibson Consulting shows salary increase budgets stronger in 2012 than they have been for several years. Overall budgets are 2.9 percent higher, up from 2.7 percent in 2011, and likely to avoid the downward revisions common in the previous few years. The good match between forecast and actual increases represents a firmer economy with a return to stability and normalcy. Most executives will make up for minimal increases in recent years with an average 2.9 percent raise in 2012. Exempt employees are forecast to gain 2.8 percent, with 2.7 percent for nonexempt workers, in the context of a three percent rise in the Consumer Price Index from January through September 2011. By industry, nonprofits and banking and finance, which saw the lowest actual increases in 2011, should rebound in 2012, while utilities, services and health services had the highest increases in 2011 and should do well again in 2012.
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The Reward Balancing Act.
Hatton-Gore, Tony; Benefits & Compensation International; v41 no7 pp 10-11 Mar 2012; journal article

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Abstract : Managing compensation is a challenge involving balancing competing forces on several dimensions. The manager must be attuned to the pull between strategic thinking and operational focus, recognizing the need to build relationships with diverse stakeholders and build various business interests while working with others less aware of the details of compensation management. One must strive to balance serving global principles with market flexibility, keeping an eye on the impact of the local environment on benefits and retirement plans. Some balance point must be found between rewarding the whole organization or concentrating on those at the top. Last, those who are thought leaders and line workers and managers all influence the success of the organization and deserve recognition.
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What Are the Latest Trends in Executive Retirement and Perquisites?
Riley, Malinda; Journal of Compensation and Benefits; v28 no2 pp 5-14 Mar-Apr 2012; journal article

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Abstract : A Hay Group survey of summer 2011 shows that, of 317 responding employers, 49 percent provide a nonqualified retirement plan, whether defined benefit or defined contribution. The rate of eligibility declines moving from the president and chief executive officer level down to division heads. Plans are offered by 59 percent of the industrial sector and 20 percent of the services sector, primarily as a retention tool and to make up for limits imposed by the IRS. Just over half of those polled have funding in place for the executive plans, with Rabbi trusts used by 72 percent. The most prevalent perquisites are cell phones, company car or allowance and severance pay. Physical exams and executive coaching are more common than in past years, while tax grossups, medical reimbursements and country club memberships are waning.
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Executive Compensation Planning for Pre-IPO Companies.
Lilienfeld, Doreen E.; Wissel, Veronica M.; BNA's Pension & Benefits Reporter; v39 p 207 Jan 31, 2012; journal article

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Abstract : Companies heading toward an initial public offering (IPO) will face different possibilities and constraints over their executive compensation, based on federal tax code and securities laws. They should act early to be sure their compensation programs serve intended purposes. Change-in-control provisions become more important, and corporate governance demands a more formalized approach to compensation management. Disclosures may be required for the decision to engage a compensation consultant and the fees paid. Compensation for named executive officers and their annual bonuses and incentive plans must be disclosed, and tax deductibility limits of Internal Revenue Code Section 162(m) respected. Firms should prepare for scrutiny of stock option grants, disclose material risks and be ready for say-on-pay votes.
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Generous Severance Can Hamper Firm Performance, Says Study.
Dobson, Sarah; Canadian HR Reporter; v25 no2 pp 2, 26 Jan 30, 2012; journal article

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Abstract : Research by Peggy Huang of Tulane University suggests that firms that provide severance contracts to their chief executive officers tend to underperform. In 2007, 55 percent of firms gave top executives several contracts, with 60 percent including an equity component. Considering 5,142 CEOs heading Standard & Poor's 500 firms, the firms awarding cash only performed worse than those providing some vested equity compensation. Details of the contract structure also matter, such as an accelerated vesting option. But severance arrangements can also have positive effects, dampening risk taking if well-constructed and encouraging positive results when the CEO's compensation is tied to strong corporate performance.
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Compensation: Golden Parachute Values Up 32 Percent Over Two-Year Period, Study Reports.
Hughes, Mary; Daily Labor Report; no9 p AI1 Jan 11, 2012; journal article

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Abstract : A study released in January 2012 by tax advisory firm Alvarez & Marsal Taxand LLC found that the average change in control (CIC) severance, or golden parachute, benefit for CEOs among the top 200 publicly traded companies rose 32 percent from $22.99 million in 2009 to $30.26 million in 2010, though it was still below the 2007 level of $38.34 million. Alvarez & Marsal attributed the increase to the fact that equity compensation is popular in CIC benefits and the stock market has been recovering. Excise tax protection, or tax grossups, continued to decline. Tax grossups were part of 66 percent of golden parachutes in 2007, 61 percent in 2009 and 49 percent in 2011. While most companies had CIC payment provisions triggered only by a change in control, 53 percent had at least one plan requiring two triggers in 2011, change in control and termination of employment, compared to only 28 percent in 2009.
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Court Defers to Administrator's Decision Denying Benefits.
Benefits Magazine; v49 no1 p 55 Jan 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In Young v. Merrill Lynch & Co., the Fifth Circuit supported the plan administrator's decision and reversed the lower court's grant of summary judgment for the plaintiff. The plaintiff participated in a long-term incentive benefit plan but resigned because his bonus was decreased around the time of a change in control of the company. Normally this may be considered a resignation for good reason and leave him entitled to the incentive payment. His bonus was paid between the signing of the merger agreement and its effective date. The plaintiff argued the agreement date completed the change of control, making him eligible for the full incentive. The district court agreed, but the appeals court left the determination of change of control, undefined in plan documents, up to the defendant compensation committee, since the plan granted the committee full rights to administer and interpret plan terms.
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Existence of ERISA Plan Not a Prerequisite for Federal Jurisdiction.
Benefits Magazine; v49 no1 pp 49, 51 Jan 2012; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The plaintiffs in Daft et al. v. Advest Inc. et al. participated in an executive benefit plan with time and age requirements and a noncompete clause. Each resigned from the defendant employer and took jobs with competing firms, triggering forfeiture of their accrued benefits. The plaintiffs sued, asserting breach of contract, denial of benefits and violation of ERISA minimum vesting rules. The district court rejected the defendant's claim the plan was a top-hat plan under ERISA. Before the Sixth Circuit Appeals Court, the defendants questioned subject matter jurisdiction and relief under ERISA Section 502(a)(1), asserting the plan was not covered under ERISA. The appeals court ruled that ERISA coverage mattered for the Section 502(a)(1) relief claim but not for federal jurisdiction, since the plaintiffs' claim was colorable under ERISA. The defendants were also not in position to question jurisdiction since they had not done so before the district court. The court remanded the case to the plan administrative committee to consider all factors to determine whether the plan qualified as a top-hat plan.
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The Real Story.
Reda, James F.; Financial Executive; v28 no3 pp 44-47 Jan-Feb 2012; journal article

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Abstract : Pay for executive performance is in the spotlight of the Dodd-Frank Wall Street Reform and Consumer Protection Act and upcoming regulations from the Securities and Exchange Commission. In 2011, the first year of say on pay, only 42 companies did not receive majority shareholder support for executive pay. Companies need to evaluate how to define performance and how it pertains to their pay practices. Institutional Shareholder Services suggests recommendations be based on a qualitative review, quantitative review and five-year trend analysis. Short- and long-term performance measures, performance goals, risks and clawbacks must be stated, and ratios of performance-based, time-based and fixed compensation and benchmarking practices must be specified.
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Top 10 Executive Compensation and Corporate Governance Items for 2012 Proxy Season.
Thrower, Meredith Sanderlin; Tysse, G. William; BNA's Pension & Benefits Reporter; v38 p 2366 Dec 20, 2011; journal article

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Abstract : Key issues for the 2012 proxy season start with say on pay. Savvy companies will explore reasons behind major shareholders votes on the matter to understand where concerns lie. Proxy access is gaining in importance, and proposals for access are expected to rise. Expanded disclosure requirements for compensation consultants are to be in effect by the time proxies are filed. Several mandates from the Dodd-Frank Act are in effect or awaiting implementation, including provisions on clawbacks, pay ratio between chief executive officers and all employees, pay for performance, executive and director hedging, use of conflict minerals in manufacturing, mine safety and resource extraction. Firms should be aware of proxy voting recommendations from the International Shareholder Services, shown to be influential in the past.
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Governmental Investigation of Executive and Board Compensation Intensifies at Not-For-Profit Organizations: Challenges to the Rebuttable Presumption.
Quinn, Candace L.; BNA's Pension & Benefits Reporter; v38 p 2318 Dec 13, 2011; journal article

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Abstract : Tax-exempt organizations' executive compensation arrangements may be at risk due to aggressive enforcement efforts by the Internal Revenue service and in several states. The establishment of intermediate sanction penalties allows the IRS to impose taxes of up to 200 percent of excess payments on disqualified individuals. While Treasury Department regulations allow for a rebuttable presumption of reasonableness on nonprofit organizations' executive compensation, many do not use this safe harbor. Best practices for nonprofits include an independent review of executive compensation plans, testing internal controls on executive compensation and using the procedures outlined in Internal Revenue Code Section 4958.
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Conversion of Sick Leave Balances Valid.
Benefits Magazine; v48 no12 p 53 Dec 2011; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : An employer has the right to change the way it treats unused sick leave credits, as demonstrated in Sullivan et al. v. CUNA Mutual Insurance Society et al., heard by the Seventh Circuit Court of Appeals. The defendant employer had allowed executives who left before retirement age to apply unused sick leave as credit toward retirement health benefits, but a 2008 amendment ended that practice. Four retired executives sued as a class action, but the district court granted summary judgment for the defendants. On appeal, they claimed their unused sick leave credits were health plan assets amounting to over $120 million. The appeals court determined the funds are not plan assets that changed hands but were liabilities that were removed from the financial statements, with no violation of ERISA. The court further noted no stated or implied intent in plan documents to vest the participants with postretirement health benefits.
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Specialization.
Coombs, Joseph; HR Magazine; v56 no12 pp 28-31, 34 Dec 2011; journal article

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Abstract : According to Mercer's 2011 Human Resources Compensation Survey, HR professionals saw an average salary increase of 2.8 percent, consistent with average increases for most U.S. workers. Some positions saw significantly lower increases, with compensation managers averaging 1.8 percent, HR directors averaging 1.5 percent and senior trainers and HR managers both averaging less than a one percent increase. Top total quality executives saw increases of 40 percent at the division level and 23 percent at the corporate level from 2010 to 2011. Higher level positions are also seeing an increase in the length and complexity of their job descriptions, suggesting higher expectations from employers. Many companies have the funds to increase salaries but are instead saving their money.
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Health Care: Enforcement of 105(h) Rules Still in Place for Self-Insured Plans, Consultant Says.
Daily Labor Report; no224 p A9 Nov 21, 2011; journal article

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Abstract : Internal Revenue Code Section 105(h) on nondiscrimination favoring highly compensated employees applies to self-insured health plans, John C. Garner of Garner Consulting reminded attendees at an International Foundation of Employee Benefit Plans webinar. This contrasts with an ongoing temporary suspension of enforcement for fully insured plans. However, insured plans that are grandfathered under the Patient Protection and Affordable Care Act are exempt from the rules of Section 105(h). Providing extra benefits for highly compensated employees will result in high excise tax penalties. The restrictions extend to dental plans and vision plans and to employee assistance plans that provide treatment beyond assessment and referral, and to flexible spending accounts but not health savings accounts.
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Executive Pay: Skydiving With a New Parachute.
Lazar, Wendi S.; Blostein, Katherine; BNA's Pension & Benefits Reporter; v38 p 2071 Nov 8, 2011; journal article

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Abstract : Changes in regulations, the economy and public sentiment are forcing rethinking of executive compensation. Several laws and additional proposals are pushing compensation disclosures and shareholder say on pay, with a special focus on larger financial institutions, and Internal Revenue Code Section 409A imposes rules and limits on nonqualified deferred compensation. As a result, executive compensation structure is moving toward performance-linked long-term rewards, especially stock option grants. Clawback provisions are on the increase and are required under some laws. Attorneys working on executive employment agreements must be aware of the effects of these developments on compensation and contract negotiations.
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Handling Internal Investigations in the Executive Compensation Area.
Farhang, Michael; Zelenay, James; BNA's Pension & Benefits Reporter; v38 p 2066 Nov 8, 2011; journal article

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Abstract : With executive compensation under increasing scrutiny, internal investigations of compensation practices are growing in importance. Questions may arise about practices such as backdating and springloading executive stock option grants and excessive perks and reimbursements. The response should start with appointment of an independent investigative team who develop an investigative plan, addressing the scope of the inquiry, time and expenses. This team must fully understand the law applicable to the areas of concern. They must oversee the preservation, collection and analysis of pertinent documents, conduct witness interviews and maintain a record of their actions throughout. Finally they must present a report to the company with recommendations on remedial actions.
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Planning a Policy for Two.
Riggs, Marli D.; Employee Benefit News; v25 no14 pp 20-21 Nov 2011; journal article

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Abstract : A voluntary benefit that is gaining interest is survivorship or second-to-die life insurance. This product insures two individuals but only provides a death benefit to a beneficiary after the death of the second insured. It is most useful for those in their late 60s and older who wish to leave a legacy to benefit subsequent generations or charitable organizations. It is particularly applicable when the insureds wish to provide for the care of a special needs person. Survivorship life insurance demands careful and individualized planning with attention to legal and tax issues to ensure the benefit passes on tax-free to the beneficiary. It can be complicated by a divorce, and details must be thoroughly communicated to the policy holders and beneficiaries.
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Sensitivity of Equity Grants Values to Design Changes: A Case Study.
Grgeta, Edi; Benefits Magazine; v48 no11 pp 1-5 suppl. Nov 2011; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : A case study reflecting an amalgam of actual situations illustrates the complexity of constructing an equity grant program for midlevel executives. Elements of grants may be valued on multiple dates, with unanticipated effects resulting from price volatility. Each feature added to the program, however small at the design stage, can have costly long-term implications when the grant is officially awarded. A comparison of six different equity award designs, varying in vesting details, acceleration, grading levels and other features, illustrates substantial differences in total return. Only through careful planning of an equity grant plan, with awareness of feature costs at every step, can both management and recipients be satisfied with the final results of the plan's design.
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Link To Full Article
Stock-Based Incentives and Performance During the Credit Crisis: Evidence From the Financial Sector.
Webinger, Mariah; Compensation and Benefits Review; v43 no6 pp 371-386 Nov-Dec 2011; journal article

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Abstract : Financial industry regulation was weakened in the 1990s, leading to industry consolidation, more use of incentive-based compensation and greater freedom to make risky choices, ultimately fueling the 2008 credit crisis. Contracting theory suggests incentives would lead to market discipline and the alignment of industry workers' interests with those of shareholders, while moral hazard theory suggests equity incentives prompt industry agents to take greater risk. Research shows that stock options given to chief executive officers led to worse performance while stock ownership related to better performance during the credit crisis. Results for corporate directors showed no short-term effects but improved long-term performance linked with option incentives and no clear effect for stock ownership. The moral hazard theory appears to hold for stock options, while contracting theory better explains results regarding stock ownership.
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Trends in 'Say-on-Pay' Lawsuits.
Ghegan, David W.; Financial Executive; v27 no9 pp 51-53 Nov 2011; journal article

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Abstract : As of late 2011, most companies have faced shareholders on executive compensation, delivered through the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Only a small percentage did not get majority support. Most shareholder challenges to executive pay focus on the dissociation between the pay hike and corporate financial performance and stock price, unjust enrichment, a breach of fiduciary duties by the board of directors, failure to follow pay-for-performance policies and failure on the part of the compensation advisory firm to render sound advice. Boards should understand the reasons behind shareholders' no votes and diligently follow established processes for setting executive pay, properly disclosing reasons for their choices in the CD&A section of proxy statements.
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Executive Comp Disclosure Rules Change at End of Month.
Dobson, Sarah; Canadian HR Reporter; v24 no18 pp 1, 11 Oct 24, 2011; journal article

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Abstract : Under rules adopted by the Canadian Securities Administrators (CSA), publicly listed companies must disclose whether their board of directors thoroughly considered how the firm's policies and procedures for executive compensation affect risk. Rule changes in the United States and the CSA's own 2009 examination of disclosures provided by 70 firms led to amending the organization's Statement of Executive Compensation and its Continuous Disclosure Obligations. The goal is to ensure that risks taken by senior management are consistent with shareholder expectations and executives' compensation. The amendments also require a description of policies and procedures for compensation decision making and details about compensation committee members. HR plays a role in the disclosure by providing information to support decision making and articulating the final decisions.
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Expanding Your Practice Beyond the For-Profit World.
Hersch, Warren S.; National Underwriter: Life & Health; v115 no2 pp 28-30 Oct 24, 2011; journal article

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Abstract : Executive benefit planners seeking to expand their practice may want to consider 457 plans. The differences in regulation between executive benefit plans at for-profit companies and executive 457 plans can be problematic for organizations expecting them to work the same. Benefits of a 457 plan include higher contribution limits and tax benefits. They also allow participants to defer taxes until they receive benefits. Unlike ERISA plans, 457 executive plans are subject to the claims of creditors. One aspect of 457 plans the IRS has not clarified is the interest rate used to calculate benefit value for tax purposes.
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Executive Compensation: Aligning Pay to Performance Primary Goal in Designing Executive Pay, Speakers Say.
Hughes, Mary; BNA's Pension & Benefits Reporter; v38 p 1854 Oct 11, 2011; journal article

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Abstract : Executive compensation consultants from Towers Watson addressed the challenge of getting executive pay right during an October 2011 webinar. With 80 percent of compensation typically being variable pay, performance metrics are key and are increasingly likely to be tied to sales and revenue. However, management and compensation committees have some discretion. Restricted stock and restricted stock units are now more common than stock options, and 71 percent of long-term incentive plans include two or three forms of awards. Global incentive plans often follow a structure dictated centrally but with local variations considering exchange rates and local laws. Upcoming say-on-pay votes, dictated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, have 82 percent of companies making special preparations.
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Integrating Stock Ownership Guidelines With Stock Retention Requirements.
Cannon, John J. III; Laverriere, Kenneth J.; Lilienfeld, Doreen E.; BNA's Pension & Benefits Reporter; v38 p 1835 Oct 4, 2011; journal article

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Abstract : An increasing number of U.S. public companies are enacting stock ownership guidelines, requiring executives or directors to achieve minimum stock ownership levels, and stock retention requirements, mandating that recipients of equity compensation retain a minimum percentage of net shares. Successful implementation of either type of requirement first means the employer must determine who should be subject to it. Targets must be determined for stock ownership guidelines, usually either a multiple of base salary or a fixed number of shares, and employers must determine what time frame the stock must be obtained in, what types of equity count and what the consequences of noncompliance are. For stock retention plans, employers must choose a retention time and determine what types of equity are covered. A number of companies have exemptions and restrictions on their policies.
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Stock Options: Push to Pay for Performance Drives Diversity in Equity Compensation Plans, Study Finds.
Hughes, Mary; BNA's Pension & Benefits Reporter; v38 p 1803 Oct 4, 2011; journal article

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Abstract : An Equilar Inc. research report on executive compensation reveals that almost 90 percent of Standard & Poor's 1500 index firms disclosed restricted share grants in 2010, up from nearly 75 percent in 2006. The use of stock options has declined but remains strong, dipping from 81 percent to 72 percent. The use of restricted shares including performance-based shares, grew by almost 12 percent a year. Almost half of S&P 1500 companies' chief executive officers (CEOs) got performance-based equity grants in 2010. CEOs are getting a larger percentage of options granted, and their restricted share grants nearly tripled to 3.4 percent between 2006 and 2010. Option awards for other named executive officers rose to 18.3 percent in 2010. Disclosure of pay discrepancies between typical employees and the CEOs and other executives may become an issue under Securities and Exchange Commission rules for Section 953 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, expected by December 2011.
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