What to Do About Reviewing Outstanding CEO Pay Packages, Contracts and Accumulated Option Gains

Practice Pointers from the Task Force

1. Rolling Back Compensation
   
   
   • Taking from the King: The Mutual Need and Practical Tips for Rolling Back or Modifying Excessive CEO Compensation
     —Eric Keller, Paul Hastings Janofsky & Walker, LLP
   • The Need for the Compensation Committee to Fully Understand the Compensation Arrangements it is Approving
     —Althea Day, Morgan, Lewis & Bockius LLP
   • Using Company-Centric Performance Measurement
     —Althea Day, Morgan, Lewis & Bockius LLP
   • Incorporating Performance and Trends into Compensation Planning
     —Beverly Aisenbrey, Frederic W. Cook & Co.
   • Providing Disclosure of a Corrected Pay Package Calculation
     —Michael Andresino, Posternak Blankstein & Lund LLP
   • Reexamine Circumstances Under Which Compensation May Be Denied or Withheld
     —Anonymous Task Force Member
   • Understanding Shareholders’ "Pay-for-Failure" Complaints
     —IRRC
   • Executive Accountability and Excessive Compensation: A New Test For Director Liability
     —Mark Van Clieaf, MVC Associates International
   • A Sample Tally Sheet – And Analysis of How to Use It
     —Richard Wagner, Strategic Compensation Research Associates (SCRA)
   • A Simple Approach to Understanding How Components of CEO Pay Fit Together
     —Richard Wagner, Strategic Compensation Research Associates (SCRA)
   • Solving the Pay Gap Crisis
     —Matt Ward, Aon Consulting
   • Rethinking Executive Pay: Don’t Create Another Giveaway
     —Claude Johnston, Pearl Meyers & Partners
   • Comprehensive Tally Sheet (Excel Spreadsheet)
     —Matt Ward, Aon Compensation Consulting & Joshua Lurie, eComp Data Services Groups
   • Stealth Compensation - Deferred Compensation
     —Lucian Bebchuk and Jesse Fried
   • Morgan Stanley's 2005 Compensation Committee Report (discussing internal pay equity)
   • Intel's 2004 Compensation Committee Report
   • Model Compensation Committee Report
     —Courtesy of CompensationStandards.com
   • Companies With "Hold 'Til Retirement" Guidelines
     —Robbi Fox, Hewitt Associates
   • $800 Million in CEO Pay - Is That Reasonable?
     —Paul Hodgson, The Corporate Library

2. Contracts
   
   

3. SERPs
   
   

4. Severance and Change in Control
   
   

5. Stock Options
   
   

6. Restricted Stock
   
   

7. Indemnification
   
   
   • Rethinking Indemnification Agreements
     —Phil Koehler, Stradling, Yocca, Carlson & Rauth LLP
   • Recent Remarks on Disgorgement of Compensation
     —Stephen M. Cutler, Director, Division of Enforcement, SEC

Media Articles

1. Reviewing Outstanding Pay Packages
   
   
   • "Mutual Fund Votes Helped Boost Pay," Francesco Guerrera and Deborah Brewster, Financial Times (4/6/09)
   • "Countrywide CEO Forfeits $37.5 Million as He Exits," Wall Street Journal (1/28/08)
   • "Royal Pay at Delphi, Reined in by a Judge," N.Y. Times (1/27/08)
   • "Hire by the Contract Now, Risk a Big Regret Later," N.Y. Times (1/12/07)
   • "Does S.E.C. Know What It Is Doing?," N.Y. Times (12/29/06)
   • "Compensation Experts Offer Ways to Help Curb Executive Salaries," N.Y. Times (12/30/06)
   • "Study of Fannie Mae Cites 'Perverse' Executive-Pay Policy," Terence O'Hara, Washington Post (3/31/05) (registration required, but free)
   • "Fannie Mae Executives Won't Get '04 Bonuses," David S. Hilzenrath, Washington Post (1/22/05) (subscription required, but free)
   • "No Wonder the C.E.O.'s Love Those Mergers," Gretchen Morgenson, N.Y. Times (7/18/04)
   • "Remarks Before the ABA Section of Business Law 2004 Spring Meeting," Giovanni Prezioso, General Counsel of the SEC (4/3/04) (addressing lawyer responsibility and potential liability)
   • "Delta Cancels 2003 Executive Bonuses," Harry R. Weber, (AP) The Detroit News (12/24/03)
   • "It's Not Our Fault – Usually," The Conference Board (March-April 2003) (compensation consultants respond to critics)
   • "Why the Get-Rich-Quick Days May Be Over: Corporate boards are Taking a Fresh Look at Virtually Every Aspect of CEO pay; CEOs May Not Like the Result," Wall Street Journal (4/13/03)

2. Mega-Grants
   
   
   • "Executives Find Restricted Stock Pays Dividends From the Get-Go," Phyllis Plitch, Wall Street Journal (2/28/05) (subscription required)
   • "Diller, Mark Top Option Gainers," Graef Crystal, Bloomberg (5/12/04)
   • "Fewer CEOs Get 'Megagrants' as Incentives," Joann S. Lublin, Wall Street Journal (3/2/04) (available for purchase by online subscribers) (an analysis by Mercer Human Resource Consulting finds that megagrants accounted for 16% of CEOs' stock grants in 2003, down from their peak of 27% in 2001)
   • "Outrageous Options Under Fire," Karen Jacobs, CareerJournalAsia.com (11/2/99)

    

3. Clawback/Recovery of Past Compensation
   
   
   • "After Huge Losses, a Move to Reclaim Executives' Pay," N.Y. Times (2/22/09)
   • "More Firms Ban Execs from Ill-Gotten Pay," Reuters (10/29/08)
   • "Countrywide CEO Forfeits $37.5 Million as He Exits," Wall Street Journal (1/28/08)
   • "Royal Pay at Delphi, Reined in by a Judge," N.Y. Times (1/27/08)
   • "Sharper Claws for Recovering Executive Pay," N.Y. Times (12/9/07)
   • "Fair Game: Making Managers Pay, Literally," N.Y. Times (3/25/07)
   • "Companies Discover It's Hard To Reclaim Pay From Executives," Wall Street Journal (11/20/06)
   • "UnitedHealth Executives Forfeit $390 Million in Options," Wall Street Journal (11/9/06)
   • "The Shot Heard Round the Boardrooms," Gretchen Morgenson, N.Y. Times (10/22/06)
   • "Ex-Raytheon Chief Agrees to Fine and Forfeit of Part of Bonus," N.Y. Times (3/28/06)
   • "Just Cause: Some Firms Cut Golden Parachute," Wall Street Journal (3/13/06)
   • "Huntington Bancshares to Pay Fine to Settle SEC Claim," AP, BusinessWeek (6/2/05)
   • "Sorry, I'm Keeping the Bonus Anyway," Jonathan D. Glater, N.Y. Times (3/13/05)
   • "Nortel Sues 3 Ex-Officers Over Big Bonuses," Ian Austen N.Y. Times (2/4/05)
   • "Court Rules Against Pension Bonus: Fruehauf Plan to Award Special Benefits to Staff Is Considered Excessive," Michael Schroder, Wall Street Journal (1/25/05) (paid subscription required)
   • "Executives of Nortel Will Repay Bonuses," Ian Austen, N.Y. Times (1/12/05)
   • "Refunding Bonuses for Restated Earnings," Stephen Taub, CFO.com (1/7/05)
   • "Battles Intensifies Over Ill-Gotten Bonuses," Rachel Beck, S.F. Chronicle (AP) (10/10/04)
   • "Dunning the Deposed Boss," Joann Lublin, Wall Street Journal (7/9/04) (available for purchase)
   • "Computer Associates Investors Seek Past Executive Pay," AccountingWEB.com (7/1/04)
   • "The Pay Police: Compensation committees have been criticized for rewarding executives -- whether they performed well or not. Now, that cozy relationship may be ending," Kelly K. Spors, Wall Street Journal (6/21/04) (available for purchase by online subscribers)
   • "Former Enron Executive Pleads Guilty," (AP) MSN.com (5/20/04)
   • "SEC Charges Paula H. Rieker with Violating Federal Securities Laws While Serving as Investor Relations Official at Enron," Litigation Release No. 18717 (5/19/04)
   • "SEC Announces Settlement with Warnaco, Former Warnaco Executives, and PwC for Financial Disclosure Violations," Press Release No. 2004-62 (5/11/04)
   • "Investors Seek 'Restatement' of Bonuses," Troy Wolverton, The Street.com (5/4/04)
   • "Why Not Restate Bonuses?" Gretchen Morgenson, N.Y. Times (4/25/04) (paid subscribers)
   • "Kumar, Wang Got One-of-a-Kind Pay Plan," Graef Crystal, Bloomberg (4/21/04)
   • "Companies Seek to Recover Pay from Ex-CEOs," Joann S. Lublin, Wall Street Journal (1/7/04) (growing numbers of corporate boards, regulators, creditors and investors are trying to recover money from former CEOs who were forced out for poor performance or alleged fraud)
   • "SEC Sues Three Additional Former Senior Executives of Gemstar-TV Guide for Their Part in Financial Fraud," Press Release No. 2004-1 (1/5/04)
   • "Lawyers Seek Documents Regarding American Airlines Exec Pay Scandal," Ted Jackson, Miami Daily Business Review (8/5/03)
   • "The Pay Police: Compensation committees have been criticized for rewarding executives -- whether they performed well or not. Now, that cozy relationship may be ending," Kelly K. Spors, Wall Street Journal (6/21/04) (available for purchase by online subscribers)

4. Rollback of Compensation
   
   
   • "Firms End Key Benefit for Executives," Wall Street Journal (4/21/09)
   • "What You Can Get for a Buck: CEOs with $1 Yearly Salaries," Lea Hartog Inside CRM (12/17/08)
   • "Goldman Chiefs Give Up Bonuses, Wall Street Journal (11/17/08)
   • "Securities Firms Tackle Pay Issue," Wall Street Journal (10/31/08)
   • "Firms Measure a CEO's (Net) Worth," Wall Street Journal (6/23/08)
   • "Seeking New CEO, Some Boards Skip the Stars," JoAnn S. Lublin, Wall Street Journal (5/21/07) (subscription required)
   • "More CEOs Are Saying No (Voluntarily) to Bonuses," JoAnn S. Lublin, Wall Street Journal (4/7/08) (subscription required)
   • "Fairchild Executives Agree to Pay Cuts," David S. Hilzenrath, Washington Post (3/29/05) (registration required, but free)
   • "Struggling Flyi Cuts Executive Pay," Bill Brubaker, Washington Post (3/19/05) (registration required, but free)
   • "Stock Options for the Rank and File," Dave Beal, TwinCities.com (10/17/04)
   • "The Pay Police: Compensation committees have been criticized for rewarding executives -- whether they performed well or not. Now, that cozy relationship may be ending," Kelly K. Spors, Wall Street Journal (6/21/04) (available for purchase by online subscribers)
   • "There, in Grasso's Corner, Is that Oliver North?" Landon Thomas, Jr., N.Y. Times (5/23/04) (paid subscribers)
   • "Making a Point by Taking Less," Patrick McGeehan, N.Y. Times (5/23/04) (paid subscribers)
   • "The Best & Worst Bosses," Scott DeCarlo, Forbes.com (5/10/04) (discussing CEOs that earn their salaries and CEOs that don't earn their salaries)
   • "Cendant’s ‘New’ Henry Silverman Cuts Pay Twice," Graef Crystal, Bloomberg (4/28/04)
   • "Cendant's Chief is Taking a Pay Cut, But Some Say That It's Hard to Determine How Much of One," Gretchen Morgenson, N.Y. Times (4/20/04) (paid subscribers)
   • "Cendant Cuts Silverman's Benefits," Ryan Chittum, Wall Street Journal (4/20/04) (article available for purchase by online subscribers) (Cendant will shorten contract of CEO Silverman and sharply cut his benefits, to settle shareholder suit over Silverman's lucrative contract)
   • "The CEO's Gravy Train May Be Drying Up," BusinessWeek (4/5/04)
   • "Is CEO Pay Up or Down? Both," Patrick McGeehan, N.Y. Times (4/4/04) (discussing the differences in compensation packages from 2002 to 2003) (paid subscribers)
   • "Despite Clashes, MBNA Didn't Cut Ex-Chief's Pay," Patrick McGeehan, N.Y. Times (3/16/04) (paid subscribers)
   • "The 'Adulation Advantage' - Pay CEOs with Praise," Corey Rosen, The San Francisco Chronicle (1/14/04)
   • "Delta Cancels 2003 Executive Bonuses," Harry R. Weber, (AP) The Detroit News (12/24/03)
   • "Revising the Comp List," Lisa Yoon, CFO.com (1/15/03)
   • "My Dilemma – And How I Resolved It," Jack Welch, The Wall Street Journal (9/16/02)

Firm Memos

• "Novel Ways to Structure Pay Packages" - Joe Bartlett, Fish & Richardson LLP (6/23/04)
• "Ninth Circuit Addresses Sarbanes-Oxley Provision for Escrow of Extraordinary Payments in Connection with Investigation of Possible Securities Fraud", Wachtell, Lipton, Rosen & Katz  (5/28/04)
• Lettter to NYSE re: Crisis in Competence Regarding Pay-for-Performance Measurement, MVC International (9/4/03)
• Follow-Up Letter to SEC re: Crisis in Competence Regarding Pay-for-Performance Measurement, MVC International (9/25/03)
• "Comp Committees Put Peer Groups under Microscope," MVC International (11/03)
• "Are boards and CEOs accountable for the right level of work?" MVC Associates International (5/04)