- from the "1st Annual Executive Compensation Conference" (10/04)

Talking Points: How To Determine How Much Is Appropriate Total Compensation For The CEO – And How To Determine How Much Is Too Much

1. Purpose
   1. Story about compensation committee chair of F100 company pointing at me and saying “you guys have to come up with a better answer to ‘how much?’
   2. Long Term Incentives went up 400% to 600% from 1994 to 2002
   3. What was “mega grant” in late 1980’s is below median ANNUAL grant today
   4. Many boards and compensation committees taking their jobs much more seriously
   5. Need for new tools, systems, solutions, ways of thinking
   6. Importance if independent advice
   7. May also have data on how CEO pay relative to 2^nd or 3^rd tier executive pay has changed in last 10-12 years
2. Companies are actually making positive changes. Paul will present examples from the real world of cutting edge best practices
   1. Severance practices – examples of companies reducing parachutes and severance packages.
   2. Changes in special executive benefits – actual examples
   3. Changes in LTI – cutting edge LTI plans (Symbol Technology; JDS Uniphase, others)
3. The New Compensation Committee Report – new criteria for evaluating CEO and executive pay. Contrast between traditional and new data and analyses provided to compensation committees – with examples.
   1. Pay Relative to Surveys
   2. Pay Relative to Peers
   3. Total Cost of Management
   4. Pay relative to Performance – Return on Management
   5. Performance Relative to Peers
   6. Historical View
   7. Wealth Position
   8. Wealth Sensitivity
   9. Perk Disclosure and Analysis
   10. Change in Control Disclosure and Analysis
   11. Talk about the “Holy Cow Moment”
   12. Discussion of companies that have actually lowered pay
4. New Paradigm for Evaluating and Comparing CEOs
   1. Level of Work (Leadership?) criteria and scale, with examples
   2. Research and statistical basis for system
   3. Comparative examples