Executive Compensation Emerges as Number One Corporate Governance Issue

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Executive compensation has emerged as the top corporate governance issue this proxy season. Compensation panels are being scrutinized at unprecedented levels and shareholders are voting "no" on them when a disconnect between pay and performance is observed.

"The perceived failure of boards of directors to self-regulate and curtail excessive executive compensation has increasingly angered shareholders and incited dialogue regarding legislation to control compensation," states Bill Ide, Sr. Fellow at the Goizueta Directors Institute, "Clearly boards of directors have more work to do in producing compensation formulas that will satisfy shareholders and the public." Corporate governance thought leaders will gather at the annual Goizueta Directors Institute summit, May 26 and 27 to address the compensation crisis and new mandates that seek to control executive pay. Institutional Shareholder Services (ISS) expects record numbers of corporate requests to authorize shares for use in stock option plans to go down in flames. The group is tracking more than 300 pay and stock option related proposals this year and expects record levels of support for these resolutions. The sharp focus on stock options may signal the end of an era.

The rule-setting board for accounting, Financial Accounting Standards Board (FASB) is addressing executive compensation with what is considered the most dramatic step in its 30-year history. The FASB proposal would require publicly-traded companies to record as a compensation expense all forms of share-based payments to employees, including employee stock options.

"The FASB has done compensation committee members a huge favor by leveling the playing field," states Patrick McGurn, SVP & Special Counsel, Institutional Shareholder Services. "Now pay panels won't be handcuffed by the current accounting rules' bias against performance-based awards. Recent well-publicized changes in compensation practices at Microsoft, GE, IBM and other bellwether firms represent the first wave of the post-footnote reform era."

While the FASB proposal is open to comment until June 30, a House bill that would block the proposal is gaining support from Republican and Democratic leaders.

"Clearly there are many approaches to determine appropriate levels of executive pay," states Rob Kazanjian, Sr. Associate Dean of Executive Education, Goizueta Business School. "The Goizueta Directors Institute summit seeks to define key recommendations and influence future policy on this and other critical corporate governance issues."

The Goizueta Directors Institute corporate governance summit entitled "Creating a New Culture: Balancing Director Oversight and Management Entrepreneurship," presented by UPS, will be held at the Goizueta Business School, Atlanta, Georgia May 26 & 27, 2004. Information regarding the event can be found on the web at http://www.emoryexeced.com/di or 404-727-3902. The event is certified by the ISS.

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