Compensation czar could influence pay of Dallas executives - 20 June 2009

If this isn't a clarion
call for company officials who design executive compensation packages,
it's darn close.

Experts say the Obama administration's
appointment of an executive compensation czar to oversee pay at
companies that have received federal assistance could result in the
government's eventually dictating executive compensation practices for
all companies.

"This is the type of thing that could be a nice great experiment, and
they may decide that if the rest of America can't get its act together,
there may be something similar coming through," said Bruce Ellig,
author of The Complete Guide to Executive Compensation. "This could be a broad-gauge extension across industries."

Executive compensation at some companies receiving bailout money
provoked political outrage earlier this year and prompted calls for the
government to rein in and regulate executive pay.

The
administration decided to place the effort in the hands of Kenneth
Feinberg, the compensation czar who will set the pay for 175 top
executives at seven companies that received federal assistance.

The pay of top executives at the 100 largest companies in Dallas-Fort
Worth will not be an issue for Feinberg, but they may be ultimately
affected by other proposals before Congress.

Those D-FW
executives saw their average total direct compensation in 2008 increase
12.78 percent, according to Longnecker & Associates, a
Houston-based consulting firm that compiles annual executive
compensation data for The Dallas Morning News.

The average cash incentive – either a bonus or a nonequity reward for
hitting performance targets – was up 35.45 percent.

Joshua Henke, managing director at Longnecker & Associates,
cautioned that average figures can be distorted by the hefty pay
packages of a few CEOs. More reflective, he said, is the median figure,
which means half of the CEOs made more and half made less.

The median change in total compensation was a 9.89 percent increase.
The median cash incentive slipped 0.26 percent.

The top
paid D-FW executive was Keith Hutton, chief executive of XTO Energy
Inc., a Fort Worth-based natural gas company. Hutton was paid a total
of $29.7 million, which includes his base salary, cash incentives,
long-term stock or option awards, change in pension value, nonqualified
deferred compensation and any other compensation.

The bulk of that – $23.3 million – came in stock and options he was awarded.

Company officials couldn't be reached for comment, but in a proxy
statement filed with the Securities and Exchange Commission, the firm
said its executives have earned their paychecks.

"We
believe that our exceptional historical performance, as reflected in
record operating and financial results and stockholder returns that
have over time consistently exceeded those of our peers, merits
above-market compensation," the company said.

XTO ranks
as the 16th-largest company in D-FW and recorded $1.9 billion in profit
in 2008, a 13 percent increase over 2007.

The appointment two weeks ago of a compensation czar was part of
broader recommendations on executive pay. Treasury Secretary Timothy
Geithner also called on Congress to adopt "say on pay" legislation,
giving shareholders the ability to hold nonbinding votes on
compensation levels.

And he said the administration would
seek legislation to give more authority and promote more independence
by corporate compensation committees that set the pay for top
executives.

All that leads executive compensation expert
David C. D'Alessandro to say the government could be setting the stage
for broader inroads into executive pay at all public companies.

"Do I think these are test balloons that will result in more government
oversight of executive compensation?" asked D'Alessandro, a partner at
Dallas law firm Vinson & Elkins LLP who helps companies design pay
packages for executives.

"Not only am I willing to say
that is my prediction, I feel very strongly that the Obama
administration will succeed in getting a few of these things pushed
through."

The government could conclude "why shouldn't
this be a wholesale policy in industries that are doing quite well?"
D'Alessandro said. "I firmly believe we will hear that argument."

Henke disagrees and doesn't see the government becoming more involved in executive compensation.

"The government will not be mandating what corporations and private
industry pay their employees," he said. "It's bad for business and
undermines the business judgment of our boards."

He also
notes that shareholders' ability to vote and approve the election of
directors already gives them a say on how a business is run.

"The government now needs to trust that shareholders are electing the
right directors, which is something they are obviously not believing
right now," Henke said.

For all the debate about the government's intentions, other forces may have more influence on executive pay.

For example, the weak economy has scuttled a pay raise

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