Do's and Don'ts for Executive Compensation Created by Conference Board (from BLR) - 29 Sep 2009

The
Conference Board has published a list of recommendations for executive
compensation practices, saying public companies should take immediate
action to restore credibility and trust in their pay practices.The
subtext of the recommendations is that if companies fail to act now,
the federal government could mandate more burdensome changes through
regulatory and legislative action.

“A ‘one size fits all' or ‘rules-based' approach to executive
compensation is not workable,” the board's Task Force on Executive
Compensation said in a report. “Compensation programs should be
sufficiently flexible to accommodate the disparate industries,
strategies, business models, and stages of development represented in
the more than 12,000 U.S. public companies.”

The board's Task Force developed the following 5 guiding principles for executive compensation:

1. Compensation programs should be designed to drive a
   company's business strategy and objectives and create shareholder
   value, consistent with an acceptable risk profile and through legal and
   ethical means. To that end, a significant portion of pay should be
   incentive compensation, with payouts demonstrably tied to performance
   and paid only when performance can be reasonably assessed.


2. Total
   compensation should be attractive to executives, affordable for the
   company, proportional to the executive's contribution, and fair to
   shareholders and employees, while providing payouts that are clearly
   aligned with actual performance.


3. Companies should avoid
   controversial pay practices, unless special justification is present.
   Eliminate controversial compensation practices that conflict with the
   notions of fairness and pay for performance--such as excessive golden
   parachutes, overly generous severance arrangements, gross-ups of
   parachute payments or perquisites, and golden coffins


4. Compensation
   committees have a critical role in restoring trust in the executive
   compensation setting process and should demonstrate credible oversight
   of executive compensation.To effectively fulfill this role,
   compensation committees should be independent, experienced, and
   knowledgeable about the company's business.


5. Compensation
   programs should be transparent, understandable, and effectively
   communicated to shareholders. When questions arise, boards and
   shareholders should have meaningful dialogue about executive
   compensation.

"Real--and perceived --abuses in executive compensation have
contributed to this loss of trust, and the report provides a practical
set of guidelines that, if appropriately implemented, can make
significant progress in restoring credibility in our corporations,”
said Robert E. Denham and Rajiv L. Gupta, co-chairs of the board's task
force. “We believe that a rules-based, 'check the box' approach cannot
substitute for thoughtful board action discussed with shareholders."

A group of public companies have already pledged to implement the task force's recommendations.

http://compensation.blr.com/news.aspx?id=159274

The full report of The Conference Board Task Force on Executive Compensation can be found at: http://www.conference-board.org/ectf