The SEC has issued a proposal for comment that would change proxy disclosure rules for filing companies. Among the many changes suggested is the enhanced compensation policy disclosure for individuals outside the usual group of Named Executive Officers. As part of the Risk Assessment process that should be part of every Compensation Committee��s charter, the SEC has proposed that the compensation policies for this broader group of employees should be evaluated, justified, and potentially disclosed in the company��s proxy statement. There is concern that there may be a ��disconnect�� between the focus on long-term company performance and the specific pay structures that reward employees in the short-term.

The SEC is proposing this greater disclosure, not for the amounts paid to this broader group of employees, but for the compensation policies relative to how this group is paid. Situations that could trigger such disclosure include:


- A business unit of the company that carries a significant portion of the company��s risk profile;
- A business unit with compensation structured differently than other units within the company;
- A business unit that is significantly more profitable than other units within the company;
- A business unit where compensation expense is a significant percentage of the unit��s revenues.

Disclosures would require a detailed design philosophy as to the reasoning for such different pay structures and the company��s overall Risk Assessment process.

While many companies may practice some form of Risk Assessment when designing pay-for-performance structures, it appears that very few do it formally and document their decisions with sound, independent reasoning. Questions to consider include:

- Does the company have a formal Risk Assessment process?
- Who manages and who is included in that process?
- Audit Committee
- Compensation Committee
- Governance Committee
- Do the committee charters empower them to do this job?
- Has an independent assessment been made by an outside professional?
- Does anyone in the Risk Assessment process have a potential conflict of interest?

If you have any questions or would like to discuss this issue further, please contact Josh Bewlay at jmb@compensationresources.com or call 201-934-0505 x118.

Credit Suisse recently announced a change to the compensation structure for its Directors and Managing Directors for compensation earned in 2009 and paid in 2010. According to the press release from the Company , the change is consistent with the guidelines for best practices announced by the G-20 summit.

Key Changes to the Plan:

1. The Company will shift the mix of fixed (base salary) compensation and variable (bonus) compensation to provide for a higher percentage of the total compensation to be in the form of fixed base salaries. While increasing fixed compensation costs for the company, the intent appears to be to remove some of the potential for inappropriate risk taking by limiting the upside of that variable piece of the compensation package.

2. For employees earning a variable compensation component greater than $100,000, that bonus will be split 50/50 between Scaled Incentive Share Units (SISU) and Adjustable Performance Plan Awards (APPA).

a. SISUs are share units whose value is determined by Credit Suisse�s average Return on Equity. The base share amount will vest annually over four (4) years. The previous plan vested in three (3) years. The value of these new SISUs can increase or decrease, depending on the Company�s RoE.

b. APPAs are cash-based with a notional cash value subject to a three-year, pro-rata vesting schedule. Awards may adjust upwards annually, based on the Company�s RoE in the respective year. However, if an employee�s individual business unit is not profitable, the value of the award will be adjusted downwards.

While this change in the compensation structure at Credit Suisse may be appropriate for a large bank, it is important to note that such measures cannot be applied to all situations in every company looking to address their compensation needs. At Compensation Resources, Inc. (CRI), our compensation professionals work with each of our clients one-on-one to develop a highly customized approach. Our consultants seek to first assess the current situation, review perceived needs and concerns, evaluate possible alternatives, and work collaboratively to design and develop tailor-made solutions that work for that specific client. Our clients receive the benefit of our years� of experience in the field of compensation, while receiving the individual attention to customize cutting-edge concepts to the client�s specific needs.

www.credit-suisse.com/news/en/media_release.jsp?ns=41331

Today is the deadline for submitting comments on a host of changes proposed by the SEC regarding executive compensation, proxy disclosure, shareholder rights and compensation consultants. See the government�s link here:
http://sec.gov/rules/proposed/2009/33-9052.pdf

Of particular concern is potential for conflicts of interest where the same or affiliated consultant performs duties for management (i.e. consulting on benefits, insurance, etc.) and for the Board of Directors (i.e. consulting on management�s compensation). A 2007 House of Representatives Committee reported that compensation consultants can earn fees almost 11 times more for providing �other services� than they were paid for providing executive compensation advice. See report here:
http://oversight.house.gov/documents/20071205100928.pdf
The report goes on to purport that there appears to be a correlation between the extent of a consultant�s dual role in a company and the level of CEO pay.

Many of the larger firms that do offer �other services� besides executive compensation consulting have stated that they have built-in preventative measures that limit the potential for any conflict to occur. However, is the perception of a conflict enough to cause concern? The proposed SEC changes would require companies that hire the same or affiliated consultants to perform both functions to disclose the work performed and the fees paid in those instances.

Please tell us what you think about this issue and offer your comments.

It has been reported that Kenneth Feinberg has officially approved the $10.5 million compensation package of Chief Executive Robert Benmosche, the new head of AIG. Last year, taxpayers bailed out AIG to the tune of $80 billion. The company, and its much maligned credit default swap unit, became the embodiment of what was wrong with pay packages in our financial institutions. Risky investment strategies went unchecked and executives were paid handsomely for those short-term gains that proved devastating to the firm in the long-run.

Indeed, Mr. Benmosche is taking a personal risk in accepting this job. AIG�s immediate past CEO, Edward Liddy, who took over the reins at the troubled firm immediately following the bailout, took a symbolic salary of just $1. Liddy has been quoted saying that serving as head of AIG was one of the most difficult things he has had to do in his life. As the former Chairman and CEO of MetLife, Benmosche received a total compensation package of $19.36 million in 2006.

Accepting that the $10.5 million pay package is the going rate for an executive of Mr. Benmosche�s abilities and accurately reflects the degree of difficulty of the job, what of the structure of the package? According to reports, the package is comprised of $3 million in cash, $4 million in fully-vested AIG stock and a bonus that could be valued as high at $3.5 million. Not addressed by the government is the company�s disregard for IRC �162(m), which limits the tax deductibility of salaries over $1 million. This provision of the tax code was enacted in 1993 to reign in executive compensation. We know now that the provision actually had the opposite effect, shifting compensation to equity-based vehicles during one of the greatest market booms in history -- the result being a massive increase in executive compensation over the subsequent 10 year period. Nevertheless, the tax ramifications of the IRS code remain a reality for corporate America and shareholders. As the largest shareholder of AIG with the greatest �say on pay� for that company, why did Mr. Feinberg allow $2 million of that cash salary to come right off the bottom line? Why not shift that cash compensation to a �performance-based� vehicle, thus affording the company (and its shareholders) the tax deductibility of that compensation? Perhaps Mr. Feinberg realizes that the government will get the money as tax revenue from AIG anyway � but what does that do for the rest of AIG�s shareholders who do not receive corporate payroll taxes?

Similar to the current debate in Congress over Executive Compensation, Say on Pay, Risk and Reward, and Caps on pay, there is a concern over the existence and level of perquisites granted to the Named Executive Officers in corporate America today.

In years past, it was commonplace not only for the �C-suite� executives, but also other senior executives to be lavished with perquisites. Companies thought nothing of giving car allowances, country club and gym memberships, travel allowances (with spouse), financial planning and home security. Companies believed they had to offer these perks to remain competitive with rival companies shopping for executive talent.

Today, we know that many companies have sold their corporate aircraft and/or decided to more discretely lease their aircraft equipment from a third party. Companies have announced a roll-back of company cars and car allowances, as well as the drying up of other fringe benefits.

In an article posted on the IT news and technology site, Infoworld , a few notable exceptions to the standard of providing perquisites for CEOs appeared at some large companies. Cisco, Microsoft and Apple are among a number of companies whose CEO received no perquisites, as identified in their proxy statements. Each company states that their CEO generally doesn�t receive any perks or benefits that are not otherwise available to all employees. Certainly there are many more companies that are still paying perquisites to their executives, but is this newfound frugality a sign of things to come or a passing anomaly? Only time will tell.

Earlier this month, SEC Chairman Mary Schapiro announced continued focus of the agency on the issues surrounding executive compensation. ��the SEC is actively considering a package of new proxy disclosure rules that will provide further sunshine on compensation decisions,� said Schapiro. �While these proposals would not dictate particular compensation decisions, they would lead companies to analyze how compensation impacts risk taking and the implications for long term corporate health of the behavior they are incenting,� she continued.

Broadly, the Chairman described several areas where increased focus and disclosure could be mandated. These areas include:

� How a company manages risks.
� A company�s overall approach to compensation � matching the reward to the risk in terms of magnitude and length of impact on the company.
� The independence of compensation consultants and potential conflicts between compensation consultants and the company and their affiliates, so that compensation committees may better assess the advice they receive.
� The independence and expertise of director nominees and an explanation regarding the board structure.

Just a few weeks prior to these comments, the SEC sought public comments regarding proposals to make it easier for shareholders to put their own nominees on the proxy materials mailed out to shareholders. Current rules make that process difficult and expensive for shareholders.

More disclosure is on the horizon. Many of the so-called �TARP rules� are beginning to be adopted by non-TARP companies in an effort to get �ahead of the curve� with their own shareholders. Clearly the landscape of compensation is experiencing significant changes.

Last week, Treasury secretary Timothy Geithner met with the new �Compensation Czar� Kenneth Feinberg, SEC Chairperson Mary Schapiro, and others to discuss the issue of executive compensation. The public, the media, and, increasingly, the government continue to voice their concerns on pay practices, not only at the large financial institutions that have received monies from the Troubled Asset Relief Program (TARP), but also executive compensation in general.

Since February of this year, executive pay at TARP companies has been limited to $500,000 for certain executives, and bonuses for this select group have been capped at one-third (1/3) of that annual pay. Other compensation must come in the form of restricted stock that can only be paid out either after the government has been repaid or after a specified period of time has elapsed to guarantee that any gains realized are genuine.

However, following this meeting last week, Secretary Geithner confirmed to the public that, for non-TARP companies, �We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive.� Rather, the Treasury secretary is looking to beef up Board of Director independence standards and encourage more companies to adopt �say on pay� proposals for shareholders.

Kenneth Feinberg also has said that he does not see a �one size fits all� approach to executive compensation for the companies with whom he has been charged to work. Rather, he too feels that it is not the pay itself, but the pay practices that should be addressed at these companies. This is surprisingly refreshing news coming from our government agencies.

The Wall Street Journal wrote an article this week saying that scrutiny of Nonprofit Executive Compensation by the Internal Revenue Service (IRS) will increase this year in the wake of the general public outrage on excessive compensation. Since the Panel on the Nonprofit Sector released its final report to Congress in 2005, the IRS has been working towards increased scrutiny of these organizations. Link to article here:

http://online.wsj.com/article/SB123902531992992777.html?mod=googlenews_wsj

At Compensation Resources, Inc. (CRI), we have highly skilled professionals with vast experience in Nonprofit Executive Compensation. Not only do we know the ins and outs of the new IRS Form 990 Nonprofit tax return, but we can assist with your organization�s understanding and protections under the Intermediate Sanctions and Rebuttable Presumption that exist in IRC �4958.

If you have any questions regarding Executive Compensation at a Nonprofit organization, please do not hesitate to call one of our compensation professionals at 201-934-0505.

Recent events at troubled financial institutions have unearthed some questionable executive compensation practices that were put in place in years past. However, perhaps some common-sense restraint should be applied going forward. One of the basic principles we encourage at CRI is the use of a "circuit breaker" in any performance or deferred compensation plan. Just as a circuit breaker will save the appliances in your home if there�s an electrical short, performance and deferred compensation plans need to be �tripped� when the company that pays them has a �financial short.� We have seen many examples over the past few months of companies being obligated to pay bonuses and perquisites to executives of failed institutions � in some instances, the very same executives who drove that company to financial ruin. A circuit breaker would have stopped those payments and helped preserve valuable corporate assets at a time when they were needed most. Simply put, a bonus or executive perk should not contribute to the demise of a company.

With all the recent government intervention into executive compensation, it can be difficult to sort through the rules and regulations. We have prepared an overview in a table format to assist you in sorting through the rules.


Executive Compensation Restrictions for TARP Participants