Thursday, March 08, 2007

Analyze This

Whatever did I do with my time before the SEC added the CD&A (Compensation Discussion & Analysis) to proxy statements? Not sure, and not enough brain cells left now to figure it out.

These writeups contain some useful info, but the sameness of the content from company to company is already depressing me. The SEC has warned against boilerplate, so I suggest companies take drastic measures to stand out from the crowd, like hiring 15-year-olds to turn CD&As into YouTube videos or asking the Pilobolus dancers (now of Oscars fame) to assemble their bodies into the shape of a stock option.

Everyone wants to “attract, retain and motivate” execs and “maximize shareholder value.” And all the explanations for different compensation elements pretty much break down like this:

(1) Salary: because, well, everyone’s gotta have one, right? Well, almost everyone.

(2) Annual bonuses: To reflect an exec’s supposed contribution to yearly results.

(3) Long-term incentive compensation (usually equity-based, e.g., stock options, restricted stock, phantom stock): To “align” the interests of execs and shareholders and provide the CEO with a reason to keep getting up in the morning and coming to work at this particular company, #1 and #2 above apparently being insufficient motivation.

(4) Perks: to add to the happiness and well-being of highly compensated officers. Take, for example, the executive "health coaching" provided at Motorola, Inc (MOT).

(5) Retirement plans.

OK, let’s talk about #5. In the new rules, the SEC helpfully suggested (but unfortunately did not insist) that CD&As discuss “how gains from prior option or stock awards are considered in setting retirement benefits.” Yes, the SEC actually had the nerve to imply that if you are the lucky recipient of zillion-dollar stock option mega-awards, maybe you don’t need to cling to a pension plan like an auto industry lifer.

Yet stock options and retirement plans seem to be studiously ignoring each other in the CD&A like feuding relatives at a wedding. In many cases only one of them should have been invited, as the folks at The Corporate pointed out over a year ago in a newsletter so filled with common sense I’m sure no one read it (sorry, link no longer available). The purpose of a retirement plan, they suggested, “is to provide a safety net for one’s retirement years… Directors…need to step back and focus on the total amount of wealth that has already been delivered to our top executives—and question what purpose retirement provisions now serve for top executives of many companies. Especially when the accumulated and projected amounts derived from stock options and restricted stock are added up, it will become clear that retirement payments for many CEOs and other top executives are no longer appropriate.” Imagine.

As I skim the CD&As, I keep hearing the last verse of that song we all learned as small children, “The Farmer in the Dell.” Remember? The cheese stands alone. As do, apparently, cheesy retirement plans and SERPs, even for people with more than enough stock option wealth to ease their golden years.