Tuesday, March 13, 2007

Buddy System

ChoicePoint Inc. (CPS) knows everything there is to know about the private lives of you, me and everyone else – excluding, one must suppose, Dick Cheney and J.D. Salinger. Collecting dizzying amounts of personal data is what these guys do. (Oh, stop fussing. They've promised not to sell your secrets to criminals any more.)

But in deciding how much to pay the company’s managers last year, ChoicePoint’s Management Compensation and Benefits Committee decided to go daringly data-less.

Lots of companies - dreading the new compensation disclosures they’d have to make this year - spent 2006 huddling with consultants, peering closely at competitors’ pay scales and in some cases frantically overhauling their own. Not ChoicePoint. “No market assessment of our executive compensation program was performed by compensation consultants in 2006,” says the Compensation Discussion and Analysis in Friday’s preliminary proxy filing. And the devil take compensation surveys: The committee, we’re told, “determines executive pay based on its analysis of a competitive range of pay, which for 2006 was derived from the knowledge and experience of its members.”

We noticed something about this omniscient committee. Two of its three members, like characters in Lost, met in a prior life: Compensation Committee Chairman Terrence Murray used to run FleetBoston Financial (which merged with Bank of America in 2004) while another member, M. Anne Szostak, served under him there as head of Human Resources.

There are no rules against this particular form of incest. But we cringe a bit when 2/3 of a compensation committee consists of folks who not only hail from the same corporate culture but - if Mr. Murray and Ms. Szostak had a typical CEO/head of HR relationship - spent quality time bonding over CEO compensation decisions. The ChoicePoint committee met only two times in 2006, acting by unanimous consent/rubberstamp five other times, so there wasn't much time for these two old acquaintances to discuss the company's complex compensation structure with the third wheel, John B. McCoy. Perhaps it’s just a coincidence, but the compensation of ChoicePoint CEO Derek V. Smith ended up in the same ballpark as Mr. Murray’s at FleetBoston: Mr. Smith’s 2006 salary was $999,986 while Mr. Murray’s was $992,200, and total compensation for Mr. Smith last year was about $5.8 million, compared with $4 to $6 million for Mr. Murray in the last 3 years of his tenure. (Mr. Smith's package contained less cash and more equity, we note in fairness. )

This could be that rare instance where a compensation consultant, bearing tidings from the outside world, might actually have improved the quality of discussion.

ChoicePoint doesn't care to spy on other CEOs to find out how much they make. Yet it wants to know when I pay my credit card bills, where I've lived, what I buy, what I don't buy, what I eat, my driving record, where I've worked, what I read, and so on. I'm taking this as a compliment.