Stimulus Plan Attacks Executive Compensation: Stay Tuned

Everyone knows about the freaky fireball that plummeted through the Texas sky last weekend. In an unrelated development, a fireball suddenly appeared in the skies over Proxyland on Friday. That one, however, has been identified: it’s Title VII of the stimulus bill, and it’s zooming straight toward Wall Street’s compensation structure.

The administration, stunned by the amount of heat Congress packed into these compensation provisions, would like to tone them down. But as Fox News gleefully reported, Barney Frank doesn’t want to negotiate. “This is not, frankly, the Bush administration, where they're going to issue a signing statement and refuse to enforce it,” Frank said. “They will enforce it.”

It’s long been obvious that our entrenched executive compensation culture is every bit as crazy as that poor Nadya Suleman. And like Nadya, it doesn’t realize how nutty it looks to the rest of us. So you can't blame Congress for trying to put an end to the insanity. Politically, this is a no-brainer: how can elected officials - after appropriating billions in taxpayer money to save mismanaged banks - stand by and do nothing while those banks assert their inalienable right to bonuses?

This doesn’t mean the route Congress chose, which essentially bans TARP takers from paying any incentive compensation except restricted stock, is the right one, or that it will have the desired effect. (Harvard’s Lucian Bebchuk – a prominent critic of public company compensation – fretted over the bill’s structural flaws in an opinion piece in yesterday’s Wall Street Journal.)

Yes, Congress is wielding some awfully blunt instruments here, and that’s a bit scary. (It would have been fun to see them test out the “malus” approach, which could foster a much-needed multi-year approach to compensation.) Also, the legislation could fall victim to loopholes. Or, as those on the Street predict, maybe all of the “talent” will stream out the door, and it’ll turn out that we actually miss them.

But here’s the part that fascinates me. This country is on the verge of conducting a simple experiment, one the private sector would never have gotten around to on its own: Pay senior executives less, and see what happens. The truth is that no one has the faintest idea how this will work out. Maybe aliens will invade and the world will swiftly end. Or maybe, just maybe, companies will end up being better run, and good things will happen


Image source: anomalymagazine.com

Let Us Now Praise UBS, Home of the "Malus"

The Swiss are different from you and me. At least when it comes to their corporate culture.

About a year ago, when UBS reported what then seemed like a huge loss, I marveled that it used the word “devastating” to describe the state of its mortgage operations. It was hard to picture U.S. firms - which at that point were still blaming everything on "headwinds" - using such blunt language.

And UBS has accepted the need to reform its compensation practices, an attitude we all wish we could locate somewhere on Wall Street. So this seems like a good time to remind everyone about the executive compensation plan the bank announced back in November, which really hasn't gotten the publicity it deserves.

The UBS system - how cool is this? - now utilizes “maluses” along with bonuses. As the Times (the British one) explained last fall:

"Just as bonuses (Latin for “good”) are paid out for good performance, maluses (“bad”) will be meted out if the bank subsequently makes losses or if the employee misses performance targets, UBS said. The maluses could wipe out all previously agreed share bonuses and two thirds of all cash bonuses under stringent new rules designed to align the interests of executives and traders with those of shareholders."

A nice piece today by Ingo Walter on Forbes.com praises the malus idea. Walter points out that “in good times, the combination of the rising tide and the use of leverage often makes it impossible to tell good traders from bad ones, with most people generating decent to spectacular returns. It is in bad times that the wheat separates from the chaff. This is precisely why compensation should have a multi-year structure, with bad performances subtracting from the bonus pool in the same way that good performances add to it.”

Maluses, I'm giddily in love with you. I'm sending you Swiss chocolates for Valentine’s Day.

Image source: neuchatelchocolates.com

Executive Compensation: Real Change, Maybe, Finally?

I’ve been documenting the excesses of Proxyland for - OMG! - three years now. Yet when my son, watching CNN with genuine bewilderment, asked me how bailed-out companies could think it’s OK to buy new jets, redecorate their offices, and so forth, I didn’t know what to say.

Actually, I had an answer, but I was afraid he’d think it was lame. Maybe you will, too, but here it is.

It’s long been clear to me that Proxyland is a special place, governed by its own set of mores. To those living within its boundaries, its extravagant customs have come to seem normal and its huge payouts well-deserved. While this mindset is by no means limited to Wall Street (remember Home Depot?), it's most pronounced there.

I’m not a shrink, but I believe this is a psychological phenomenon. A very real one. You might call it mass self-serving self-delusion. (This insular mentality also fueled the subprime phenomenon, in which Wall Street hawked garbage-in-gold-out securitized products and rating agencies gave them a hearty thumbs-up.)

Now, so much taxpayer money has poured into Proxyland that its walls have been breached. Average folks, many of whom didn’t know the place existed, are poking their heads in and looking around with astonishment and disgust. As David Pitofsky and Matthew Tulchin said in an excellent law.com article this week, “the debate over executive pay has fundamentally changed from a shareholders' issue to a taxpayers' issue.”

That's a big change. Between the growing horde of torch-wielding citizens and the broad powers Tim Geithner has to restructure compensation under the TARP - should he choose to use them - it's possible real change could come to compensation practices in Proxyland. (Reports from Davos say the “bonus culture” may be on its way out elsewhere, too. )

On top of all that, Joe Biden wants to throw Wall Street bonus-payers "in the brig."

In honor of this possibility, let's revisit Beyonce's recent rendition of "At Last".


Image source: people.com

Kozlowski Writes To Thain: A Haiku

My trash can beats yours.
Cost eight hundred bucks more, man.
Gold-plated, too! Sweet.




p.s.: I've made a factual correction to this haiku. (Has that sentence ever been written before?) Press reports differ on the price of Mr. Thain's wastebasket ($1200 versus $1400), but I'm now going with the higher number. Dennis Kozlowski reportedly paid $2200 for his exceptional receptacle.


Image source: allposters.com

Stock Options Aren't Compensation, Decreed the OTS

I hope the new administration is testing the waters down there in our nation's capital. I mean that literally. I fear someone has been pumping Clueless Juice into the hallway fountains at certain federal agencies.

Check out this bizarre tidbit from the Office of Thrift Supervision, one of those financial regulators we've all come to know and love. Last Thursday the OTS revised the corporate governance guidelines that its examiners are supposed to apply when they evaluate the "safety and soundness" of OTS-regulated banks. Among other stuff, the revision removed a loony sentence about executive compensation that's been lurking in these guidelines since at least 2003. (Haven't had time yet to dig back and see when it first appeared.)

The sentence said:

“OTS does not ordinarily consider the grant or exercise of stock options as compensation unless they are sufficiently material in amount or conditioned upon factors that result in incentives that cause supervisory concerns."

How strange is that? Stock options are, and always have been, compensation. Absolutely, unequivocally, uncontroversially. (Yeah, there are some nuances from the IRS point of view, but that's not what the OTS is talking about.) This is like saying: "We don't consider Tootsie Rolls to be candy, unless you eat more than 75 in one sitting."

I guess that if a bunch of lobbyists showed up to convince me that Tootsie Rolls aren't candy, they'd make it all sound very sensible. Of course, I'm only speculating that lobbyists had something to do with this. I don't know how the hell that sentence got in there. It may have been the water.


Image source: centurynovelty.com

Into the Lifeboat, Citigroup Bonuses!

Around the middle of last week, as traders joked about Citigroup and the Titanic, New York City went into a deep freeze. This was fortunate, since it's harder to fling oneself over the windowsill once you've installed storm windows.

I applaud the folks who wrote the 818-word term sheet for Citi's asset guarantee. This is an amazingly brief document, considering that yesterday I signed a 5-page agreement just to download a free software upgrade. Rounding the Citigroup deal to $300 billion, it works out to $366,748,166 per word.

Still, they made room for this paragraph about compensation for Citigroup executives:

"An executive compensation plan, including bonuses, that rewards longterm performance and profitability, with appropriate limitations, must be submitted to, and approved by, the U.S. Government."

Please excuse the italics on "including bonuses." I couldn't help myself.

But, really, this wasn't surprising. Conservation of Bonuses is one of the natural laws of Proxyland. And just think - those two words cost us only $733,496,332.

Paulson Wimps Out On Executive Pay

Last week I praised Mr. Paulson for attacking one obvious flaw in the bailout bill's executive compensation limits: the Stan O'Neal Memorial Loophole, in which you fire a guy but pretend he left for some other reason so he can keep his golden parachute.

Does this mean I’m loving the way Treasury is carrying out Congress's orders to crack down on excessive compensation at bailed-out banks?

Heavens, no.

First of all, Mr. Paulson is doing the bare minimum the law requires, although he has broad powers to set "appropriate" compensation standards. I can promise you that if I'm appointed Treasury Secretary, I’ll have a lot more fun with this authority.

And in an act of extreme naivete, or extreme cynicism, the current Secretary is putting his trust in the firms’ own compensation committees, those souls of generosity who helped bring about this enjoyable economic moment.

One of the most useful tools in the bill - potentially - is Congress's directive to get rid of compensation plans that could inspire executives at bailed-out firms to take "unnecessary and excessive risks.” But Mr. Paulson has merely delegated this job to each firm's compensation committee, with a few vague instructions. For example, he tells the committees to meet with senior risk officers - once a year - to contemplate the “relationship” between compensation and risk management. Once a year? I'm choking on my gummi bears here, and it's really hard to choke on those things.

And Mr. Paulson’s compensation rules cover only the CEO, CFO and the next 3 highest paid officers. This crazily leaves out many of the traders who got us into this mess, and the ones who'll probably get us into the next one.

Also, as Carl Icahn pointed out on his blog, the golden parachute ban doesn’t kick in unless a severance package adds up to triple an executive’s annual pay. So a bailed-out CEO who’s been averaging $10 million in salary and bonus for the last five years could still get fired for incompetence and head off to Golfland with $29 million in severance.

I suspect boards won’t take advantage of that particular loophole in the immediate future, as they won't want to risk the slings and arrows of Andrew Cuomo and Henry Waxman. But, jeez, Hank, this is no time to be such a wuss. Get out there and have some fun.

AIG, Cuomo, and a Possibly Haunted Hunting Lodge

Perhaps you heard about the $86,000 trip AIG executives took, post-bailout, to an English hunting lodge named Plumber Manor. Surely AIG could have defended itself by pointing to some of the joint’s poor reviews on TripAdvisor: One visitor termed the service “appalling,” while another complained of “massive cobwebs hanging from the bathroom ceiling.”

But, after getting a nasty letter from New York State Attorney General Andrew Cuomo, AIG head Ed Liddy decided to skip the cobweb defense. Pronouncing the company "very grateful for the guidance of Attorney General Cuomo," Liddy promised not to spend any more on “junkets” and said he'd help get back some of the millions in severance paid to ousted executives like former CEO Martin Sullivan.

In his letter, Cuomo threatened legal action if AIG didn’t cooperate. News reports implied Cuomo had discovered some secret weapon in New York law that allowed him to snatch excess compensation back from overpaid executives. “Where have you been all my life, secret clawback law?” I wondered.

However, Cuomo’s “new toy,” as law professor Dale Oesterle called it on his blog, turned out to be something old: calling AIG's expenditures a “fraudulent conveyance” under New York’s debtor/creditor statute. This is a tool you’d find in the laws of every state. The idea is that a business that’s going bankrupt can't give out cash to its friends and then greet creditors at the door with an empty piggy bank and mournful puppy eyes.

According to the skeptical Professor Oesterle, Cuomo’s trick would work only if he could prove AIG was insolvent when it signed the compensation deals, which was long before the bailout in some cases. (If so, the wording of Cuomo’s letter was kinda sloppy; he talked about money being spent “as the company slipped towards insolvency.”)

But law professor Jonathan Lipson cheered Cuomo on, scorning “accounting and bankruptcy wonks" who say "proving insolvency is a fool’s errand.” In fact, Cuomo is thinking “WAY TOO SMALL,” says Professor Lipson. (His caps, not mine.) He argues that, since all the profits made by some banks and investment banks over the last few years have vanished, maybe “they actually weren’t so healthy financially after all. Which may mean that all those bonuses and crazy severance packages... should, in theory, be as vulnerable as Joe Cassano’s $1 million/month consulting fee at AIG.”

I’m not afraid of cobwebs, so I suggest we all repair to Plumber Manor for Halloween and discuss these legal niceties by the fire.

Carl Icahn Starts a Club

A couple of weeks ago I mentioned Carl Icahn’s rant about big fat lazy do-nothing rubber-stamping corporate boards.

Since then, some of us have become distracted by other events, but not Carl. He’s continued blogging heartily about the clueless and lackadaisical behavior of nicely paid outside directors. And, hey, it's hard to argue with that one. Check out his latest post on Lehman. (How mean of Nell Minow to note, during last week's Congressional hearing, that the risk management committee of Lehman’s board met only twice a year during 2006 and 2007, and how mean of Carl to repeat it.)

But while CEOs like Richard Fuld sweat before Congress, and Anderson Cooper broadcasts mug shots of his "10 Most Wanted: Culprits of the Collapse," boards have mostly gone missing from the rogues' gallery.

So when the angry torch-carrying mob passes by, Carl will be there to wave it in the direction of directors. (“Get ‘em, guys! They’re up in the skybox!”) To that end, he's forming a new group, the United Shareholders of America. The idea is to get enough pissed-off shareholders together to counter folks like the Business Roundtable, who have gloriously defended entrenched boards against compensation caps, proxy access and other threats to the American way of life.

If you're so inclined, you can join the group right on Carl's blog.

I know why he's calling it United Shareholders of America. Those wasteful managers who make Carl so mad should watch and learn, because he sure knows how to save money. Every time Joe Sixpack yells “USA” at a political rally, Carl’s group gets free publicity.

Image source: epikwhite

Those Mustard Seeds in the Bailout Bill

I love this section of the bailout legislation because it sounds as if Congress is writing a cookbook:

Paragraph (2) of section 40A(d)...is amended by striking "and mustard seeds"... and inserting "mustard seeds, and camelina."

There's a lot to hate about what happened in Washington last week, and not just the pork. For example, people are skeptical about the legislation’s recipes for making executive compensation less yummy. And sure, it would be more fun to stick CEOs in the stocks (you know, the kind the Puritans put in public squares) and make them watch endless footage of Lou Dobbs and/or Sarah Palin.

But there’s a chance these compensation and governance provisions could end up biting some executives. Like the rest of the bill, these sections give the Treasury Secretary mucho mucho discretion. Mr. Paulson, given his Goldman roots, isn’t likely to get creative on compensation matters. But soon we'll have a new President, and almost certainly a new Secretary.

The legislation says that if a financial institution sticks Treasury with assets so crappy that “no bidding process or market prices are available” and the feds take a “meaningful” share of the firm's debt or equity, Treasury “shall require” (nothing optional here) that the institution “meet appropriate standards for executive compensation and corporate governance.”

With a little imagination, this mandate could force real change, at least at firms that are desperate to unload stinky securities. The bill lists some serious compensation and governance standards, and I don’t see anything that stops Treasury from adding others. How about by-laws mandating proxy access? Or perk policies giving executives the same cars the Shriners get?

The legislation tells the Secretary to trash compensation plans that motivate folks "to take unnecessary and excessive risks that threaten the value of the financial institution." (Again, this applies only when Treasury buys securities from the institution in a no-bid process.) Hmm...how do you make corporate dice-rolling less attractive? Well, you could allow only 1950s-style fixed compensation. You know, like salary?

This would be considered extreme and radical in Proxyland, but watch out, financial industry CEOs. The next Treasury Secretary could be Charlie Munger, Ben Stein or Ralph Nader. Like mustard seeds, these guys pack a nasty punch.

Image source: yakimite21

Buffett and Icahn Scold Directors

I don’t get the sense that Carl Icahn and Warren Buffett hang out together. But as they watch Hank Paulson's new game show, "So You Want To Be A Risky Mortgage-Related Products Investor," both are suggesting that outside directors get paid too much.

The two have different styles: While Carl rants, Warren usually stays calm and lets his BFF Charlie Munger say the really mean stuff. So Carl trashed overpaid directors in a peevish blog post, and Warren chided them gently in an interview.

Take it, Carl:

"Total director remuneration at the largest American corporations is running over $1,000 per hour, according to the study by Steven Hall & Partners. With many U.S. corporations struggling, why are we paying board members all this money? Lehman's board members, for example, were paid just short of a half million dollars each last year...I would appreciate it if someone would advise me of what those board members did to deserve that compensation? Can any board member of these collapsed financial institutions claim to have truly monitored the risks their companies were taking?...If the boards did their jobs, many of the problems today would probably not exist."

Warren?

"I think they should punish, in many cases, the people -- I would think they might insist on the directors of the institutions that participate in this program waiving all director's fees for a couple of years...."

I'll take Carl’s word for it that Lehman paid its directors nearly $500K a year. Definitely on the high side. I checked AIG's last proxy, and its directors all made north of $250K. Not astronomical, but Robert Willumstad (who was non-management Chairman at the time) raked in $435K.

AIG was also kind enough to donate over $500K last year to the Asia Society, an organization chaired by another outside director, Richard Holbrooke. (He resigned from AIG's board this past July.) The proxy proclaimed that this donation wouldn't impair Mr. Holbrooke’s independence in the least, plus it would “enhance AIG’s reputation and standing in Asia.” Dunno, the Asia Society is a lovely institution, and located right around the corner from my dentist, but I wonder how that reputation thing is working out.


Image source: Turbo Squid

Pay It Backward, Paulson

Dropping by the Senate Banking Committee this morning, Hank Paulson pointed his bony Ghost of Christmas Future finger at both "bad lending practices by banks" and "borrowers taking out mortgages they couldn’t afford."

Fascinating, how the current woes of Wall Street megatitans are linked to low-income borrowers at the opposite end of the socioeconomic spectrum. It's like a hokey movie where, through some improbable plot device, two people who can't stand each other get handcuffed back-to-back and must work together to escape.

Here’s a suggestion, Congress. Don't try to put limits on Wall Street compensation; there's no time to structure them properly, and lawyers and consultants will just loophole their way out. Instead, claw back some of the millions Wall Street CEOs earned over the past few years and use them to backstop mortgage payments for those who face foreclosure.

Under my French Revolution Plan, everyone wins. Folks will keep their homes, and with mortgage payments assured, the market for mortgage-related junk should become more liquid. The credit markets will thaw, the stock market will rise. The election will go back to being a silly spat about - what was it, bitter lipstick? Even my hair will cooperate. What a lovely dream.

Sure, I'm advocating a pure redistribution of wealth. Sure, it’s socialism. But so is Prime Minister Paulson’s plan. The time has come for extreme and dangerous action, whether it's a size XXXL government bailout that might or might not work, or women sporting jumpsuits in public.

Big Bedfellows

Last week found me lurking in the carpeted hallways of D.C.’s Capitol Hilton, press pass hanging from my neck. The occasion was the Council of Institutional Investors (CII) spring meeting, entitled “Thinking Globally.” I assume CII printed its glossy brochures before subprime hell broke loose, and it was too late to re-name the event "Grimacing and Clutching a Bottle of Maalox.”

This seemed like your typical corporate conference: the suits gray, the ballroom chandeliers glitzy, half the audience checking Blackberries as the speakers droned on. So I was startled when a CII board member from a union pension fund mounted the dais, along with a half-dozen hotel workers, to praise the Hilton’s unionized status and remind the crowd to tip generously. People applauded politely, but it was clear not every institutional investor in the room was pleased with the guy's "rah-rah unions" message.

The incident reminded me that people - and yes, bloggers are people too - like to talk about "shareholders” as if they were a homogeneous group when, really, we all know that's silly.

Big shareholders, for one thing, command more respect than little ones. At the conference, SEC Commissioner Kathleen Casey encouraged institutional investors to huddle with corporate managers. (I note that Kathy, in person, is a striking blond who clearly knows her way around a makeup counter, and also that her speech, oddly, isn't yet posted on the SEC website.) And former Pan Am CEO Thomas Plaskett—a guy who’s sampled the doughnuts served in the boardrooms of 12 different companies—had a similar message; disdaining formal “say on pay” resolutions, he suggested those in the room simply “pick up the phone" and call directors to chat about executive compensation.

Some worry that companies, as they make nice to big shareholders in ex parte encounters, foster what SEC Commissioner Atkins called “tyranny of the minority.” Institutional investors, after all, don't have an obligation to represent the concerns of retail shareholders, who are probably more likely to get an audience with the Pope than to get one with a comp committee chair at a Fortune 500 company.

Anyway, I sure hope no CII members directed their anti-union sentiments at the Hilton's unionized chambermaids by leaving soggy towels on the bed.

Logical Choices

I’ve been lackadaisically browsing the testimony from Friday's executive compensation hearings just in case California Congressman Henry Waxman unearthed anything that we in the left-wing antibusiness press (bugbear of Countrywide CEO Angelo Mozilo) didn’t already know about. BTW, you can’t imagine how excited I am to be part of a vast pinko conspiracy I didn’t realize existed; I suddenly feel like a heroine in some pious movie about the McCarthy hearings who's played by Hilary Swank, or maybe Charlize Theron in one of her uglified star turns, and gets to face down Senator Joe and even take the Fifth.

It was fun to read Mozilo’s inexplicably illegible e-mails, especially the one where he complained that the chintzy bastards at Countrywide had picked up his wife’s travel expenses but were expecting him to pay his own taxes on that perk. But this mode of thinking, which you might call Mozilogic, is nothing new.

For example, years ago I worked with a senior executive who made a rare foray from his C-suite office up to the humble accounting floor to address an urgent perk-related matter. You see, he'd driven his own car to a company golf outing where he’d played 18 holes with some clients, followed by drinks and dinner, then returned to the club parking lot to find that tree sap had dripped on his hood. This, he asserted, necessitated the intervention of an auto care professional. (In keeping with my newfound radical identity, I’m now pretending I drive a dusty VW bus, so don't ask me to opine on the fine points of sedan sap removal.) Being an early adopter of Mozilogic, this exec demanded that the company pick up his sap cleaning costs. I actually think someone found the courage to tell him no, but perhaps I’m just remembering the incident with a kind of slo-mo, Vaseline-on-the-camera-lens nostalgia.

This whole reminiscence has also triggered in me a slo-mo, Vaseline-on-the-camera-lens nostalgia for this post I wrote over a year ago, long before Countrywide became a mascot for the subprime crisis. At that time, I noted Mr. Mozilo’s presence on the Home Depot compensation committee, which had handed over $210 million in severance to resigning CEO Bob Nardelli. But if you believe Mozilogic played a role in the Nardelli story, you're obviously utilizing Leftwingloonybinlogic.

It's Just a Phase

After years of yakking, policy wonks still haven't answered this question: What the Heck Are We Going to Do With All These Baby Boomers? This issue has a bunch of workplace subtopics, including: (1) How Are We Going To Get Them To Leave Once And For All So We Can Have Their Aeron Chairs? (2) OMG, Who’s Going To Do All This Work When They’ve Gone? and (3) Hey, When Can We Get Rid of This Stupid Rule The Old People Have Against Flip-Flops in the Office Cuz That's, Like, Really Stupid?

The solution to these pressing questions, some people think, is to offer “phased retirement,” gradually reducing boomers’ hours and responsibilities as they train their successors. Sensible as this sounds, it doesn’t usually work (despite some legislative fixes), because few people can afford to phase out before their pensions fully phase in, and if they cut back their hours, their medical benefits may retire and move to Fort Lauderdale.

In Proxyland, however, phased retirement is not merely a wistful dream, but a thriving institution, though it goes by a different name -- the “post-retirement consulting arrangement.” These cushy deals for outgoing bigshots come in many varieties, and may take the form of pretend jobs or involve titles like non-executive officer or Chairman Emeritus.

But at least one company has realized that "phased retirement" has a nice ring. Taking a bold semantic step, Schlumberger (SLB) states in its proxy that it follows this practice for its executive officers. Last year, for example, it signed this contract with former CFO Jean-Marc Perraud, "phasing" him down to "senior financial advisor." Through 2010, Mr. Perraud will be working no more than half-time (and quite possibly less) at a salary of $450K, plus benefits. If all boomers could phase out like that, we wouldn’t need no freaking policy wonks, thank you.

But I don’t really want to pick on Schlumberger, a company that doesn’t use employment contracts, golden parachutes or change of control agreements, and sometimes assigns its executives high-minded performance objectives involving stuff like safety, diversity, and social responsibility. Plus which, given that its arch-rival in the oilfield services business is an outfit named Halliburton, it's going to look squeaky clean no matter what I say.

Under the Influence

Blogging - a lonely existence - may lead to poor mental health. We bloggers tend to ricochet back and forth between two poles of self-esteem: either I’M JUST A STUPID DWEEB AND NO ONE CARES WHAT I THINK, or YES! I’M CONTROLLING THE WORLD!

Lately I’ve been prone to the latter, thanks to two events: (a) the sudden appearance of copious amounts of toilet paper at my local Rite Aid after I posted this Rite Aid rant at Footnoted, and (b) a front-page Wall Street Journal story on an oddball phenomenon I’d already written about, which inspired the self-aggrandizing thought that an esteemed publication had shoplifted my idea.

Continuing in this vein, here are two more examples of Proxyland’s awesome influence:

Example #1:

Not long ago Proxyland said: Man, the reporting lines for Morgan Stanley’s risk management function have been really screwed up. Having risk managers report to traders makes about as much sense as having Lindsay Lohan report to Britney Spears.

Behold: Today, Morgan Stanley announced that it’s hired a new head of risk management and established independent reporting lines for the risk guys.

Example #2:

Not long ago Proxyland said: We’d really love it if compensation committees would pay some attention to the amount of wealth that managers have built up over the years through equity awards.

Behold: In its proxy filed last week, Wrigley (WWY) wrote that its Compensation Committee reviews tally sheets showing each executive’s “accumulated wealth” (assuming various stock prices) and uses this analysis “to assess the overall reasonableness of its past compensation decisions.” Even though they went on to say they weren’t using the tally sheets to determine current compensation (which makes one wonder what exactly was the point of the exercise), they did in some sense do what Proxyland had asked.

Gosh, why am I going on like this? After all, I’m just a stupid dweeb and no one cares what I think.

It's The Thought That Counts

If someone else wrote your Christmas wish list, it probably wouldn't include the thing you want most. When it comes to the content of CD&As, only one list matters - the one written by the SEC last year - and the rest of us are stuck with what we get, no returns or exchanges allowed. (I swore off insipid holiday metaphors a year ago, but I also swore off salt and vinegar potato chips and that’s not going so well either.)

In its October report card on CD&A disclosures, the SEC told companies to stop rambling on about general compensation philosophies without explaining how they'd gotten to the actual numbers in the compensation table. But the report barely mentioned the #1 item on the Proxyland wish list for CD&As: analysis of how an executive’s overall “wealth accumulation” affects the level and structure of his compensation. For example, if someone has gotten rich through mega stock option grants, might that lessen his need for a huge retirement payout, or dilute the "incentivizing" effect of piling on more options? As noted here a while back, the answer to this question seems obvious, which may explain why companies prefer not to ask it.

Since it’s too damn cold to go out and shop, I decided to see how many of the 343 proxy statements filed since November 1 include the phrases “wealth accumulation” or "accumulated wealth" in the CD&A. The answer seems to be 7, and I've summarized the analyses for your convenience:

Tyco International Ltd. (TYC) and Robbins & Myers, Inc. (RBN): WE'VE USED THE WORDS "WEALTH ACCUMULATION" IN PASSING, BUT THAT'S ABOUT IT.

Revlon, Inc. (REV): WE'VE THOUGHT ABOUT THE CONCEPT, BUT IT TURNS OUT NO ONE HERE IS THAT WEALTHY.

From Revlon's CD&A: “As a general matter, since the Named Executive Officers have not realized any meaningful wealth accumulation from equity Awards or other incentive compensation, as described above, the absence of wealth accumulated from prior compensation, such as equity Awards, has influenced setting base salaries."

Acxiom Corp (AXCM): WE LOOK AT ACCUMULATED WEALTH WHEN DECIDING ON LONG-TERM EQUITY AWARDS, BUT THAT'S ALL WE'RE GOING TO TELL YOU.

From Acxiom's CD&A: "The amount of RSUs and stock options were based on the Committee’s evaluation of a number of factors which included each recipient’s responsibilities and demonstrated performance, internal pay equity, accumulated wealth analysis, analysis of the benchmarking data discussed above, and retention considerations."

Monsanto Company (MON): WELL, WE DID A WEALTH ACCUMULATION ANALYSIS WITH RESPECT TO OUR CEO (WHO HAPPENS TO HAVE THE SAME NAME AS ACTOR HUGH GRANT), BUT WE DECIDED IT SHOULDN'T AFFECT HIS COMPENSATION EVEN THOUGH HIS TOTAL COMP FOR 2007 WAS NEARLY $11 MILLION, FORBES LISTED HIM AS THE HIGHEST-PAID EXECUTIVE IN THE CHEMICAL INDUSTRY FOR 2006, AND SOME MIGHT SAY HE HAS A LOT OF EQUITY. OH, AND WE'RE NOT GOING TO EXPLAIN OUR REASONING EXCEPT IN A VAGUE WAY.

From Monsanto's CD&A: "The Committee made no adjustment to Mr. Grant’s compensation or to the program design as a result of the analysis, based on its assessment that the existing program provides strong alignment with the creation of shareowner value, as well as retention value.”

Batesville Holdings, Inc.: WE PLAN TO FACTOR WEALTH ACCUMULATION INTO OUR COMPENSATION DECISIONS IN THE FUTURE. (AFTER ALL, WE'RE IN THE "DEATH CARE" BUSINESS SO WE KNOW YOU CAN'T TAKE IT WITH YOU.)

From Batesville's CD&A: “We expect that wealth accumulation data will be used in setting compensation for our Named Executive Officers going forward.” (Legalistic note: This was not technically a proxy statement, but a 10-12B filing related to the upcoming spinoff by Hillenbrand Industries (HB) of its subsidiary, Batesville Casket.)

Financial Federal Corporation (FIF): WE DON'T REALLY CARE HOW RICH OUR EXECUTIVES GET.

From Financial Federal's CD&A: "The Committee does not believe accumulated wealth from prior compensation or significant compensation from one component of compensation should necessarily negate or reduce compensation from other components. For example, if an officer's equity awards are providing significant compensatory value because the Company's stock price has been appreciating, that would not cause the size of future equity awards or other compensation to be reduced."


All 7 companies deserve credit for at least mentioning wealth accumulation. even if most don't intend to change their ways. As for the 336 firms who failed to use the magic phrase, I will forgive you provided you each ship me one of those gynormous popcorn tins.

p.s. This post was changed to correct an error in a number. The mistake was only up for about an hour before I caught it, but you never know when some unfortunate soul might be reading this thing.

Decisions, Decisions

The world of PR lives by its own happy rules. Take the press release Merrill Lynch (MER) put out yesterday to announce Stan O’Neal’s official parting. It said (with what would be a straight face, if press releases had faces) that the esteemed Chairman and CEO had “decided to retire.”

In some legal hair-splitting way, this might be a true statement. Once O’Neal and the board high-fived on calling his embarrassing ouster a retirement (both for public consumption and under the firm’s compensation and benefit plans), he sensibly chose to take that route.

But whether Mr. O'Neal negotiated for the "decided to retire" language or it sprang from the head of some PR genius, the wording suffers from trying too hard. Did Merrill think none of us were watching last week as the board dragged O’Neal toward the exit door like bouncers evicting a drunk? Maybe they assumed we were all fixated on the imminent release of Saw IV.

It's telling that in the 8-K filing (to which the company attached O'Neal's severance agreement), Merrill spoke more carefully, sparing us the “decided” part and stating simply that Mr. O’Neal “has retired.”

Of course, we all know that in Proxyland people rarely get fired. Every day, however, CEOs are seized by sudden urges to retire long before retirement age, or wild impulses to run off and “pursue other interests." Maybe some PR people should follow their example.

Cowed

In Proxyland’s heyday, shareholders trustingly approved whatever compensation plans the folks in charge said they needed. What were we supposed to do, read the plan descriptions or – ha! – the plans? Instead, we quickly agreed to give the CEO anything he wanted so we could throw out his proxy statement and move on to the next item in our mail pile, that magazine with Lindsay Lohan on the cover.

Times have changed. Look at poor Dean Foods Company (DF), the country’s largest milk producer. In its recent proxy, Dean asked shareholders to bless a new equity incentive plan because its old stock plans were running dry.

A pretty ho-hum request, normally, though perhaps the total comp disclosed for Chairman/CEO Gregg Engles ($11 or 12 million, depending how you count it) bugged some people, or maybe it was the $250,000 he spent frolicking on the company's private planes. (All right, the “frolicking” part could be unfair; for all we know he passed the time eating milk and cookies and studying the sales numbers for soy milk. Or maybe even drinking soy milk, in which case we totally take it back.)

Anyway, the vote count must be looking dismal because yesterday the company filed additional proxy materials containing a glossy plea to shareholders to say yes to the equity plan. Pretty please, guys? With organic milk on top?

The world as we knew it is gone. Now companies butter up ornery shareholders while the rest of us muster the courage to go to the store and choose among organic 2%, antibiotic-free lactose-free skim, or enriched vanilla rice milk. Thank you, Lindsay, for snorting cocaine on videotape. You, at least, never change.

Play Money

We try not to joke about people’s names here. It’s childish, plus we have a slight glass house problem. But we’re making an exception for the members of the Compensation Committee at The Gymboree Corporation (GYMB), maker of cute stuff for toddlers. This fearsome trio is known as Heil, Pound and Rambo.

Tough as they sound, these guys seem quite soft-hearted when it comes to bonuses. For one thing, the CD&A in last week's Gymboree proxy leaves the distinct impression that they interpret the words "bonus plan" rather loosely.

Storytime, children:

Once upon a time there was a very nice company called The Gymboree Corporation. In February 2006, the company put in place a brand-new 2006 Bonus Plan for full-time employees. The Compensation Committee earnestly studied the CEO’s business plan, set detailed earnings goals and promised to pay bonuses ranging from 25% to 150% of target amounts, depending on how things panned out in Gymboreeland.

As it happened, the company made lots of money through the first three quarters of 2006 and everyone was very very happy. So happy, in fact, that in October the Committee suddenly invented a brand new extra-fun bonus plan, the 2006 Fourth Quarter Bonus Plan, just “to provide further incentive” for four very special friends – the CEO and three other executive officers. When the year ended, everyone had earned bonuses under the orginal plan at the highest (150%) level. This came to $967,500 for Chairman/CEO Matthew K. McCauley, who then got another $322,500 under the Fourth Quarter Plan, bringing his total bonus to nearly $1.3 million. (Not to mention stock grants valued at nearly $4 million, but that's another story.)

Then the Committee got even happier, so they said that while “we believe that our executives should generally earn bonuses under incentive plans with specific performance goals, such as the 2006 Bonus Plan and the 2006 Fourth Quarter Bonus Plan… we awarded discretionary cash bonuses in several situations.” And so some senior managers, including one named officer, got even more bonus money. Hooray!

OK, the cash paid here was modest by Proxyland standards and the company is performing well. Still, if you adopt a bonus plan loaded with all sorts of fancy-sounding formulas supposedly sufficient to "incentivize" everyone, then later find excuses to toss out money over and above the plan just because you feel like it, it begins to sound less like a plan and more like some impulsive 3-year-olds banging on a toy cash register. And boy, can that get on your nerves.