If you practice in the executive compensation arena, you need to be reading Broc Romanek who is following developments pertaining to a new wave of executive compensation lawsuits. Read what he has to say here and here. One such lawsuit names the CEO, other executives, directors and the general counsel and “seeks to recover money for the corporation almost solely on the basis that no corporate director could in good faith have allowed executives to have collected the amount of money that was paid” to them. (Quote from a Wall Street Journal article on the Fairchild lawsuit.)
He also writes about the SEC’s keen interest in the timing of option grants as evidenced by this “Legal Proceedings” section of a 10-K filing for a company (filed last week) which states:
We have received notice that the SEC is conducting an inquiry into our granting of stock options over the last five years to officers and directors. We believe that other companies have received similar inquiries. Each year, we grant stock options to a broad base of employees (including officers and directors) and in some years those grants have occurred shortly before our issuance of favorable annual financial results. The SEC has requested information regarding our stock option grants and we intend to cooperate with the SEC. We are unable to predict the outcome of the inquiry.
He also notes this speech by SEC Staffer, Chester Spatt, discussing whether or not there are “adequate safeguards in the setting of executive compensation” so that conflicts are adequately mitigated. Mr. Spatt asks the question: “Should there be additional fiduciary obligations on compensation consultants that advise the board of directors with respect to executive compensation?”
Finally, don’t miss Congressman Barney Frank‘s comments to “250 bank executives, regulators, and politicos gathered for the trade publication American Banker’s annual Banker of the Year Awards” (via the Boston Globe “frank talk from Frank” ):
According to remarks provided from the evening, Frank said: “I mean, do we really have to bribe you to do your jobs? I’m serious. I don’t get it. I don’t get a bonus. Cops don’t get bonuses. . . . And the problem is not just the bonuses. Think what you’re telling the average worker, that you who are the most important people in the system and at the top, that your salary isn’t enough, that you need to be given an extra incentive to do your job.”
As Broc’s title for his post suggests, “Is this a glimpse into the Congressional mindset on executive compensation?”