BroadPeak Executive Forum

Joe Torre's Pay Package Is A Hit With CFOs

The pay-for-performance deal the New York Yankees offered to Joe Torre lines up with executive-compensation trends in Corporate America.

Marie Leone, CFO.com

October 22, 2007

The New York Yankees struck out with Joe Torre, the manager who led the baseball club for the past 12 years until Thursday, when he nixed a new contract offer. There is a raging debate about Torre's fate in New York, but whichever side fans and critics come down on, one thing is clear: the pay package offered by the Yankees is in line with those being offered by many American corporations.

The Yankees offered Torre a one-year contract comprising a base salary of $5 million and $1 million bonuses for each level of postseason play the team reached in 2008, according to reports from MLB.com, the Website of major league baseball.

The incentive component of the deal promised that if the Yankees win it all next year, capturing the World Series crown, Torre could take home $8 million in total compensation. But that won't happen — and it has nothing to do with the Boston Red Sox.

Torre balked at the deal and called it quits. Essentially, the Yankees skipper was being asked to cut 30 percent off his current $7.5 million salary and replace the missing cash with performance-based pay. At a press conference Friday, Torre said he was "insulted" by the offer and "I had been there for 12 years and I felt the motivation wasn't needed."

Not only do the Yankees disagree, though, much of Corporate America does as well. "The Yankees's offer is entirely appropriate and consistent with current executive-compensation trends in which more money is being put at risk," chief financial officer Michael Mardy tells CFO.com. Mardy is CFO of privately held Tumi Luggage and sits on the compensation committee of two publicly held companies.

The Yankees offer, which Mardy describes as "$5 million and a lot of upside," is a package that "heads exactly in the right direction." He contends that if performance parameters are clearly defined and developed with rigor to reflect the proper business goals, then top executives should expect to be paid less if they don't perform. Conversely, the board should not hesitate to pay out more money if performance objectives are met.

"It's likely that a new Securities and Exchange Commission direction is pushing boards to develop more shareholder-friendly, performance-based packages," adds Mardy. That push from the SEC is spelled out in a new rule issued one year ago that requires public-company proxy statements to include a compensation discussion and analysis report. The report must disclose how much a company's highest-earning executives are paid and explain how the package is calculated.

Opening the kimono on executive compensation has the SEC, investors, and board members paying closer attention to the link between performance and pay. "Compensation-committee issues are probably a bigger exposure than audit-committee issues these days," opines Mardy, who is also the audit-committee chair of two public companies. "The SEC has honed in like a laser on compensation issues."

To be sure, the SEC wants more analysis of how and why companies pay their top executives what they do, but it also wants the information presented in a tighter, more concise way, according to a 10-page evaluation the regulator released earlier this month. The document was released after SEC staffers reviewed 350 company CD&A disclosures they collected during the past year.

Even a cursory look at corporate proxy filings illustrates the rise in incentive-based pay arrangements, says Greg Adams, CFO of Edgar Online Inc. He attributes that rise to the new CD&A filings, and says incentive-based pay arrangements have spread beyond the CEO level and are permeating the entire C-suite.

According to Adams, the Yankees's deal is typical, and he suggests that if Torre has not delivered a world championship — clearly a corporate goal coveted by principal owner George Steinbrenner — he needs to be held accountable to the board, investors, and fans. "I also think the players should receive the same pay-for-performance [arrangements], but free agency appears to be their incentive program," adds Adams.

Read the entire article at CFO.com

Suit Reversal Clarifies 401(k) "Participant"

An appeals court has revived an ERISA lawsuit, giving the plaintiff the right to sue his former employer for alleged mismanagement of its 401(k) plan even though he had cashed out.

Sarah Johnson, CFO.com

August 06, 2007

Executives at Conexant Systems accused of breaching their fiduciary duty in guarding the company's 401(k) plan likely breathed a sigh of relief when the case was thrown out last year. But an appeals court has given it new life by affirming that even if a former employee has cashed out of a plan, he can still be considered a participant under the Employee Retirement Income Security Act (ERISA).

The case involves Howard Graden, a Conexant employee who cashed out his 401(k) plan in October 2004, when the semiconductor manufacturer's stock — which made up the bulk of the retirement plan — was at $1.70 a share. Graden, who had left the company two years before, in 2002, blamed the low stock price — which was significantly lower than March 2004's 52-week high of $7.42 — on a risky merger. He claims Conexant, its officers, and the plan's administrators breached their fiduciary duty by offering a Conexant stock fund even though it wasn't prudent, and making false and misleading statements about the merger that led him to invest in the fund. In 2004 Conexant merged with GlobespanVirata in a deal that didn't turn out to be profitable for the company.

Three judges for the U.S. Court of Appeals for the Third Circuit hinged their unanimous decision on whether Graden asserted that his payout was deficient based on the plan's terms as mandated by ERISA. By agreeing that that was indeed the case, the appeals court vacated a March 2006 decision to dismiss Graden's lawsuit, which was handed down by the U.S. District Court of New Jersey.

The higher court's ruling clarifies that a participant is entitled to a benefit that "encompasses both miscalculations of a person's entitlement and reductions traceable to fiduciary malfeasance." To be sure, the judges did not opine on whether Conexant and its employees did anything wrong: the opinion merely bolsters Graden's case to move forward. For its part, Conexant has said the case is without merit. The company did not respond to CFO.com's request for comment on this latest development.

Read the entire article at CFO.com

Employers Hit for Misclassifying Workers

House members hear complaints about workers being misclassified as independent contractors, enabling some businesses to inappropriately scrimp on taxes.

Sarah Johnson, CFO.com

May 09, 2007

A growing number of larger companies are incorrectly calling some of their employees "independent contractors" and saving as much as 30 percent in payroll costs by doing so, according to employee advocates testifying at a House Ways and Means Committee hearing on Tuesday.

Misclassifying some of the more than 10 million independent contractors in the U.S. in this way leaves small businesses that follow the rules at a competitive disadvantage, the advocates said. It also allows companies that purposely — or mistakenly — fail to follow the rules to take advantage of low-level workers unaware of the labor-law protections that they're entitles to.

While the issue has garnered lawmakers' attention, some House members said they're unsure how to penalize companies that intentionally misclassify workers without harming businesses that are simply confused about the current rules. Much of the confusion stems from the abundance of differing rules, which vary widely by state and among federal agencies.

More and more companies are apparently finding that tapping into a person's expertise temporarily or on a contract basis is useful. The number of independent contractors in the U.S. workforce grew from 6.7 percent in 1995 to 7.4 percent of the workforce in 2005, according to the Government Accountability Office.

Read the entire article at CFO.com

User's Guide to SEC Pay-disclosure Rules - CFO.com Article

Under the new Securities and Exchange Commission requirements, ''you've got to employ some gymnastics'' when calculating total compensation, says a co-author of the new guide from Moody's.

Roy Harris, CFO.com

April 18, 2007

As CFOs tussle this proxy season with the complexities of the Securities and Exchange Commission's new disclosure rules for executive pay, Moody's Investors Service is coming out with a user's guide to help shareholders benefit from the disclosures.

By calling for more information from companies, the SEC rules reveal "the way performance incentives influence management behavior and retention of top-level executive talent," said Mark Watson, managing director of the rating service's Corporate Governance Group and a co-author guide. "We believe compensation is a determinant of management behavior that indirectly affects credit quality."

A major investor benefit of the new rules, Watson said in an interview, is that they require CFO pay to be disclosed, even if the finance chief isn't among the five highest-paid corporate employees. At some companies, he noted, "the well-paid people tend to be the business-line heads," leaving the chief financial officer down in the pack, with a pay package that in the past might not be detailed. From an investor's standpoint, he said, it is especially valuable to know how the finance chief is compensated.

"The numbers signal how important an individual is to an organization," Watson observed. "Now, we'll also be able to see if it's giving the CFO a lot of options, and how the finance chief's pay, both short-term and long-term, compares with what CFOs earn at peer companies.

Read the entire article at CFO.com

CFO.com Article - SEC Said No to FASB Raises

News that the SEC refused a 2007 pay increase for FASB members sheds more light on the subtle ways that the Sarbanes-Oxley Act has increased the SEC's power over FASB.

Marie Leone and Alan Rappeport, CFO.com

April 03, 2007

Proposed raises for the members of the Financial Accounting Standards Board were shot down by the Securities and Exchange Commission last fall, causing a stir at FASB.

CFO.com first learned of the FASB raise rejections last Friday while reporting on efforts by the SEC to formalize its role in the nomination and approval of FASB members and trustees of FASB's parent organization, the Financial Accounting Foundation. That move raised a debate among observers and FASB members about whether the regulator was using the provisions of the Sarbanes-Oxley Act to increase its influence over FASB. The SEC's power to approve FASB's budget was also created by the Sarbanes-Oxley Act.

Read the entire article at CFO.com

Will CFO Turnover Increase in 2007?

Survey: CFO Turnover Will Soar in 2007

A poll of finance-chief temps predicts that the rate of CFO churn will top last year's record.

Helen Shaw, CFO.com

February 26, 2007

Turnover among finance chiefs will reach a record high in 2007, according to a report by executive services firm Tatum.

A January 2007 survey of 163 Tatum consultants, each with at least a dozen years of C-suite level experience, found that 93 percent expect even more finance chiefs to step down this year. Tatum bases its projection on a study done by Liberum Research. In 2006, there were a record 2,302 job changes by CFOs, according to Liberum, an independent research firm. The reasons for the turnover were internal changes, 389; joining, 836; leaving 118; promotion, 451; resigned or retired, 497; and terminations, 11.

Read the entire article at CFO.com

Executive Pay - Potential Legislation Regarding Shareholder Input

Rep. Barney Frank (D-Mass.) plans to introduce legislation as early as next week that would give shareholders the right to cast a non-binding vote on executive pay packages.  The congressman's proposal would grant shareholders only a non-binding vote on compensation, but a thumbs-down would be difficult for companies to ignore.

Frank previously has said that executive compensation is one of his top priorities this year, his first as chairman of the House Financial Services C ommittee. Steven Adamske, the congressman's spokesman, told CFO.com that the committee will hold a hearing on March 8 to weigh the effects of the proposed legislation.

Read the full article at CFO.com