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Moving Beyond Anger and Rhetoric, The Conference Board Introduces Guidelines for Real Compensation Reform

Posted: 09/21/09 06:26 PM ET

The most important financial regulatory reform debate in generations has begun. One key component of this important debate is the issue of executive compensation.

In March 2009, The Conference Board Governance Center convened the Task Force on Executive Compensation to address the loss of public trust in the processes for oversight of executive compensation. Today we are releasing our report that proposes specific recommendations and principles for corporate institutions to help restore credibility and trust to executive compensation practices.

Real -- and perceived -- abuses in executive compensation have contributed to this loss of trust, and the Task Force report provides a practical set of guidelines that, if appropriately implemented, can make significant inroads in restoring credibility in our corporations. We believe companies and their shareholders should embrace these guidelines rather than taking a rules-based, 'check the box' approach to evaluating compensation programs.

Industry must do its part to restore trust, and implementing these principles is an important step in helping them do so. Trust in our corporate institutions simply cannot be restored unless corporations make a commitment to engage in dialogue with shareholders and take a thoughtful approach to executive compensation.

The Task Force report's guiding principles state that public companies should:

  • Establish a clear link between pay, strategy and performance;
  • Adopt best practices;
  • Avoid controversial compensation practices that conflict with the notions of fairness and pay for performance -- such as excessive golden parachutes, overly generous severance arrangements, gross-ups of parachute payments or perquisites, and golden coffins -- unless specific justification exists;
  • Demonstrate credible board oversight of executive compensation;
  • Foster transparency with respect to compensation practices and appropriate dialogue between boards and shareholders.

The Task Force advises public companies to act now to demonstrate their commitment to best practices in executive compensation by adopting the Guiding Principles. A number of corporations and other key institutions have already have already made this commitment, including:

  • AFC Enterprises, Inc.
  • Albemarle Corporation
  • AT&T Inc.
  • California State Teachers' Retirement System
  • Cisco Systems, Inc.
  • Hewlett-Packard Company
  • NASDAQ OMX Group , Inc.
  • Securities Industry and Financial Markets Association (SIFMA)
  • Tyco International Ltd.

The full report of The Conference Board Task Force on Executive Compensation can be found here.