Myths and realities of executive pay

Prologue: the compensation committee meets -- Introduction: the battle over executive compensation -- Executive compensation in the U.S. corporate model -- The goals of executive compensation -- Our approach -- The myths and realities of pay for performance -- The realities of pay for performance -- Other issues -- Case studies -- The myth of managerial power -- Academic response to Bebchuk and Fried -- The realities of managerial power -- Camouflaged compensation -- At-the-money strike prices -- Repricings and reloads -- Diversifying, hedging and timing -- Peer group data and upward bias -- Other factors in setting pay -- Fixed shares vs. constant dollar techniques -- Conflicts of interest -- External pressures: the new context for executive compensation -- Characteristics of external forces -- Cyclical reforms and unintended consequences -- The genesis of the current environment -- The regulators -- Securities and Exchange Commission -- Financial Accounting Standards Board -- Internal Revenue Service -- NYSE and NASDAQ -- Congress -- The reformers -- Institutional investor perspectives -- Concerns with lack of pay for performance -- Stock incentives -- Performance metrics -- Severance and change-in-control agreements -- The financial activists -- LBO impact -- Impact of change-in-control protection -- Hedge funds -- Media critics and public figures -- What we can learn -- End of an era: the decline of the stock option -- The 1990s: the decade of the stock option -- 2000--2002: a turning point -- The decline of the stock option -- The realities of expensing -- Perceived value -- The case for stock options -- Costs and stock prices -- Reducing the expense -- The future of long-term incentives -- Factors influencing LTI design -- Designing a LTI program -- Setting performance goals and metrics -- Basis for measurement -- Goal setting -- Determining share award sizes -- A look to the future -- Executive stock ownership: the solution to the executive compensation crisis -- Agency theory and costs -- Moral hazard -- Driving superior returns -- Stock ownership guidelines -- Stock holding requirements -- Net share retention requirements -- Other mechanisms for creating ownership -- Management stock purchase plans -- Finding the right solutions -- Director compensation in the new environment -- The evolution of director compensation -- Move away from stock options -- Activity-based compensation -- Compensating committee chairs and members -- General electric as a reference point -- Director compensation levels and mix -- Director share ownership -- Stock ownership guidelines -- Net share holding requirements -- Ownership effectiveness -- Structuring the optimal director compensation package -- The future of director compensation -- The compensation committee: creating a balance between shareholders and executives -- Legal context -- Right from wrong? -- Foundations for best practices -- Creating excellence in corporate governance -- Institutional and regulatory governance recommendations and mandates -- Consultant independence -- Setting the CEO's pay as rigorously as possible -- Case study of an internal promotion -- Creating a pay-for-performance environment -- Rule 10b5--1 plans -- preannounced purchases or sales of stock -- Best governance practices in designing annual and long-term incentives -- Aligning all employee pay to improve corporate performance -- Elements of alignment -- Untenable forms of alignment -- Performance pay solutions -- Employee stock ownership -- The role of stock options -- Moving beyond options -- Converting to restricted stock -- Adjusting stock-based incentives -- Alignment in practice -- Building better alignment -- International executive pay comparisons -- U.S. competitive advantage -- The international executive pay gap -- United Kingdom -- France -- Canada -- Asia -- In summary -- Conclusion: the future of executive compensation -- Epilogue: back in the boardroom -- Acknowledgements -- Appendix A Legal and regulatory requirement for executive compensation plans -- Nonqualified stock options -- Incentive stock options -- Stock appreciation rights -- Restricted stock units -- Restricted stock -- Appendix B Summary of the regulatory and institutional mandates and recommendations -- Calpers -- TIAA-CREF -- Fidelity -- Vanguard -- Union-sponsored funds -- Other organizations -- The Council of Institutional Investors -- Institutional Shareholder Services -- Glass, Lewis & Company -- National Association of Corporate Directors -- The conference board -- Appendix C Academic articles on pay for performance and the executive labor market -- Index -- Endnotes