| Upper Saddle River, NJ - January 4, 2006 - We all | | | | we can't afford to lose our top people". In reality, the |
| succumb to the annual ritual of making a bunch of | | | | Board's actions have weakened their own policies, and |
| resolutions about how we will change our lives with the | | | | ignored the reality that there may be more capable |
| start of the New Year: eat better and healthier foods, | | | | individuals available in the marketplace that could |
| exercise more, reorganize our rather hectic and | | | | achieve the stated business objectives, despite the |
| stressful lives in order to live longer, and learn to enjoy | | | | costs involved in recruiting them. Similarly, a recent |
| what we have. In most instances, regardless of how | | | | example where a Compensation Committee probably |
| dedicated we are to these resolutions, most of our | | | | did not fulfill its duties to the shareholders, Board or |
| good intentions give way to the realities and pressures | | | | itself, was one in which the Committee provided a |
| of everyday living, and before we know it, we are | | | | severance payment in excess of $5 million to an |
| pretty much back to where we were on December | | | | executive who was forced out for poor performance. |
| 31. | | | | Not only did the Committee fail in its duty as the |
| Executive compensation is, in many ways, treated | | | | arbitrator of fair and justifiable compensation, but it also |
| very much the same way. Boards and their | | | | set a precedent for others. The mixed message is |
| Compensation Committees set forth their resolutions | | | | that the executives will be rewarded, regardless of |
| on how they will tighten up the criteria for governing | | | | whether or not they achieve the company's business |
| and determining executive compensation going | | | | objectives. |
| forward. Some of this idealism is internally generated | | | | How, then, can the Board and Compensation |
| based on reasonableness and a strong sense of | | | | Committee ensure that their "resolutions" result in real |
| responsibility on the Board's part. Unfortunately, this | | | | and lasting changes? As with personal resolutions, |
| desire to tighten up the decision-making process | | | | changes should be realistic and within the Board's |
| emanates from external pressures, namely the | | | | capabilities to accomplish. Incremental steps are much |
| shareholders, investors and their "watchdog groups", | | | | more palatable and more easily achieved than |
| and various governmental agencies and their "knee | | | | dramatic changes. Don't resolve to overhaul the entire |
| jerk" regulations, including recent changes in accounting | | | | executive compensation program in one |
| and tax rules. After all, the basic premises behind | | | | all-encompassing action; rather, evaluate each portion |
| executive compensation has always been to | | | | of the package in a logical sequence over a period of |
| maximize the value to the individual while minimizing the | | | | months. Some other thoughts for making resolutions |
| taxes to the executive and company, along with | | | | stick: |
| minimizing any negative accounting issues for the | | | | ·Look at the roadmap: Review the organization's |
| corporation. These are over and above the basic | | | | compensation philosophy to ensure it is consistent with |
| objectives of any compensation program, which are | | | | the business strategy and driving the appropriate |
| four-fold: | | | | performance. |
| 1.To provide the competitive package necessary to | | | | ·Don't fix what isn't broken: If a plan is achieving |
| attract qualified talent; | | | | the goals of the organization and is motivating |
| 2.To assist in retention of that talent, the proverbial | | | | executives to perform optimally, don't change it. |
| "golden handcuff"; | | | | ·Prioritize needs starting with the most critically |
| 3.To provide the motivation needed to achieve desired | | | | challenged areas: Don't focus on annual incentives if |
| results, in effect, the "golden ring"; and lastly, | | | | long-term programs are suffering. |
| 4.To focus the employee's attention on specific | | | | ·Seek the guidance of outside advisors: |
| business objectives, so that what is achieved is | | | | Professional service firms can be utilized to assist in |
| consistent with the business strategy. | | | | making resolutions happen, allowing the Board and |
| Just as New Year's resolutions are all too often | | | | Compensation Committee to focus on its most |
| sidestepped when realities of every day pressures are | | | | important responsibilities. |
| confronted, the Board's resolve to "do the right thing" is | | | | ·Don't expect changes to happen overnight: |
| sometimes forgotten when undue pressures, whether | | | | Lasting changes, especially behavioral ones, should |
| competitive or self-induced, are encountered. For | | | | happen slowly, giving time for adjustment and refocus. |
| example, in the case of long-term incentives, we have | | | | Ultimately, change should begin at the source. The |
| seen the Compensation Committee give in and provide | | | | Board and Compensation Committee should evaluate |
| an award, such as stock options, even though the | | | | the Committee's charter to ensure that responsibilities |
| performance goals were not met and no incentive | | | | are clearly defined, so that the document can serve as |
| award was warranted. The explanation often given is | | | | the baseline for how it will conduct its duties relative to |
| that "it was out of the hands of the executives, and | | | | executive compensation. |