华信惠悦公司治理与高管薪酬

1、Corporate Governance and Executive CompensationCurrent Compensation Committee and Executive Compensation IssuesMarch 20, 2003Peter Saulnier第一页，共二十三页。Executive Compensation is in a State of FluxInstitutional Investor ActivismNYSE & NASDAQ Listing RequirementsStock Option AccountingNew U.S. Governance

2、 LegislationLoss of Investor ConfidenceUncertain EconomyExecutive Compensation2第二页，共二十三页。Some of the Governance Concerns that have been Expressed:Executive Pay:Not linked to performanceEscalating ratio of executive compensation to the pay of other managers, workersWhat is a CEO worth?Executive loans

3、Stock Options:Absence of accounting charge has facilitated excess use of optionsEquivalent cash value of a stock option to an executive is less than its economic cost to the companyA rising tide floats all boats3第三页，共二十三页。Governance Concerns (Contd)In the Boardroom:The culture of most Boardrooms mak

4、es it easier to go along with Managements requests than to reject or reduce themCompensation consultants are usually not independent of managementImproper use/overuse of compensation surveys cause a “ratcheting” effect in executive compensationMany compensation committees lack the experience necessa

5、ry to analyze complex proposals and to develop informed opinions, pro or con4第四页，共二十三页。Meanwhile, Company CEOs also Have ConcernsImpact of new legislation and standards on governance and day-to-day operationsArticulating corporate strategy in shareholder terms, with more Board involvementAchievement

6、 of financial results in an uncertain environmentShortened careersproduce or elseAttraction, motivation and retention of key executive talentCash compensation vs. equity incentives Other issues: succession, etc.5第五页，共二十三页。Shareholder Objectives for Executive CompensationBuild real long-term growth i

7、n shareholder valueCompetitive, performance-aligned compensationAvoid corporate future financial hardship as a result of special compensation arrangementsPricing relative to the marketproper use of compensation instrumentsTruly independent Compensation CommitteesFull, truthful and straightforward di

8、sclosure ofThe principles and structures of executive compensation systems (i.e., no “boiler plate”)Decision-making process for current year awards6第六页，共二十三页。Examples of Shareholder ResistanceCoolBrands: 21% drop in stock price following request for more optionsCHC Helicopters: “No” to 11% option di

9、lution proposalATI Technologies: Only 54% shareholder approval for new optionsFairvest/Institutional Shareholder Services: use of the ISS option valuation model leads to more “No” recommendationsTeachers Pension Plan: option grants should be proportional to executive ownershipAngiotech Pharmaceutica

10、l: “evergreen” stock option replenishment rescinded due to institutional shareholder concerns and negative press7第七页，共二十三页。The Canadian Coalition for Good Governance is Gaining CloutLaunched last yearBrainchild of Steve Jarislowsky and Claude LamoureuxConsists of Canadas largest pension funds, mutua

11、l funds and money managersPurpose is to share information and take the initiative to hold management accountable for growing long-term shareholder valueThe Coalition will support compensation schemes that reward employees for sustained performancesSuccessfully attacked Angiotech proposal8第八页，共二十三页。N

12、ew Legislation and Standards are Affecting Executive CompensationU.S. Sarbanes-Oxley ActProposed Changes to NYSE and NASDAQ Listing RulesCanadian Securities Administrators Disclosure ConcernsInternational Stock Option Expensing ProposalsRepap Court Case9第九页，共二十三页。Shareholder Disclosure ConcernsCanad

13、ian Securities Administrators Nov. 5, 2002 press release:Sample of 76 publicly-traded companies95% had “inadequate” disclosureWatson Wyatt Proxy Circular Review272 TSX companies in 200248% had no disclosure annual incentive determination10第十页，共二十三页。Stock Option Accounting StandardsStock option expen

14、sing is just around the corner!International Board is going to mandate international stock option expensing standards this yearCanadian Board has announced intention to require stock option expensing before the U.S. actsU.S. Accounting Board is considering mandatory adoption Many large North America

15、n corporations (over 150) have already decided to expense options:Boeing (first)Coca-ColaCanadian BanksAFordGEIncoGMWal-MartSun LifeBCE11第十一页，共二十三页。Meeting Shareholder Concerns with Options: Pros and ConsIndexed optionsPremium-price optionsPerformance-vested optionsGreater stock ownershipRestricted

16、stock unitsCash long term incentive plans12第十二页，共二十三页。Meanwhile in the Courts:The Repap CaseNew Chairman was a retired U.S. lawyer; no experience in Repaps industrySummary of his contract:A multi-million dollar “market capitalization bonus” not linked to financial performanceShares and options amoun

17、ting to 13.4% of the companys stockImmediate pension credits of 8 yearsA “single trigger” change-of-control severance package worth about $27 millionOntario Trial Court Judge set aside Chairmans compensation agreement because the directors had not spent sufficient time analyzing and discussing the c

18、ontractIn doing so, she set aside the “business judgment rule” that normally protects directors from being second guessed13第十三页，共二十三页。YES, Executive pay is under the microscope, BUT .Canadian and U.S. Watson Wyatt studies* show that:Higher CEO compensation opportunity is correlated with higher Total

19、 Shareholder Returns (TSR)Higher CEO and Executive stock ownership is correlated with higher TSR, EPS, ROE, ROAHigher stock option opportunity is also positively correlated with higher TSR, EPS, butThere is an optimal level of stock option “overhang” above or below which shareholder value is eroded*

20、 “Corporate Governance In Crisis; Executive Pay/Stock Option Overhang 2003” and “Monitoring Canadian CEO Pay and Performance, 2002”.14第十四页，共二十三页。Enter the Compensation Committee.1515第十五页，共二十三页。Purpose of the Compensation CommitteeThe primary purpose of the Compensation Committee of the Board is to d

21、etermine and oversee the compensation policies of the organization Duties include:Developing and setting compensation philosophy and policiesDeciding upon compensation levels and incentive opportunity levels for officersReviewing performance levels of company and compensation mechanisms and levelsCE

22、O performance evaluationManagement development and succession planningCommunication to the full BoardCompensation of the Board16第十六页，共二十三页。Strategic Executive Compensation FrameworkCritical FactorsSpecific Executive Compensation PhilosophyStrategic Implications on Programs, Policies, PracticesStrate

23、gies/PlansManagementPhilosophyOrganizationalDesignOwnershipStructureMarketplaceDynamicsCompanywideLinkageObjectivesfor PayCompensationElementsCompetitivePositioningCommitment toCommunicationBase SalaryShort-TermIncentivesBenefits/PerquisitesLong-TermIncentives17第十七页，共二十三页。Strategic Executive Compens

24、ation FrameworkSpecific Executive Compensation PhilosophySupportive of Companys mission and valuesConsistent with Total Compensation PhilosophyFlexible to adapt to unique organizational and individual circumstancesCompanywideLinkageObjectives for PayDifferentiate from competitorsFocus on company goa

25、lsAlign with organizational successAttract new talentMotivate and reward improved performanceRetain high performers and key contributorsProvide security and wealth-building opportunitiesEnsure executives understand and appreciate compensation and benefit programsCompetitive PositioningEstablish rele

26、vant peer group(s) and reference pointsAppropriate positioning relative to reference pointsMethodologies and sources of market dataCompensation ElementsDesired pay mix (fixed vs. variable, short vs. long-term)Role of base salaryObjectives for short- and long-term incentivesSelection of incentive pla

27、n performance measures and goalsCompetitive benefits and perquisitesCommitment to CommunicationCompanys philosophy on executive compensationLinkage between corporate strategies and rewardsObjectives for program elementsProcesses for managing payPerformance measures that affect compensationTotal comp

28、ensation personalized communications18第十八页，共二十三页。Strategic Implications on Programs, Policies, PracticesStrategic Executive Compensation FrameworkBest understood element of payRepresents a significant portion of compensation opportunityServes as an index for incentive and benefit valuesAffected by:P

29、hilosophyExternal competitivenessInternal considerationsIncumbent experience and performanceBase SalaryShort-Term IncentivesObjectivesEligibilityAward potentialsPerformance measures and goalsAward determinationForm/timing of paymentAffected by:Company strategiesCompensation philosophyMarket valuesMe

30、asurement toolsLong-Term IncentivesObjectivesEligibilityAward potentialsProgram vehicle(s)Performance periods, measures, and goalsRetention elementsAffected by:Company strategiesCompensation philosophyMarket competitivenessAvailability of stock or equity substituteBenefits/ PerquisitesObjectives for

31、Health careRetirement incomeSurvivor incomeDisability incomeDeferred compensationAffected by:Company strategiesCompensation philosophyStatutory considerationsPerceived value19第十九页，共二十三页。Watson Wyatts ViewIn the final analysis, executive compensation arrangements must reflect good governance principl

32、esStrength and independence of the Board is keyCredible and consistent compensation data and advice is crucialAccountability to owners and transparency is more important than sophistication of design and tax advantagesOptions will continue to be used, but more prudently20第二十页，共二十三页。Practical Things to ReviewWhere is your stock option dilution level relative to the market and institutional shareholder comfort levels?What is your executive pay mix? Have you disclosed your executive compensation policies to your shareholders in the manner require