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| 2002 News and Press Releases |
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HEADLINE ARCHIVED:
Deciding On Executive Pay: Lack Of Independence Is Seen
By: Diana B. Henriques and Geraldine Fabrikan
The New York Times. December 18, 2002
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EXCERPT: When America's biggest companies decide how much to pay their top executives, most of them leave the decision to a group of their board members known as the compensation committee. In theory, members of this committee are independent enough of the company's executives to deny them raises or force them to take pay cuts when the company is faring poorly.In practice, it can be a very different story. An examination of almost 2,000 corporations finds that at hundreds of them, members of the compensation committee work for or do business with the company or its chief executive. In some cases, they even belong to the executive's family.Legislation enacted this summer after a wave of costly corporate scandals is silent about the makeup of the compensation committee, although the new law set high standards of independence for another important boardroom committee, the audit committee, which oversees a company's financial controls and the auditing of its books. Yet compensation committees are "definitely more clubby" than they should be, said Roger W. Raber, chief executive of the National Association of Corporate Directors, which thinks that only board members with no personal or business ties to the company should serve on its compensation committee. "They just don't have the rigor of oversight that we see with other committees, especially audit committees." Mr. Raber added: "That, to me, is going to be the continuing crisis: looking at some of the pay practices, especially the severance packages. We have another storm to go through, and frankly, it's going to be ugly." The study by The New York Times of almost 2,000 of the largest American corporations, measured by their stock market value, shows that 420 of them, more than 20 percent, had compensation committees in 2001 with members who had business ties or other relationships with the chief executive or the company that could compromise their independence. Dozens of those members were company executives. At more than 70 companies, even the chairman of the compensation committee had such ties, and in nine cases the chairman was actually an executive of the company. These are just the connections that have been fully disclosed to investors. That such ties are not always disclosed was illustrated yesterday, when Frank E. Walsh Jr., a former member of the compensation committee at Tyco International, pleaded guilty to charges of failing to report that Tyco had paid him a $20 million fee for his role in a company deal.
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