The One-Stop ESOP Blog

• Performance of the business, including comparison to budget and peers
  
• CEO succession and exposure of senior executives to the board
  
• Strategy, budgets, capex and R&D, long-term vs. short-term considerations, acquisitions and divestitures and other business portfolio adjustments
  
• Executive compensation, including the interplay between compensation policies and risk management
  
• Risk management, including financial, safety and other risks, and insurance
  
• Compliance with laws and regulations, and review of material litigation
  
• Transparency, accounting principles, financial reporting and earnings guidance
  
• Shareholder relations, meetings between directors and shareholders, dividend policy, share repurchase policy
  
• Government relations and policies, including lobbying activities and relations with trade associations
  
• Employee and community relations
  
• Social responsibility, including environment and human rights
  
• "Tone-at-the-top" and corporate culture, including ethics, vision, mission
  
• Director recruitment, including the balance of diversity, independence and experience, and director compensation
  
• Annual meeting, shareholder resolutions, shareholder nominations
  
• Crisis management preparations
  
• Takeover bid and proxy fight preparations
  
• Board and committee structure and policies, including silo problems, evaluations, governance guidelines, committee charters, and coordination among the board and its committees
  
• Separation of Chairman and CEO positions or lead director
  
• Use of consultants, board and committee tutorials and other director education programs
  
• Legal advice as to compliance of board practices and processes with fiduciary duties

We have spent some time in the last few weeks discussing some Fiduciary Best Practices Related to Fees and Liability Insurance Coverage, Appointing a Non-Company Officer as Fiduciary, and Advancing Defense Costs under Corporate Indemnification Agreements. When making sure your company and its fiduciaries are properly covered, it is also important to review your directors and officers liability insurance coverage. Directors' and Officers' Insurance discusses the importance of an effective directors' and officers' insurance program:

• Results in from NCEO ESOP Executive Compensation Survey
  
• New NCEO Report Looks at Equity Issues in the Downturn
  
• Great Game of Business Offers $315 Off Conference Rates for Readers of This Column
  

The Update discusses the results of the NCEO's survey of executive compensation in 317 ESOP companies:

The data show that pay for ESOP executives remains fairly modest. The median base compensation for CEOs is $200,000 and total compensation $292,000. While 71% get cash-based incentive pay, only 15% receive any kind of stock-based awards outside of the ESOPs. The median company contribution to the ESOP was $17,900. CFOs had median cash compensation of $120,000 and total compensation of $150,000. Thirteen percent received some kind of stock awards.

The data also cover how awards are determined. In 64% of the cases, boards decide alone, while 30% use compensation consultants. Eighteen percent have independent board compensation committees.

It also discusses some highlights from a newly released NCEO issue brief that explores equity compensation plan issues in a down market:

• The most popular option exchange programs trade options for cash (48%) and options for stock (36%).
  
• Only 31% of companies allow directors to participate in options exchanges, and 58% allow CEOs.
  
• The median options-for-options exchange ratio is 1.4 to 1.
  
• Most exchange offers are treated as tender offers under SEC rules and must be carefully designed to be compliant with those rules.
  
• Changes in market volatility in the last year have made prior valuation assumptions for many companies outdated. No method is perfect for valuing new awards. The issue is not just one for accountants to worry about. The valuation of options becomes a human resources issue, especially when exchange ratios are based on assumptions about the present value of new awards.
  
• In some jurisdictions outside of the U.S., an exchange program will trigger taxation.
  
• Companies whose stock prices have fallen sharply are often finding they do not have enough authorized shares to satisfy the number of shares needed for exercise in their employee stock purchase plans (ESPPs).
  

When we last left our ESOP Corporate Governance discussion, we had discussed Responsibilities of the Board of Directors and More Responsibilities of the Board of Directors and shared some Board Member Job Descriptions. The Three Duties discusses the three legal duties that are the legal requirements and ethical guidelines of a Director: