<nobr>Dec 11, 2007</nobr>

ERIC and U.S. Chamber Deferred Compensation Conference Provides Valuable Insight

ERIC and the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness December 5 held an exceptionally informative and valuable conference on deferred compensation policy and practice. The conference featured perspectives on deferred and executive compensation from all angles, including Congress, current and former regulators, and private sector practitioners.

The full conference can be viewed in its entirety on a Webcast by clicking on the link below.

Keynote Breakfast Speaker

Senator Mike Crapo (R-ID), Senate Republican Capital Markets Task Force Chairman and member of the Senate Finance Committee, was the keynote breakfast speaker where he provided his perspective on capital market policy and the value of deferred compensation. Crapo first discussed the broader view of how the United States is losing its edge in world markets and how it is critical to have the right policy to encourage investment. Crapo said some of the reasons why U.S. competitiveness is facing threats are because of our tax policy, litigation costs, regulatory complexity, and accounting standards. Crapo highlighted the importance of deferred compensation as a way for companies to attract and retain talent to keep U.S. capital markets strong.

Crapo then turned to discussing how provisions under consideration by Congress to limit deferred compensation are on the "short list" to offset legislation to alleviate the alternative minimum tax and extend the expiring tax provisions. He said the perception in Congress is that the proposals only affect high-end taxpayers, and how they were being pushed largely because of Congress's pay-as-you-go budget procedures. He said it was important for stakeholders to emphasize how deferred compensation plays a role in making the U.S. strong and viable in retaining top employees, and how these provisions would put the U.S. in jeopardy of losing its edge in capital markets and push companies towards hiring non-U.S. citizens.

Solving Last-Minute Problems and Avoiding 409A Pitfalls

Next on the agenda was a panel mixed with government and private sector practitioners who discussed real-world problems encountered in coming into compliance with section 409A and potential pitfalls in the regulations that could trap employers and employees in non-compliance if they go unnoticed. The panel was moderated by Tom Meagher of Aon Consulting and featured Steve Tackney with the IRS Chief Counsel's office, Helen Morrision, Attorney Advisor with the Treasury Department, ERIC Executive Committee member Cliff Schoner with Union Pacific Corporation, Elizabeth Drigotas with Deloitte Tax, LLP, Matthew Henshon with Henshon Parker Vyadro, P.C., and Brigen Winters with Groom Law Group.

Among the various 409A topics and scenarios discussed were windows programs, performance-based compensation, separation of service rules, separation pay plans, specified employee provisions, mergers and acquisitions, and supplemental executive retirement plans. Also discussed was the recent IRS guidance on a corrections program, released December 3 (see article in this week's ERIC Executive Report for more detail). Steve Tackney said the recent guidance was intended to cover unintentional operational errors, such as deferrals of the wrong amount or percentage. He said the guidance provides procedures for straightening out if found in the same tax year and that only the amount of the error would be subject to tax.

The Link Between Performance and Pay

A second panel discussed the link between performance and pay and whether the SEC disclosure rules and 409A rules are pushing companies to adopt more performance-oriented pay packages. This panel was moderated by Bruce Greenblatt of Mercer Consulting and featured Stephen Hall of Stephen Hall & Partners, Matthew Kasper with MetLife, and Mark Poerio of Paul, Hastings, Janofsky & Walker, LLP.

The panel highlighted strategies that employers and compensation committees can undertake if they choose to link pay to performance and the use of deferred compensation to tie pay to the company's success and viability. The panelists discussed how investors want to see a more direct link between pay and performance, and the challenges in finding the right matrix in goal setting. Concerning the impact the SEC disclosure rules have had on pay for performance plans, the panelists emphasized how companies better be prepared to explain their decisions. They also spoke about how the 409A rules have provided unbelievable challenges in designing compensation programs and how they have had a chilling effect on the amount of deferred compensation.

Keynote Luncheon Speaker

Laura Unger, who was a former Commissioner for the Securities and Exchange Commission and currently is a regular contributor on CNBC and the Nightly Business Report, was the keynote luncheon speaker where she discussed executive compensation issues, including the SEC disclosure rules. Unger said that in the push to curb executive pay, Dick Grasso's pay package was probably the most egregious and caught the attention of regulators and Congress. She also said there was a perception that company boards were just rubber stamps.

Unger said that in addition to informing shareholders about executive compensation, the disclosure rules were intended to get company boards and compensation committees to focus on what is actually paid and why. She said the disclosure rules changed the dynamics of compensation committees, and forced them to concentrate on all components of what goes in to the decision making of executive pay and how it fits within a company's overall strategic plan. Unger also discussed how technology has brought us a global market, but regulations have not kept up in that the United States is over-regulated and over-litigated, and believes that is a big reason why most initial public offerings have been recently taking place outside the U.S.

Disclosing Executive Compensation

The final panel featured a discussion on efforts to comply with the new SEC pay disclosure rules and the decisions companies face as they comply with the SEC's requirements for summary compensation tables and compensation disclosure and analysis narratives. The panelists also discussed whether they believed the new regime went too far or not far enough. Joseph Saburn of Greenberg Traurig moderated the panel, which included Ron Mueller with Gibson Dunn & Crutcher, Mark Borges with Compensia, Inc., and Ed Durkin with the United Brotherhood of Carpenters.

Saburn discussed how one goal of the disclosure rules was to be able to make apples to apples comparisons in company statements, but that he was not sure if that goal was or ever can be reached. He said even though you now have detailed tables, what goes into them is hard to determine. Mark Borges noted that if anything has come out of the new disclosure rules, it is that the SEC has a better understanding of how complex retirement and executive compensation programs are. Ed Durkin said he believed the biggest shortcoming in the disclosure rules is not the failure to disclose a target, but failing to explain how a company came up with the target and how it will drive the business strategy.

Websites:

Deferred Compensation Conference Webcast

Back to Previous Page