CompensiaSILICON VALLEY

1731 TECHNOLOGY DRIVE SUITE 810 SAN JOSE CALIFORNIA 95110 408 876 4025

What Compensation Consultants Are What Compensation Consultants Are Telling Compensation CommitteesTelling Compensation Committees

NASPP WebcastMarch 18, 2004

Tim SparksPresidentCompensia, LLC

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Parachuting into the Compensation Committee Environment – Assessing

the Executive Pay Process from the Perspective of the Compensation Committee

Parachuting into the Compensation Committee Environment – Assessing

the Executive Pay Process from the Perspective of the Compensation Committee

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It’s a new game – players are learning their new roles real timeIt’s a new game – players are learning their new roles real time

Compensation Committee – a more active, thoughtful role

CEO/Senior Management – relinquishing some power over the process

HR Professionals – in the middle

Consultants – accountable to the Compensation Committee

Compensation Committee – a more active, thoughtful role

CEO/Senior Management – relinquishing some power over the process

HR Professionals – in the middle

Consultants – accountable to the Compensation Committee

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The Executive Pay Strategy – What are the “guiding principles”?The Executive Pay Strategy – What are the “guiding principles”?

• Overall Objectives• Comparative Framework• Competitive Positioning• Individual vs. Team Performance• Executive Stock Ownership/Retention

• Overall Objectives• Comparative Framework• Competitive Positioning• Individual vs. Team Performance• Executive Stock Ownership/Retention

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Assessing the Executive Pay Process – general areas of focusAssessing the Executive Pay Process – general areas of focus

• Committee Composition• Duties, Authority and Operations• Compensation Philosophy• Quality of Data• CEO Performance and Compensation• Equity Compensation Strategy• Disclosure/Shareholder Relations

• Committee Composition• Duties, Authority and Operations• Compensation Philosophy• Quality of Data• CEO Performance and Compensation• Equity Compensation Strategy• Disclosure/Shareholder Relations

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Committee CompositionCommittee Composition

• Independence• Diversity• Expertise

• Independence• Diversity• Expertise

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Duties, Authority and OperationsDuties, Authority and Operations

• Frequency and Duration of Meetings• Calendar and Agenda-setting• Periodic, Detailed Review of

Executive Pay• Charter• Education and Evaluation

• Frequency and Duration of Meetings• Calendar and Agenda-setting• Periodic, Detailed Review of

Executive Pay• Charter• Education and Evaluation

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Compensation PhilosophyCompensation Philosophy

• Overarching Executive Compensation Guiding Principles

– Program structure and mix of compensation elements– Overall plan effectiveness, fairness and transparency

• Executive Contracts– Prevalence– Features– Cost– Fairness (internal/external), compatibility with guiding

principles• Stock Ownership and Retention

• Overarching Executive Compensation Guiding Principles

– Program structure and mix of compensation elements– Overall plan effectiveness, fairness and transparency

• Executive Contracts– Prevalence– Features– Cost– Fairness (internal/external), compatibility with guiding

principles• Stock Ownership and Retention

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Quality of DataQuality of Data

• Alignment of Data with Compensation Guiding Principles

• Clarity of Data Presented to the Committee• Data Integrity and Accuracy

• Alignment of Data with Compensation Guiding Principles

• Clarity of Data Presented to the Committee• Data Integrity and Accuracy

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CEO Performance and CompensationCEO Performance and Compensation

• Goals/Performance Objectives – Determine what is the process for CEO

evaluation (goal setting, compatibility with guiding principles, etc.)

• Linkage to Pay– Verify/confirm periodic assessment of

effectiveness of CEO compensation (total cost analysis vs. company performance)

• Goals/Performance Objectives – Determine what is the process for CEO

evaluation (goal setting, compatibility with guiding principles, etc.)

• Linkage to Pay– Verify/confirm periodic assessment of

effectiveness of CEO compensation (total cost analysis vs. company performance)

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Equity Compensation StrategyEquity Compensation Strategy

• Relationship to Other Elements of Compensation• Distribution and Cost of Equity

– How is equity distributed within the company?• Value based? Dilution based?

– How is dilution (the cost of equity) managed?• Anticipating FAS123

– Performance-based– Full value shares vs. options– Broad-based plans

• Shareholder Issues

• Relationship to Other Elements of Compensation• Distribution and Cost of Equity

– How is equity distributed within the company?• Value based? Dilution based?

– How is dilution (the cost of equity) managed?• Anticipating FAS123

– Performance-based– Full value shares vs. options– Broad-based plans

• Shareholder Issues

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Disclosure/Shareholder RelationsDisclosure/Shareholder Relations

• Accuracy, Clarity and Thoroughness of Executive Compensation Programs

• Quality and Nature of Relations with Stockholders– Recent stockholder votes– Stockholder proposals– Communications

• Accuracy, Clarity and Thoroughness of Executive Compensation Programs

• Quality and Nature of Relations with Stockholders– Recent stockholder votes– Stockholder proposals– Communications

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CompensiaCompensia

Compensia provides thoughtful pay advice to Boards, Compensation Committees and senior management on matters of Board and Executive pay strategies and program design.

Compensia provides thoughtful pay advice to Boards, Compensation Committees and senior management on matters of Board and Executive pay strategies and program design.

1731 Technology Drive Suite 810 San Jose California 95110 408 876 4025

1731 Technology Drive Suite 810 San Jose California 95110 408 876 4025