Compensation Committee Manual.

• Author: Scoones, Eric
• Position: Review

by J.E. Richard

Published by J. Richard & Co., Half Moon Bay, Calif., 210 pages, $145.00

REVIEWED BY ERIC SCOONES

Board members who serve on compensation committees in today s world may well wonder whether they have collectively been subjected to the ancient curse "may you live in interesting times." The explosive growth over the past few years in the compensation of CEOs and other senior executives - and the public and investor reaction to that growth - have certainly made this an interesting time for the executive pay process.

As a result, never before has the compensation committee's work been so controversial, so complex, and yet so crucial to the smooth functioning of the corporation. If the committee pays senior management too much or for too little performance, it risks intense public and shareholder criticism. But if it pays too little or too begrudgingly, it risks the distraction or departure of the senior executives who are the key to the company's future in an ever-more competitive and fast-paced world market.

The Compensation Committee Manual (Fourth Edition), by J.E. Richard, is a handbook for compensation committee members attempting to diligently fulfill their mission during these interesting times. Realistically, those of us who attempt to provide sound advice to compensation committees are likely to utilize it more extensively.

The manual provides a generally comprehensive and up-to-date review of the simultaneously technical and emotional subject of executive compensation. While some sections will be of greatest relevance to public companies, it also covers issues that are particular to privately held and nonprofit organizations. In fact, since so many directors are involved in nonprofit governance, the concise review of the sometimes-overlooked issues involved in the design of incentive plans and the public disclosure of compensation at nonprofits could be among the most valuable in the book.

The manual begins by summarizing the primary issues on the executive pay front today. This includes a matter-of-fact analysis of the emergence of the "$100 million to $1 billion" CEO. Relying on several reliable sources, the manual tracks the growth in CEO compensation over the past five years, noting the extraordinary 400% to 500% growth in the size of CEO option grants over that period.

The author also addresses one of the hottest upcoming issues in this area - the growing resistance of shareholders to the dilution required by...