Sound advice, roundly dismissed.

Author:Ferracone, Robin A.

When I walked into the boardroom, I saw four compensation committee members staring at me, eager to hear my presentation on how to retain the CEO of this publicly traded, high-flying company. The CEO had enjoyed meteoric performance, but he was threatening to quit if he didn't receive a generous helping of restricted stock as part of his new employment agreement.

Weeks earlier, I had been called by the chairman of the compensation committee to provide advice to the committee regarding this matter. And while the members of the committee said they wanted my opinion concerning what they should do, my hunch was that they really wanted me to bless the CEO's requested grant.

Like most board and compensation committees, this one wanted to be supportive. It would be easier to say "yes" than "no." Further, the compensation committee thought that the CEO was doing a splendid job. The stock price had risen more than 50% since the CEO had taken charge three years prior. They figured that the company would be at considerable risk if they lost their "rock star" leader. After all, there was no successor in sight. On the other hand, the committee realized that what the CEO wanted was "over the top" and that they could be subject to undue criticism if they approved the requested package, particularly without an outside, objective opinion.


My report was not a surprise. I had telegraphed my preliminary findings well in advance of the meeting. My analysis showed that the requested grant would put the CEO's compensation well above the market, even considering the company's high performance. As a result, I recommended a more modest grant, contingent on performance. I delivered my report to the compensation committee in the executive session, with the CEO absent from the meeting. The compensation committee heard my report and asked a few questions, and then the committee chairman excused me from the room.

A few days later, I called the chairman to see...

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