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1、 The Future of Executive CompensationGeorge B. PaulinPresident & CEO, F.W. Cook & Co., Inc.October 6, 20041第一页，编辑于星期二：十七点 二十七分。BackgroundOVERVIEW 5-year transition in executive compensation . . .5-year transition in executive compensation . . .1st Phase2nd PhasePeriod2002-032004-06CatalystsSarbanes-
2、Oxley, stock exchange rules, institutional investor initiativesNew FASB rules, option-valuation refinements, political/labor pressureFocusCorporate governanceProgram designImpactBoard compensation committee processUse of stock options2第二页，编辑于星期二：十七点 二十七分。BackgroundTODAYS DISCUSSION 1.2nd-phase marke
3、t trends in executive compensation transition 2.New and proposed regulations 3. Shareholder initiatives and voting Implications and outcomes from 3 areas . . .Implications and outcomes from 3 areas . . .3第三页，编辑于星期二：十七点 二十七分。BackgroundMETHODOLOGYnComes from the F.W. Cook & Co. data baseGenerally, lar
4、ge-caps (i.e., Fortune 250)But representative of broader public-company practicenValues options based on the Binomial model and standard assumptionsCompetitive data used for illustrations . . .Competitive data used for illustrations . . .4第四页，编辑于星期二：十七点 二十七分。Market TrendsTOTAL DIRECT COMPENSATIONTop
5、-quartile outliers are moving back toward the middle (75Top-quartile outliers are moving back toward the middle (75thth percentile as percent of percentile as percent of median) . . .median) . . .CEOCEOCEOTop 5Top 5Top 51996200220045第五页，编辑于星期二：十七点 二十七分。Market TrendsLONG-TERM GRANTS Share usage as a
6、percent of outstanding shares (“run ratesShare usage as a percent of outstanding shares (“run rates) continues ) continues to decrease. . .to decrease. . .Share Usage as % Outstanding Shares199620022004MedianOptions0.94%1.38%1.01%Other0.05%0.03%0.10%Total1.07%1.46%1.09%75th POptions1.32%1.82%1.43%Ot
7、her0.16%0.13%0.24%Total1.45%1.87%1.55%6第六页，编辑于星期二：十七点 二十七分。Market Trends LONG-TERM GRANTS (contd.)nRun rates (and dilution overhang) are no longer meaningful as grant value shifts from optionsnGrant-value changes are from 2 sourcesStock price variabilityDiscounting in conversion from options for ful
8、l-value grantsnReduction in lower-level grants only partially completeDriven by stock-exchange rules (not accounting), and many board-approved plans still have shares availableLook carefully beyond the survey numbers . . .Look carefully beyond the survey numbers . . .7第七页，编辑于星期二：十七点 二十七分。Market Tren
9、dsLONG-TERM STRUCTUREShift from options to full-value grants (i.e., restricted and Shift from options to full-value grants (i.e., restricted and performance stock/cash) . . .performance stock/cash) . . .Annual MixYearLevelOptionsFullValue1996CEOTop-573.7%73.2%26.3%26.8%2002CEOTop-579.2%78.0%20.8%22.
10、0%2004CEOTop-551.5%49.8%48.5%50.2%8第八页，编辑于星期二：十七点 二十七分。Market TrendsOPTION STRUCTURE: More PrevalentSome forms of options will be winners under new accounting . . .Some forms of options will be winners under new accounting . . .Grant TypeAdvantage toPlain-Vanilla OptionsStock-only SARsFewer shares i
11、ssuedDiscount OptionsLow cost to intrinsic valueOptions with Dividend RightsLow cost to intrinsic valuePerformance OptionsPay-for-performanceIndexed OptionsPay-for-performance9第九页，编辑于星期二：十七点 二十七分。Market TrendsOPTION STRUCTURE: Less PrevalentOther forms will be losers . . .Other forms will be losers
12、. . .Grant TypeDisadvantage toPlain-Vanilla OptionsISOsNo tax benefitReloadsAdditive expenseCash-only SARsVariable costPremium OptionsHigh cost to intrinsic valueESPPsFair value expense (no expense now)10第十页，编辑于星期二：十七点 二十七分。Market TrendsOPTION PROVISIONSn3-4 year vesting will continue to spread expe
13、nse accrualsn10-year terms will continue because the cost effect of shorter terms is not linear nPost-termination exercise may become more limited to conserve sharesnGrant dates may be moved to late in the year so value aligns with annual TSR under new ISS guidelinesRegulatory and shareholder consid
14、erations will affect option design . . .Regulatory and shareholder considerations will affect option design . . .11第十一页，编辑于星期二：十七点 二十七分。Market TrendsLONG-TERM GRANT DETERMINATIONA new approach for determining grant size is necessary but A new approach for determining grant size is necessary but cont
15、roversial . . .controversial . . .Old MethodNew MethodDetermine competitive individual grant valuesConvert to company shares (or cash)Add individual grants to determine total grantsStart with competitive aggregate grant value as a percent of company market capAllocate to individuals based on competi
16、tive percent of total grant value12第十二页，编辑于星期二：十七点 二十七分。Market TrendsSHAREHOLDER APPROVED PLANSnEmployees and outside directors eligiblenAll possible grant typesnAdministrative provisions in grant agreements, not the plannAs-issued share countn“Fungible share pool for trading-off options and full-value grantsnPotential for 3rd-party option transfersFlexible omnibus-type structure will become the standard . . .Flexible omnibus-type structure will become the standard . . .13第十三页，编辑于星期二：十七点 二十七分。Ma
