Executive Pay List Reflects Revised Rules

by Gwen Moritz  on Monday, Aug. 23, 2010 12:00 am  

Michael T. Duke, CEO of Wal-Mart Stores Inc., was the highest-paid public company executive in Arkansas in the most recent fiscal year.

Arkansas Business requested interviews concerning compensation philosophies with more than a dozen members of various corporate compensation committees; not one agreed to comment by press time.

"Some of the changes are driven less by philosophy and more by tax and accounting rules," said Paul Hodgson, senior research associate for The Corporate Library of Portland, Maine, a for-profit corporate governance research firm.

"The big move at the moment away from stock options and to restricted stock is driven by the new accounting rules that recognize that granting stock options costs money and that that cost should be reflected on the balance sheet."

Restricted stock awards - gifts of shares that the executive receives on a timetable set by the corporate board of directors - have long been included in the compensation disclosures and treated as corporate expenses. Options, which executives can buy and immediately sell when the market price exceeds the set exercise price, were previously reported but were not included in the total compensation figure or treated as a corporate expense.

"Now the playing field is even," Hodgson said, and companies have drifted toward the less complicated accounting of stock awards.

Windstream Corp. of Little Rock, for instance, has not granted any stock options since it was spun off from Alltel Corp. in 2006. ("Windstream does not grant stock options and had no exercises for executive officers in 2009," the company reported in a footnote to its proxy.) The Windstream board of directors' compensation committee "prefers equity incentives over cash and has used it exclusively in lieu of cash as the method of providing long-term compensation incentives," according to the committee's annual report in the proxy.

Windstream's compensation committee is made up of William A. Montgomery, Samuel E. Beall III and Dennis E. Foster. (See table for the members of all Arkansas public company compensation committees and the fees they are paid for their service as directors.)

Hodgson isn't wild about options and even less fond of "giveaway" stock awards as a way to align an executive's interests with those of his company's investors. "In my opinion," he said, "neither does a very good job."

That was especially true in 2009, he said, and The Corporate Library issued a detailed report complaining about large stock awards made when stock prices were in a trough.

"If executives were awarded stock options in January, February, March of last year, when prices were at a 10-year low, then the prices immediately started to go up. And that had nothing to do with the executives; it was just the market rebounding."

Those executives, he said, made millions on the rebound, while most shareholders -especially long-term investors who bought in before the market crashed in late 2008 - still have paper losses.

And he doesn't think the timing was coincidental.



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