2010 February | Grahall, LLC

Behind Closed Doors

February 22nd, 2010

Expert Perspective by Grahall’s OmniMedia Editorial Board

Sam Mamudi’s article for MarketWatch (February 12, 2010, Mutual funds silent on banks’ pay rises Despite big payouts amid profit drop, major shareholders stay mum) reminds us that “Despite public outcry at banker pay raises during a troubled market, mutual fund firms that are among the biggest shareholders of financial companies have been mostly silent on the matter. … One recent example is the lack of reaction to investment bank Lazard Ltd” changing its compensation policy. Mamudi continues: “The issue is less about Lazard’s compensation structure but the fact that the firm’s largest shareholders refuse to even discuss the subject [except for, perhaps,] … behind closed doors.”

Pity the poor mutual fund manager who might not like the decision by the board. What is he to do especially in this economy?
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Tags: key stakeholders

Companies differ, why not the roles of Boards?

February 22nd, 2010

Expert Perspective by Grahall’s OmniMedia Editorial Board

In a long article published in Board Member on February 09, 2010 (Hang On- Say on Pay Heads Your Way) author John Greenwald says: “Rules flowing from the Securities and Exchange Commission and included in the enormous financial-reform bills before Congress could subject your board to the most intense scrutiny yet on everything from executive pay to risk management to shareholder rights… For shareholder activists, Washington’s gusto to regulate is long overdue.” However, Greenwald says that some business organizations feel these regulations are overreaching and are “a misguided mission to stamp one-size-fits-all mandates on every boardroom.” Greenwald quotes Harvard Business School professor Jay Lorsch as saying: “Trying to legislate what a board should look like and all that stuff is about as sensible as saying that every company in America should have the same management structure.”

We agree with Professor Lorsch based both on our research and our years working with companies of all sizes and in all states of development. Boards need a lot of flexibility to design themselves around the needs of the company, and we agree that it is impossible and may even be detrimental to legislate a configuration.
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Tags: Board of Directors

A Fix for Executive Compensation – The Reorientation of Director Intent

February 21st, 2010

Published in Guru Focus February 21, 2010

Berkshire Hathaway board members were paid $2700 or $6700 for the year ended December 28, 2008 depending on their duties. This is in a day of 6 digit pay for board members. It is not uncommon to find director compensation nearing $200,000 at many companies.

Filed under: Newsfeeds

Tags: Board of Directors Pay

Executive Compensation: More Regulation, or Just More Transparency?

February 17th, 2010

Published in Warton February 17,2010

The question of whether CEOs of America’s major companies are overpaid has been a perennial subject of interest for many years. Are the compensation practices for these elite men and women fair and appropriate? Do these compensation practices provide proper incentives? Or do they reward excessive caution or risk taking? CEOs not only make a lot of money in terms of raw numbers, they make a lot of money relative to the people who work outside the executive suite.

Filed under: Newsfeeds

Tags: CEO Pay

How Risky Is Your Board?

February 16th, 2010

Published in CFO February 16, 2010 by Kate O’Sullivan

For most companies, the risk of securities litigation ebbed somewhat during the past two years, as the plaintiffs’ bar devoted much of its time and energy to complex and potentially lucrative actions against financial-services firms. Now, as the credit crisis wanes, the risk is rising again for non-financial companies.

Filed under: Newsfeeds

Tags: board of director governance

Bucking the Trend

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February 15th, 2010

Expert Perspective from Grahall’s OmniMedia Editorial Board

In the February 2, 2010 article by Joe Bel Bruno (Dow Jones News Wire) in The Wall Street Journal (Lazard Posts 4Q Loss On Compensation Costs) tell us that “Lazard Ltd. reported an unexpected fourth-quarter loss Wednesday, hurt by charges triggered from the death of its former chief executive and a major overhaul of its compensation program.”

In part the reason for this loss is that Lazard has made a decision to buck the Wall Street trend (embraced by competitors like Goldman and Morgan Stanley), by deciding to “get rid of deferred cash compensation that pays workers over a number of years, a move that could attract top talent from bigger Wall Street firms saddled by tougher pay restrictions.”

This change to “all cash” compensation is justified by Lazard because they, unlike their competitors, “…largely avoided mortgage-backed securities and other complex instruments that felled bigger rivals, doesn’t take on risk like the major Wall Street banks.” Quoting Michael J. Castellano, Lazard CFO, the article goes on to say: “The changes in its pay structure will eliminate deferred cash payments and align compensation expenses with annual revenue…”

We believe that the practice of concentrating a CEO’s and other executives’ personal wealth in the form of his own company’s stock is poor compensation strategy and worse business strategy.
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Tags: Compensation Trends

When will they ever learn?

February 15th, 2010

Expert Perspective by Grahall’s OmniMedia Editorial Board

It was sadly without much surprise that we read the February 1, 2009 article by Aaron Elstein in Investment News “Bank bosses get pay boost on the sly”.

The author writes: “Hoping to mute public outrage over huge Wall Street bonuses, the big banks are making a show of paying employees with more restricted stock, which can’t be touched for years, and less cash. Much less well-known is this: Many of the banks are paying dividends on those shares—even though the employees don’t actually own them yet.”

Elstein adds that: “…a review by Crain’s shows that 13 of the 15 best-paid CEOs in New York received them in 2008, the most recent year for which data are available.” However, the examples he shares — with one notable exception of “AllianceBernstein’s CEO Peter Kraus who received $3.9 million — are what might be called piddling when compared to the total compensation these Wall Street tycoons (Blankfein, Chenault, Dimon, Pandit, etc) rake in.

Correctly, Elstein points out that “To some critics, the payouts smack of a sneaky way to increase pay”. And to the pitchfork crowd, this apparent indulgence will be seen as one more offense to their sensibilities and one more crime against American taxpayers.

Elstein in fairness also points out that other companies (IBM, Pfizer and Morgan Stanley among them) have altered policies relating to dividend payments on restricted shares.

This practice is not new by any stretch; it has been around for as many years as the practice of providing restricted stock as a form of compensation. In fact, we would even classify it as a predominant practice. Although the fact that everybody is doing it and has been for quite some time does not make it either a thoughtful or a correct thing to do. Dividends are essentially interest payments, and why would someone receive interest payments on property they don’t own?
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Tags: restricted stock

Mutual funds silent on banks’ pay rises Despite big payouts amid profit drop, major shareholders stay mum

February 12th, 2010

Published in Market Watch February 12, 2010 by Sam Mamudi

Despite public outcry at banker pay rises during a troubled market, mutual fund firms that are among the biggest shareholders of financial companies have been mostly silent on the matter. One recent example is the lack of reaction to investment bank Lazard Ltd. (NYSE:LAZ), which said on Feb. 3 that its compensation and benefits rose substantially in 2009 against a roughly 95% drop in profits.

Filed under: Newsfeeds

Tags: key stakeholders

AIG Overhauls Incentive Pay to Reward Top 10% of Employees

February 11th, 2010

Published in Business Week February 11, 2010, By Hugh Son

American International Group Inc., the insurer criticized by lawmakers for giving bonuses to executives after a U.S. bailout, started an incentive plan that will give the top 10 percent of employees the largest awards. AIG’s system will rank employees on a scale of 1 to 4 based on performance compared with colleagues, Christina Pretto, an AIG spokeswoman, said yesterday.