Page 636 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 10. The Board of Directors 621

1. Comment on the extent to which the long-term incentive plan is consistent with the market stage
of the company and its industry.
2. Has the board approved a pay philosophy? If no, why not? If yes, describe how this has been
converted to pay programs for each of the proxy-named executives.
3. Describe how the short-term and long-term performance measurements are consistent with
shareholder expectations and company business plans.
4. Are the changes in pay for the proxy-named executives consistent with company performance?
Were any performance targets lowered to make it easier to receive an award?
5. Have all perquisites and their annual dollar value been reported for each named executive,
not simply complying with SEC disclosure requirements?
6. What perquisites have been added, deleted, or modified during the year and why?
7. What actions, if any, were taken this past year (and so far this year) with regard to any underwater
stock options? What was the specific action for each proxy-named executive, and how many others
were affected by each action? What is the aggregated total (not simply the annual) charge to the
earnings statement?
8. What future action does the committee plan if financial targets are not met and/or stock options
are underwater?
9. Has an outside compensation expert been selected by the committee to work with management
but report to the committee? Who is it?
10. Has the compensation expert’s company done any work for the management of the company this
past year? If so, what was it and how much was paid? What about the current and future years?
11. How many times has the consultant met with the committee this past year? How much was the
person paid?
12. Was the board’s performance expectations for the CEO for the past year (along with reward
payments at various levels of performance) put in writing and communicated face to face with the
CEO? If not, why not?
13. Was year-end performance of the CEO put in writing by the board and communicated face to face
along with the resulting pay actions (but not before the audit committee attested to the validity of
the performance numbers)?
14. Does any member of the compensation committee have (or had) a personal relationship with the
CEO (including common board seats)?
15. What income items (other than from operations) have been included for purposes of incentive
pay and why?
16. Has the committee established a calendar of what actions will be reviewed (and when during the
year), as well as what parties will be involved? If not, why not?
17. Does the committee review employment contracts before they are validated to assure that
clawback clauses as well as conditions and amounts of severance are appropriate and clearly
defined? If not, why not?
18. Are incentive payments to any executive named on the proxy subject to recalculation (and return to
the company) of monies in excess of the mistated financials, regardless of reason? Who? How much?
19. How has the committee ensured a consistency of treatment for those under its review with those
lower down in the organization?
20. Has the committee looked to possible future changes in the executive pay programs (and their timing)
given possible changes in the company’s market lifecycle, laws, and regulations? If not, why not?

Table 10-19. Possible board questions and requests