Corporate Governance, Compensation and Accountability in a Post-TARP World - Sponsored Whitepaper

The job of compensation teams and other HR professionals has become considerably more difficult, and that trend will apparently continue for the foreseeable future. Simply stated, how do you effectively attract, motivate, reward and retain key talent when (according to a March 2009 Human Capital Institute Study entitled “Where We Stand …”) 60% of 300+ companies surveyed have frozen or reduced salaries, 40% are cutting jobs, 1 out of 5 will be laying off entire departments or divisions, and roughly half of the companies surveyed will be significantly reducing bonus payouts?

Added to the unprecedented raft of people management challenges, requirements to justify or explain compensation decisions to all relevant stakeholders have also gone from lax and/or self determined to a new set of highly rigorous, government rules and regulations related to transparency, governance and accountability. As one example, on July 26, 2006, the Securities and Exchange Commission (SEC) voted unanimously to adopt sweeping changes to executive compensation disclosure. These SEC rules now require public companies to file a Compensation Discussion and Analysis (CD&A) of their executive compensation policies and decisions in their annual proxy statement, explaining the rationale and methodology underlying compensation decisions. The CD&A is filed with the SEC and subject to all applicable liability provisions as well as the Sarbanes-Oxley Act’s requirements for CEO/CFO certifications.

Pressure on CEOs has also reached fever pitch.According to data collected by private research firm Challenger, Gray & Christmas, 1,484 CEOs of U.S. firms headed for the exits in 2008 … or an average of six CEOs every business day. Healthcare recorded more CEO departures than any other sector with 285. Technology firms saw 221 CEOs leave their jobs, while financial services firms recorded 169 CEO departures during the year.