"Equity Compensation in a Global Marketplace," Arthur H. Kroll, HR Focus, August 1999

"A Road Map to Changes in Director's Pay," Diane Posnak, ACA News, July/August 1999

"New Thinking on How to Link Executive Pay With Performance," Alfred Rappaport, Harvard Business Review, March-April 1999

"Executive Compensation or Business Value?" Paul T. Clausen, ACA News, March 1999

"Executive Compensation in a Global Merger: Combining a U.S. Entity with a European-Based Concern", Robert A. Romanchek, ACA Journal, First Quarter 1999

Focus on Executive Compensation, Compensation and Benefits Review, January/February 1999, featuring:

• "Setting Executive Compensation: Does the Industry You're In Really Matter?" Jack L. Ledere and Carl R. Weinberg
• "The Art and Context of the Deal: A Balanced View of Executive Incentives," Matt Bloom
• "Growing Shareholder Value: Why Executive Stock Ownership Works," Ira T. Kay
• "Should Options Reward Absolute or Relative Shareholder Returns?" Alan Johnson
• "Long-Term Incentives: How Private Companies Can Compete With Public Companies," Brent M. Longnecker, Brent T. Peterson and Roger Hitt
• "Don't Pay for Executive Failure," David N. Swinford
• "A Fresh Look at Incentive Plans for Privately Held Companies," Paul L. Gilles
• "Directors and Shareholders as Equity Partners? Handle With Care!" Dan R. Dalton and Catherine M. Daily
• "Executive Compensation Is Still Rising," Fay Hansen

"Trends in Executive Compensation," Christopher Young, Journal of Business Strategy, March/April 1998

"Executive Compensation: Finding a Balance in the Quest for Value," Roger Brossy and John E. Balkcom, Compensation and Benefits Review, Jan. 1, 1998

"CEO Pay: A Comprehensive Look," American Compensation Association (Special Publication), 1997

Executive Compensation Web Sites

Some or all resources are available without membership on the following web sites:

Securities and Exchange Commission (www.sec.gov/edaux/formlynx.htm) Using a customized forms page on the EDGAR database site, you can search company SEC filings for executive compensation information by entering "DEF" (Definitive Proxy Statement) from the box marked "form type."

National Association of Stock Plan Professionals (www.naspp.com) NASPP is a national organization dedicated to providing members with opportunities for professional and educational enrichment and advancement. This site contains articles relating directly to the field of stock benefit plan administration.

The National Center for Employee Ownership (www.nceo.org) NCEO is the leading source of accurate, unbiased information on employee stock ownership plans (ESOPs), broadly granted employee stock options, and employee participation programs. In addition to articles and columns by leading experts, the web site includes sample publications and a listing of workshops, conferences and other events; an interactive area, and links to related sites.

The Crystal Report (www.crystalreport.com) Offers scores of articles; a large, fully accessible FY98 CEO database, with accompanying pay simulator software; outside director pay simulator software; CFO pay simulator software; option valuation software; and more. Most resources require membership, but some articles are available for free.

AFL-CIO Executive Pay Watch (www.aflcio.org/paywatch/index.htm) Includes a listing of last year's CEO pay for about 300 S&P companies, links to EDGAR with detailed instructions on how to extract compensation data from a proxy, and interactive features where you can enter information about yourself and translate it into CEO pay.

United for a Fair Economy (www.stw.org) A national, independent, nonpartisan organization that puts a spotlight on the dangers of growing income, wage and wealth inequality in the United States, and coordinates action to reduce the gap. The organization provides popular education resources, works with grassroots organizations, conducts research, and supports creative and legislative action to reduce inequality. The web site contains press releases regarding executive pay levels.

Business Week (www.businessweek.com) Free search capabilities.

Forbes Magazine (www.forbes.com) Free search capabilities.

Members Only Sites

American Compensation Association (http://www.acaonline.org) Provides articles, trends and government news related to the field of compensation. Search for information under executive compensation or a specific topic, such as stock options.

Executive Compensation Advisory Services (www.ecronline.com/newsletter.html) ECAS publishes Executive Compensation Reports, a biweekly newsletter that reports on compensation practices at more than 1,000 corporations.

Wall Street Journal Interactive (www.wsj.com) Search the last 30 days or the last 14 years under executive compensation for articles that have run in Dow Jones publications.

FYI - Executive Compensation

• Because of a desire to link executive pay to performance, many companies compensate their CEOs with stock instead of cash, but a new IOMA Salary Survey says the results have been mixed. Comparing CEO pay with company performance, the survey found that many CEOs are highly overpaid and many others are significantly underpaid. In general, CEO pay has increased because of the hot stock market, but not necessarily because of improved company performance. IOMA noted that as stock market performance levels off, it may become more difficult to attract CEOs using stock.
• In contrast to the IOMA study, a Mercer/Wall Street Journal study of 350 U.S. companies showed that 1998 CEO pay increases averaged 5.2%, which was comparable to the average increase in corporate profits, which was 5.0%. Median total annual compensation (salary plus annual bonus) among surveyed companies' CEOs was $1.6 million.
• Watson Wyatt's annual study of executive pay trends shows that the more stock a CEO owns in the company, the better the stock performs. Ira T. Kay, Ph.D, Global Practice Director of Executive Compensation Consulting, concluded that, "Encouraging the CEO to own stock - lots of stock - is one of the surest ways to improve a company's long-term performance."
• More than half (52%) of the 100 largest U.S. companies require executives to own company stock, a study by Pearl Meyers & Partners found. Typically, companies use a multiple of salary as the guideline for stock ownership. The average CEO multiple is six times salary, with a range from three to 20. The average senior executive multiple is 4.4 times salary, with a range of 2.5 to 10. The average for key managers is 3.3 times salary, and the average for low-level managers is 1.7 times salary.
• CEOs received stock options averaging four times the amount of their base salary in 1998, according to the 1998 Executive Total Compensation report by Arthur Andersen's Human Capital Services practice and Financial Executive's Institute.
• Trends for the millennium, according to the Pearl Meyers & Partners annual report on executive compensation, include: 1.) Stock options will increasingly be "earned" and will include performance requirements, 2.) The equity portion of CEO compensation will increase significantly, and the cash portion will level off, or increase modestly. To order the report, call 212-644-2300.
• A majority of companies grant stock to their outside directors, according to a Towers Perrin CompScan survey of 100 North American companies. Most grants are made annually.
• Companies with Employee Stock Ownership Plans have annual returns that are almost 3% higher than returns for industry peers without ESOPs, according to a study by the Hewitt and Kellogg Graduate School of Management.

Susan Malanowski, CCP, Senior Consultant

Other life: Cub Scout den leader; blood platelet donor; soccer, hockey and baseball mom.

Likes: Vacations under the hot sun, in a heated pool and on the beach.

Dislikes: Camping out; looking her age.

Fun facts: Husband, John, is also in human resources; they have worked together at two companies - Aetna and Fidelity Investments - but in different business units.

Guilty pleasure: When working at the same companies, telling people who asked if they were related that her husband was really her father.

Susan Malanowski's interest in human resources began while she was a college student working one summer in a bread factory. Assembly lines may be designed for efficiency, but she noticed that many of her coworkers were not very productive and seemed to put most of their effort into avoiding work. Observing the amount of wasted product and lost productivity, she said, "made me think about better ways of working that would benefit both the employees and the company."

Soon after, she took her first organizational behavior class at Ithaca College in New York, which solidified her interest in human resources. "My professors wanted me to major in accounting or computer science," she said, but she graduated with a major in personnel and industrial relations, and a minor in psychology.

While attending Ithaca, she also spent a semester working in London at the European headquarters of Exxon. She researched employee benefits in other countries and was "the only woman not in the secretarial pool," she said. She completed her studies at Michigan State University, where she earned a master's degree in labor and industrial relations.

She met her husband, John, while pursuing her master's degree and she relocated to join him in Oklahoma, where he had found a job six months earlier. After working briefly as a headhunter, she worked for several years at Oral Roberts University and City of Faith Hospital, starting a student employment program, and later working in employee training and development. The oil industry recession and their desire to move to New England resulted in a move to the Hartford, Conn. area and her first job as a compensation analyst. Working for Barclay's Business Credit, a subsidiary of Barclay's Bank, she developed salary structures, analyzed and evaluated jobs, collected and analyzed market data, and implemented a new job evaluation methodology.

It was at her next position, though, that she applied more cutting-edge compensation planning. Joining Aetna U.S. Healthcare in the mid-1980s, she led and participated in projects such as developing a new job evaluation methodology, career paths and broadbands, the process of using very few, but wide, salary ranges. These approaches were considered novel at the time. Her son, John, was born while she was at Aetna.

In 1990, re-engineering hit Aetna and the design of new compensation programs stalled for more than a year. Again hit by a recession, but in the insurance industry, the Malinowskis moved to Massachusetts. While looking for a new position, Susan worked briefly as a compensation consultant for Olney Associates in Boston. She then became a one-person compensation department for General Cinema Theatres, where she designed incentive programs; implemented a new job evaluation methodology, including the use of a job evaluation committee, and responded to FLSA and child labor laws in the 26 states in which the company operated.

With her son entering kindergarten, she wanted a job with a flexible work schedule, so she left General Cinema and became a human resource generalist for Community Newspapers Company, a subsidiary of Fidelity Investments. In addition to being responsible for training, employee relations and recruitment, she designed broad salary ranges, career paths and sales compensation plans.

She accepted a job at Wilson Group in July 1998, because, she said, "After three years of being a generalist, I missed focusing on compensation. In addition to the office being close to home and having a flexible work schedule, I like the Wilson Group's strategic approach to compensation, both with our clients and how we live it as a company. Our approach of aligning compensation to human resource programs and the key success factors of the company provides the greatest potential for impacting company performance. In addition, Wilson Group employees are bright, creative and fun to work with."

"In my past jobs," she concluded, "I enjoyed working in a variety of roles in many industries. As a consultant, I can enjoy the diversity of projects, business issues and industries without changing jobs."

Applications

Reward Executives For Company Performance
Designing a compensation package that will attract and retain key executives is perhaps the most important human-resource challenge organizations face today.

A well-designed executive compensation system can also enhance company performance by rewarding success. For large, publicly traded companies, an executive compensation plan can also create significant tax advantages, but only if compensation is tied to objective, performance-related criteria.

Choosing the Right System
When designing an executive compensation plan, how executives are paid should be more important than how much they are paid. To determine the best way to compensate executives, many questions must be answered. How should your compensation programs be designed to ensure that the interests of key executives and key stakeholders are aligned? What is the correct mix between base, short-term, and long-term compensation? Are your compensation programs reinforcing the executive behavior needed to drive your organization to succeed? Can executive compensation levels be justified by the performance of the organization?

While a comprehensive understanding of executive compensation within your competitive marketplace is helpful, it is most important that the program fit the company's culture and business strategy, and is attractive to the executive team, but acceptable to key stakeholders.

Executive compensation plans should be designed in collaboration with both the Board of Directors and senior executives to ensure that objectives, measures and desired outcomes are mutually agreed upon.

HReview

Creating Shareholder Value
Alfred Rappaport
Published: Free Press, 1998

Business people who have been jostled by the latest management fads and buzzwords have found refuge in Rappaport's well-conceived book, Creating Shareholder Value, since its publication in 1986. Now substantially revised and updated, readers will find that time invested in reading this classic will yield even greater returns. How executives and investors can generate superior value for shareholders is an even more timely topic today than it was when Creating Shareholder Value was first published. In addition to providing provocative insights, Rappaport applies his ideas about shareholder value to business planning, performance evaluation, executive compensation, mergers and acquisitions, interpretation of stock market signals, and organizational implementation. While Creating Shareholder Value is a must read for every professional involved in executive compensation planning, it also addresses issues that should be of interest to other executives and HR managers. Readers will be especially interested in Rappaport's answers to three management performance evaluation questions: 1) What is the most appropriate measure of performance? 2) What is the most appropriate target level of performance? and 3) How should rewards be linked to performance? Rappaport not only answers these questions, he provides a clear, compelling call to action in each area.

For anyone who truly wants to understand and create shareholder value, this book is a valuable read.

Wilson Group Moves To New Headquarters

Wilson Group has moved to new, expanded quarters at Clock Tower Place in Maynard, Mass., effective Oct. 1, 1999. Clock Tower Place is a center for many start-up and fast growth companies. It retains the New England classic feel of exposed brick and beams, with high communication technology. It is truly unique, and well suited for the Wilson Group.

"Our new headquarters is the result of the growth we've experienced in recent years, but it also positions us for continued growth," President Tom Wilson said. "Our new space will help us to operate more efficiently and better serve our clients."

Wilson Group's new address is: Four Clock Tower Place, Suite 500, Maynard, MA 01754, Phone: 978-897-1235, fax: 978-897-4343.

If you know anyone else who would enjoy receiving Rewards That Work, please let us know. For an expanded version of Rewards That Work, visit the Wilson Group web site at www.wilsongroup.com.

Four Clock Tower Place, Suite 500
Maynard, MA 01754
978-897-1235
newsletter@wilsongroup.com

Quotes:

"If you do things well, do them better. Be daring, be first, be different, be just." Anita Roddick, Body Shop

"If you want to have what you have not, you must do what you do not."

"The reasonable man adapts himself to the world; the unreasonable man persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man." George Bernard Shaw

"Unless we change our direction, we are likely to end up where we are headed." Old Chinese Proverb

"Empower people. Listen to their ideas. Constantly communicate the company's goals and how you expect to achieve them. Lead by example. Be consistent." Michael Hammer

"The only way you can afford to treat your customer, your shareholder and your employee right is to have an absolutely superior operating model, a better machine to create value." Michael Treacy, CSC Index