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Prologue: The Compensation Committee Meets

Published online by Cambridge University Press:  31 July 2009

Ira Kay
Affiliation:
Watson Wyatt Worldwide, Washington, DC
Steven Van Putten
Affiliation:
Watson Wyatt Worldwide, Washington, DC
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Summary

May 23, 2006

The chair of the compensation committee scans next week's committee meeting agenda. The first several items are perfunctory – approval of minutes from the prior meeting, new-hire and promotional stock option awards, and an update on a succession-planning project. No surprises there. But the last two agenda items leap off the page: status of employee stock purchase plan (ESPP) and broad-based option awards, and CEO employment agreement renewal.

These are not unexpected. Several months ago, one of the outside directors called the chair to discuss the ESPP and broad-based option awards, raising a concern that the company was not getting much bang for its buck; that it was incurring significant expense and dilution for these stock-based awards that appeared to have little perceived value among employees.

In effect, the outside director was asking the committee to revisit the preceding year's decision to continue providing broad-based stock option awards and an ESPP – a decision that was agreed to by both management and the committee. That stay-the-course decision had been made in the face of mandatory stock option and ESPP expensing that would go into effect in January 2006. At the time, the decision made sense. The company's stock was trading near an all-time high, employee morale was strong, and the company was having little difficulty attracting and retaining top talent. With the company's broad-based equity programs apparently a key contributor to its success, the committee and senior management were disinclined to make any rash changes.

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Publisher: Cambridge University Press
Print publication year: 2007

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