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Many CFOs don't want to deny shareholders the right to approve executive pay, according to a BDO Seidman survey.
David McCann, CFO.com | US
February 29, 2008
CFOs, the ultimate team players, might not always agree with company policies they're responsible for executing. Here, maybe, is a case in point: fewer than a third (31 percent) of 100 leading U.S. technology companies allow shareholders to vote on their executive-compensation plans, their CFOs said in response to a new survey by accounting firm BDO Seidman. Yet 61 percent said they personally think shareholders should have their say.
"At a time when regulatory organizations are pushing for more executive-compensation disclosure, it is reassuring that CFOs at technology businesses are supportive of shareholders having a greater voice in approving executive-compensation levels," says Andy Gibson, a partner in the technology practice at BDO Seidman and co-leader of the firm's executive-compensation practice.
Still, and even though it was BDO Seidman's survey, Gibson downplays the significance of the contradictory survey results. He notes that while shareholders often don't get to vote on the amounts allocated to specific executives from an aggregate compensation pool, they do generally get to approve the size of the pool.
Either way, at 67 percent of the tech companies, executive-compensation plans have been altered as a result of recent regulatory and legislative changes that were intended to improve corporate disclosure about executive compensation. Among those affected, 27 percent of the CFOs said the impact was "high."
Those changes include:
• The new information the Securities and Exchange Commission requires in the compensation disclosure and analysis section of annual reports
• Section 409A of the Internal Revenue Code, which requires nonqualified deferred compensation to be included in an executive's current gross income unless it's subject to a substantial risk of forfeiture
• FAS 123(R), under which companies must expense the fair value of stock options and other equity-based compensation over the life of the instruments
Despite the impact on compensation plans, the regulatory changes are having little effect on the ability to lure and hang on to talent, 81 percent of survey participants indicated.
In another finding, when asked which financial tool is most effective in recruiting, retaining, and motivating executives in the technology industry, 42 percent cited restricted stock and 38 percent cited stock-option grants, followed by grants of profit interest (11 percent) and stock appreciation rights (9 percent).
BDO Seidman also queried tech CFOs about the pluses and minuses of Section 404 of Sarbanes-Oxley. Although there has been extensive commentary on the difficulties of complying with the section, 65 percent of the respondents said they think 404 has led to improved processes. Also, while 39 percent of the finance executives believe 404 has curtailed risk-taking at their companies, 59 percent think risk-taking hasn't been affected.
A majority (53 percent) of the CFOs believe their 404 compliance costs will stabilize this year, compared with 22 percent who anticipate costs to climb and 24 percent who expect a decline. Finally, 54 percent of the tech companies manage their Section 404 compliance functions in-house, versus only 11 percent that outsource the function. Thirty-five percent indicated they manage their 404 compliance through a co-sourcing relationship (a combination of in-house and outsourcing) with an external provider.