Compensation Digest: Proxies Provide Pay-for-Performance Proof

Bank of America and Pfizer are out to prove that their commitment to the “pay for performance” mantra is legitimate. The proxies that each of the Fortune 50 companies filed this month contain bulleted lists of examples intended to illustrate that their compensation committees do more than pay lip service to corporate governance best practices.

Among the nine practices described on BoA’s list is the $84 billion commercial bank’s policy of not entering into employment, severance or change-in-control agreements with any of its executive officers. The company further states that its CEO, Kenneth Lewis, and Brian Moynihan, another of the company’s executives, “have voluntarily cancelled employment agreements that would have provided potential severance benefits.”

Another entry on BoA’s list states that its “executive officers do not accrue any additional benefits under any supplemental executive retirement plans.”

Pfizer, for its part, includes in its proxy statement a list of actions the pharmaceutical giant has taken in the last few years in the interest of aligning executive pay with performance. That list includes the company’s elimination of tax gross-ups on company automobiles this year, and its decision to base compensation structures on the median target pay of executives at companies in its peer group.

Some smaller companies included examples of pay-for-performance practices in their proxies too. Nordson Corp., an Ohio-based precision-dispensing equipment company, also states that its compensation structure is based on "targeting median executive pay."

Dan Moynihan, a principal at the consulting firm Compensation Resources, says his clients haven’t included lists of examples of their commitment to pay for performance in the Compensation Disclosure and Analysis sections of their 2007 proxies. Nevertheless, he advocates the practice.

“It’s a unique but probably very beneficial approach,” he says. “It shows there are actions that back up the companies’ words.”

Delta Doles Out Comp to the Rank and File
Delta Air Lines last week announced that it plans to award “substantial value” to its employees who are not covered by domestic collective bargaining agreements or the company’s management compensation program.

According to one of the $16.2 billion airline’s recent filings, Delta will distribute 3.5% of its common stock, estimated to be worth a total of $350 million, to approximately 39,000 of the company’s employees. The payout is scheduled to take place shortly after Delta emerges from bankruptcy in early May.

In recognition of the part Delta employees took in helping the company avoid a complete nosedive, the airline also promised its rank-and-file workers pay increases, profit-sharing and incentive performance awards, and a new defined contribution benefit. It's all part of new a broad-based compensation program that will award eligible employees cash lump sum payments with an aggregate value of approximately $130 million in addittion to the foregoing compensation. 

Internal Pay Equity Gets Attention at MDU Resources
MDU Resources’ compensation committee is paying attention to the pay doled out to employees below its top tier.

In its most recent proxy the company states, “The [compensation] committee… believed consistency across positions in the same salary grades was important from an internal equity standpoint.”

At the same time, the committee values the flexibility of having a range of possible salaries within each salary grade, according to the filing. The compensation of individual executives within a salary grade can vary depending on, among other things, “the executive’s experience, tenure and future potential,” as well as his “position’s relative value compared to other positions in the company.”