Prologue: the compensation committee meets
Introduction: the battle over executive compensation
Executive compensation in the U.S. corporate model
The goals of executive compensation
Our approach
The myths and realities of pay for performance
The realities of pay for performance
Other issues
Case studies
The myth of managerial power
Academic response to Bebchuk and Fried
The realities of managerial power
Camouflaged compensation
At-the-money strike prices
Repricings and reloads
Diversifying, hedging and timing
Peer group data and upward bias
Other factors in setting pay
Fixed shares vs. constant dollar techniques
Conflicts of interest
External pressures: the new context for executive compensation
Characteristics of external forces
Cyclical reforms and unintended consequences
The genesis of the current environment
The regulators
Securities and Exchange Commission
Financial Accounting Standards Board
Internal Revenue Service
NYSE and NASDAQ
Congress
The reformers
Institutional investor perspectives
Concerns with lack of pay for performance
Stock incentives
Performance metrics
Severance and change-in-control agreements
The financial activists
LBO impact
Impact of change-in-control protection
Hedge funds
Media critics and public figures
What we can learn
End of an era: the decline of the stock option
The 1990s: the decade of the stock option
2000
2002: a turning point
The decline of the stock option
The realities of expensing
Perceived value
The case for stock options
Costs and stock prices
Reducing the expense
The future of long-term incentives
Factors influencing LTI design
Designing a LTI program
Setting performance goals and metrics
Basis for measurement
Goal setting
Determining share award sizes
A look to the future
Executive stock ownership: the solution to the executive compensation crisis
Agency theory and costs
Moral hazard
Driving superior returns
Stock ownership guidelines
Stock holding requirements
Net share retention requirements
Other mechanisms for creating ownership
Management stock purchase plans
Finding the right solutions
Director compensation in the new environment
The evolution of director compensation
Move away from stock options
Activity-based compensation
Compensating committee chairs and members
General electric as a reference point
Director compensation levels and mix
Director share ownership
Stock ownership guidelines
Net share holding requirements
Ownership effectiveness
Structuring the optimal director compensation package
The future of director compensation
The compensation committee: creating a balance between shareholders and executives
Legal context
Right from wrong?
Foundations for best practices
Creating excellence in corporate governance
Institutional and regulatory governance recommendations and mandates
Consultant independence
Setting the CEO's pay as rigorously as possible
Case study of an internal promotion
Creating a pay-for-performance environment
Rule 10b5
1 plans
preannounced purchases or sales of stock
Best governance practices in designing annual and long-term incentives
Aligning all employee pay to improve corporate performance
Elements of alignment
Untenable forms of alignment
Performance pay solutions
Employee stock ownership
The role of stock options
Moving beyond options
Converting to restricted stock
Adjusting stock-based incentives
Alignment in practice
Building better alignment
International executive pay comparisons
U.S. competitive advantage
The international executive pay gap
United Kingdom
France
Canada
Asia
In summary
Conclusion: the future of executive compensation
Epilogue: back in the boardroom
Acknowledgements
Appendix A Legal and regulatory requirement for executive compensation plans
Nonqualified stock options
Incentive stock options
Stock appreciation rights
Restricted stock units
Restricted stock
Appendix B Summary of the regulatory and institutional mandates and recommendations
Calpers
TIAA-CREF
Fidelity
Vanguard
Union-sponsored funds
Other organizations
The Council of Institutional Investors
Institutional Shareholder Services
Glass, Lewis & Company
National Association of Corporate Directors
The conference board
Appendix C Academic articles on pay for performance and the executive labor market
Index
Endnotes.