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Conference Board urges restrictions on executive pay

September 21, 2009|Bloomberg News

Financial firms and other companies should link executive pay to incentives that encourage measurable, long-term benefits for the business and shareholders, a Conference Board study recommended.

The report to be released today urges companies to avoid paying for personal travel, hefty severance packages or above-market returns on deferred compensation. The recommendations were endorsed by the California State Teachers' Retirement System, AT&T Inc. and others.

"In order to restore trust in the ability of boards of directors to oversee executive compensation, immediate and credible action must be taken," the report from the New York research group said.

Treasury Secretary Timothy F. Geithner has blamed pay standards tied to short-term profit for contributing to the financial crisis. The Obama administration proposed pay measures in June, aiming to reduce incentives that led executives to take excessive risks and to quell a political outcry over bonuses paid at insurer American International Group Inc.

Shareholders should be consulted on pay decisions, and firms need to find ways to measure performance and align payouts with success over several years, the report said.

"Companies should be paying for the right things, paying for the right level of risk and paying for performance when the performance is delivered, not based on plans," said Rajiv L. Gupta, co-chair of the task force that wrote the report.

The report stops short of the mandatory caps favored by European leaders.

Earlier this month, finance ministers from the Group of 20 nations agreed on a plan to curb bank executives' bonuses to help restore confidence in the financial system, and it is expected to be a key agenda item at the G-20 meeting this week in Pittsburgh.

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