Compensation Standards for California Corporate Officers

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					                                                                                       7C
Office of the President

TO THE MEMBERS OF THE COMMITTEE ON COMPENSATION:

                            DISCUSSION AND ACTION ITEM

For Meeting of January 17, 2007

DEFINITION OF TOTAL COMPENSATION FOR THE PURPOSE OF DEFINING THE
“ANNUAL REPORT ON COMPENSATION”

                                   RECOMMENDATION

   A. The President recommends that the Committee on Compensation recommend to The
      Regents approval of the following definition of total compensation for the purpose of
      further defining the “Annual Report on Compensation”, as recommended by the Task
      Force on UC Compensation, Accountability, and Transparency, and adopted by the
      Regents under RE-74e.

   B. The President recommends that the Committee on Compensation recommend to The
      Regents approval of the definitions of the “Annual Report on Compensation”, including
      the group of University employees covered by the report, the time period, and other
      report parameters, as follows, as recommended by the Task Force on UC Compensation,
      Accountability, and Transparency, and adopted by the Regents under RE-74e.

A. Definition of Total Compe nsation
TOTAL COMPENSATION shall be defined as:

       1.     All salary and other cash payments made to the employee or on behalf of the
              employee including but not limited to: base salary, stipends, incentive payments,
              bonuses, cash awards, automobile allowances, or any other cash payments that
              would be considered W2 income to the employee.

       2.     One-time payments/reimbursements made to the employee or on behalf of the
              employee including but not limited to: relocation allowance, temporary housing
              reimbursements or allowances, moving expense reimbursements, payments
              pursuant to post-retirement agreement, payments pursuant to severance/separation
              agreements, or any other reimbursements made to the employee that would be
              considered W2 income and are not considered business-related expenses.

       3.     Any benefits and perquisites including but not limited to: health & welfare
              benefits including retirement available to all career employees, senior manager
COMMITTEE ON COMPENSATION                                                             7C
January 17, 2006          -2-

              life insurance, executive business travel insurance, executive salary continuation
              for disability, any home mortgage loans, senior management supplemental benefit
              program contributions, University provided housing, vacation and sick leave
              accrual, leased automobiles, post-retirement employment agreements, special or
              supplemental health or retirement benefits, severance or separation agreement
              benefits, any cash payment in connection with any severance or separation
              agreement, special sabbatical or other leave arrangements, or any other benefits or
              perquisites provided to the employee for services rendered to the University of
              California.

B. Definitions and Parameters for the Annual Report on Compe nsation
   1. Population Cove red under the Annual Report on Compensation
           a. This report will include the “named positions” for which the Regents retain direct
              authority to approve compensation, as specified in item 7C which was approved
              by the Regents on July 20, 2006:
                      president
                      executive and senior vice presidents
                      vice presidents
                      associate and assistant vice presidents
                      the university auditor
                      the university controller
                      principal officers of the Regents
                      chancellors and vice chancellors
                      national laboratory directors and deputy directors
                      medical center CEOs
                      deans

              Other positions, including the top five most highly compensated positions at each
              UC location, may be designated by the Regents for review and approval of
              compensation actions.

              The Annual Report on Compensation will also include positions for those
              employees who are in the Senior Leadership Compensation Group (SLCG) and
              all non- faculty academic administrators whose cash compensation exceeds the
              Indexed Compensation Level (ICL), currently at $200,000, as increased in
              accordance with RE-61. Compensation for the purpose of determining the ICL
              shall include all compensation included in item A1 plus relocation allowances
              from A2, above. This definition of compensation is consistent with and supports
              The Regents current practice for determining the ICL for reviewing and
              approving executive compensation.

              This is in accordance with the guidelines established in RE-61, approved on
              September 22, 2005 and under 7C approved on July 20, 2006.

           b. Employees in one of the named positions, but in an acting or interim capacity will
              be included in the report. Employees who serve in a named position during the
COMMITTEE ON COMPENSATION                                                               7C
January 17, 2006          -3-

              reporting year, but step down from that role and are no longer active in that role
              on December 31 of the reporting year, will also be included in the report.

   Although not considered a part of total compensation, and therefore not included in the
   Annual Report on Compensation, data will be collected and tracked on the following:
   spousal employment agreements as a component of hiring, housing maintenance for those
   who are required to reside in University housing, administrative fund for business related
   expenses. This information will continue to be included in the individual action items
   presented to the Regents for approval.

   2. Timeframe for Reporting under the Annual Report on Compensation
      This report will be produced and presented to the Regents for review and approval in
      March of each year (or the next scheduled Regents’ Meeting) and include the
      compensation details noted above for the preceding calendar year for the population
      described above. Since the 2006 Annual Report on Compensation will be the first report
      to transition to a calendar year basis from a fiscal year basis, we will generate another
      separate report for calendar year 2005, to cover the gap in reporting. This report will be
      presented to the Regents in May 2007.

   3. Compensation Elements Displayed for the Annual Report on Compe nsation
      Data will be displayed for each person covered under this report, per the attached table as
      provided in Attachment 1

This definition of Total Compensation, and the layout and content of the Annual Report,
is also consistent with the Budget Act language that requires the University to report
annually to the Legislature on compensation for the “named positions” as defined above.
The Budget Act language is included as Attachment 2.
In addition, these reporting and definition recommendations are consistent with, and in some
cases exceed, the reporting requirements established by SEC regulations adopted on July 26,
2006. Although these regulations are not applicable to the University of California, they
represent sound disclosure standards.

Attachment 3 provides related findings and recommendations from the Task Force on UC
Compensation, Accountability and Transparency. Only the pertinent sections from this report
are provided in this attachment.
Attachment 3


Task Force on UC Compensation, Accountability, and Transparency
The report from the Task Force on UC Compensation, Accountability, and Transparency
recommends that The Regents clarify the definition of “total compensation” for Executives to
include some missing elements of compensation and to ensure consistency with accepted
standards and practices. The pertinent sections of the Task Force findings and recommendations
are provided below. Please note that sections of the text that were unrelated to executive
compensation reporting or definition of compensation were deleted for improved
continuity and ease of reading.

       Disclosure and Transparency
       The Task Force finds that UC lacks a system to ensure reporting of tota l compensation
       for executives in accordance with policy.
       RECOMMENDATION
       The University should establish clear protocols, procedures, and forms that allow for full
       and timely compensation reporting. These reports should include:
       • Annual reports on base salaries for all UC employees.
       • Annual reports on total compensation for UC executives.
       • Annual reports on outside compensated professional activities.
       • Compliance with annual reporting requirements to the Regents and the Legislature.
       • Regular reviews of compensation policies and practices.
       • Regular reports on compensation actions taken by the Regents at Board meetings as
       well as compensation actions taken between Board meetings.

       The Task Force finds that the lack of consensus about what constitutes total
       compensation at the University of California exacerbates confusion about disclosure
       policies.

       The Regents should reaffirm the definition of “total compensation” in the Regents’ 1992
       Principles for Review of Executive Compensation and further clarify some missing
       elements to ensure consistency with accepted standards and practices.

       Governance and Accountability
       The Task Force finds that the Regents’ ability to provide oversight of compensation
       decisions has been weakened by the large number of compensation decisions they were
       expected to review.

       The Task Force recommends that the Regents retain direct authority to approve
       compensation for the President, senior vice presidents, vice presidents, associate/assistant
       vice presidents, the university auditor, the university controller, principal officers of the
       Regents, chancellors and vice chancellors, national laboratory directors and deputy
       directors, medical center CEOs, professional school deans, and the top five most highly
       compensated positions at each UC location. This currently yields 264 individuals.
The Task Force finds that UC lacks a system to ensure reporting of total compensation
for executives in accordance with policy. This extends to policies requiring disclosure to
the Regents when they are asked to approve initial senior- level appointments, to the
media and the public once Regents’ compensation actions are taken, and in annual reports
to the Regents and the Legislature.

Annual reports: An example of the lack of checks and balances is the administration’s
failure to submit required annual reports on executive compensation and compensated
corporate board service for two years in a row. The reason given was that the staff person
responsible for keeping track of reporting deadlines had retired. This is inexcusable. The
University must fulfill its obligation to inform the Regents annually. In the future, such
annual reports should be certified by the senior- most official responsible for the report’s
content, and then posted online following receipt by the Regents. Furthermore, the annual
report to the Regents on executive compensation should be revised to include all
elements of total compensation, as required by the 1992 Regents’ Principles for Review
of Executive Compensation.

Annual online reporting of all base salaries: The Task Force believes the University
should annually release base salaries for all UC employees, not just senior managers. In
considering this matter, the Task Force weighed two issues: 1) whether to limit reports
just to senior managers, and not to all employees; and 2) whether to extend reporting
from base salary to total cash compensation.

In the end, the Task Force believes that on the first issue, the public interest in disclosure
extends to faculty, staff, athletic coaches, and others. Many public universities (the
University of Michigan, University of Washington, and University of Illinois, to name a
few) proactively release a comprehensive listing of base salaries for all employees.

On the second issue, the Task Force is concerned that reporting more than base salary for
all employees will put the University at a further competitive disadvantage in retaining
top faculty. There have been reports that the recent media disclosure of UC total cash
compensation has allowed competitors to make better and more informed offers to
faculty.

These same factors do not apply to senior administrators. Therefore, the Task Force
believes that the University should report online total compensation for the 264
individuals whose compensation has been recommended for approval by the Regents (see
Governance and Accountability Recommendation #6, p. 22).

Uniform forms of disclosure. The Task Force spent a considerable amount of time on
the issue of reporting and developed a sample compensation disclosure form to serve as a
prototype for providing information for executive appointments and promotions (see
Appendix, pp. 38-39). Such a form should be presented to the Regents along with other
background material when they are asked to approve the hiring or promotion of an
executive. A form like this should be used throughout the UC system, so that others who
review and approve such appointments and promotions also receive the same
information.

Immediately following the Regents’ approval, the form could also be attached to the UC
press release and posted on the Web, so that all elements of compensation are displayed
in a clear, straightforward manner for the public and the media. Current practice in this
area is inconsistent across the UC system. The UC Office of the President regularly
reports base salary in its press releases on new appointments, whereas many campuses do
not report even base salary. Consistency in disclosure across the UC system is
paramount.

Regular and interim Board of Regents actions. The University also needs to refine its
protocols to ensure timely Web-posting of compensation actions taken by the Regents at
their regular board meetings. With respect to actions taken between regular board
meetings that can be approved by the President, the Chair of the Board of Regents, and
the Chair of the Compensation Committee, the procedure is designed to provide
flexibility in responding to urgent needs, including those involving recruitment and
retention of key faculty and managers. These “interim board actions” are then reported to
the full board at the next regularly scheduled meeting. However, the lack of clear
protocols has caused some high-profile items to “fall between the cracks”—leading to an
impression that items are being hidden from the public and the full board. The University
needs to establish clear principles and procedures for determining what criteria need to be
met (e.g., urgent retention cases that cannot wait for two months before the next board
meeting) in order for a compensation package to be approved between regular board
meetings.

The University should establish clear protocols, procedures, and forms that allow for full
and timely compensation reporting. These reports should include:
• Annual reports on total compensation for UC executives.
• Annual reports on outside compensated professional activities.
• Compliance with annual reporting requirements to the Regents and the Legislature.
• Regular reviews of compensation policies and practices.
• Regular reports on compensation actions taken by the Regents at Board meetings as
well as compensation actions taken between Board meetings.

				
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