Is your CEO ready for the hot seat?

Take large bonuses, corporate jets, and other cushy perks, combine them with perilous economic times, and you have the perfect recipe for business critics to advance their agenda.

Take large bonuses, corporate jets, and other cushy perks, combine them with perilous economic times, and you have the perfect recipe for business critics to advance their agenda. High on that agenda is Say on Pay (SOP), which gives shareholders an advisory vote on management compensation. Even before the problems of the past year, SOP was picking up steam, with proposals growing tenfold from 2006 to 2008. More than 100 non-binding resolutions have been filed in 2009, up nearly 30% from last proxy season. And now, in the wake of recent public fury over bonuses, the Obama administration is calling for increased oversight of executive pay and the House has approved another bill to restrict compensation and bonuses at firms that received bailout money.

Corporate PR and IR executives need to fully prepare for this issue far in advance.

Certainly, management compensation has long been the purview of boards of directors. So shouldn't the board decide, since it can best assess management performance first-hand? Not according to organized labor groups or investor activists who use governance controversies to wring concessions out of boards and management.

It doesn't help that the ratio of executive compensation to worker compensation is nearly 400-to-1 today, compared with 40-to-1 in 1980. Combined with collapsing equity values and scandals, SOP cases appeal to the media and public. Advocates argue that shareholders, workers, and taxpayers shouldn't subsidize “pay for failure” cultures.

SOP can even pass at high performing companies like Apple. Especially vulnerable are those in the Fortune 1000, which should ask themselves the following questions:

Does your CEO make $10 million or $20 million? More? If you answered yes to the first, expect some attention; if you answered yes to the second or third, count on it.

Is your company's executive compensation out of line with peers'?

Has your company drawn negative employee attention? Layoffs, benefit changes, and even the threat of layoffs rally labor activists.

Has your stock been targeted by activist investors? Activists will use governance issues to get what they want, whether it's a board seat or cash back.

So what should smart PR executives do?

First, make sure your company's process is an inclusive one. Compensation issues require coordination of the board, executive team, HR, and legal teams. PR and IR need to have a seat at the table to consider the communications implications. We've seen boards and managements publicly skewered when the language used to explain the compensation practices was artless or unintentionally inflammatory.

Also, know how your compensation plan compares to the industry and be ready to defend it publicly. Since it will appear in your proxy, it must clearly lay out compensation criteria and link incentive compensation to shareholder value creation. Taste test the basics with shareholders who support your strategy. Finally, consider whether to fight this wedge issue or if it's best to accede to an advisory shareholder vote and concentrate scarce resources on persuading them that management's performance and strategic value proposition justify the compensation.

Ian Campbell is MD of The Abernathy MacGregor Group's West Coast office.

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