Internal Pay Equity Methodologies

1. What is Internal Pay Equity?
2. Practice Pointers
3. Companies that Use Internal Pay Equity
4. Investor Desire for Internal Pay Equity
5. Internal Pay Equity Total Compensation Worksheet
6. Internal Pay Equity Panel "2nd Annual Executive Compensation Conference"
7. Rolling Back Compensation Practice Area
8. Hold Until Retirement Provisions Practice Area
9. Clawback Provisions Practice Area
10. Caps on Pay Elements & Total Compensation Practice Area
11. Media Articles

1. What is Internal Pay Equity?

   American capitalist J.P. Morgan is reputed to have had a rule that he would not invest in a company whose CEO was paid more than 50% above the executives at the next level. He reasoned that, if the CEO was paid more, he wouldn't have a team but only courtiers.

   One corrective approach for addressing excessive compensation that we like is what we call the "internal pay equity check" — following the Dupont and Intel models of checking for "internal pay equity" at various levels within a company to ensure that the CEO’s compensation has not gotten out of line within the company.

   Compensation committees should direct their HR people to provide a comparison chart that goes back to the 1980s (when the gaps began to get out of line) comparing the gaps in compensation levels within the company between the CEO and NEOs and senior and mid-level executives, down to the rank and file (and including all components of compensation, e.g., SERPs and perks and accumulated option and restricted stock gains, etc.) as a framework to bring the CEO’s (and, in some cases, NEOs’) total compensation back in line.

   
2. Practice Pointers
   • Pay Equity Multipliers: The Magic Bullet?
     —Mark Van Clieaf, MVC Associates International
   • Talking Points - Why-and How to- Implement Internal Pay Equity? – from the 2^nd Annual Compensation Conference
     —Fred Cook, Frederic W. Cook & Co.
   • Talking Points - Internal Pay Equity: Conducting a Historical Internal Equity Audit – from the 2^nd Annual Compensation Conference
     —Blair Jones, Semler Brossy Consulting Group
   • Illustrative Historical Pay Equity Spreadsheet - (PDF version) and (Excel version)
     —Blair Jones, Semler Brossy Consulting Group
   • Transcript of Ed Woolard’s Remarks at the 2^nd Annual Executive Compensation Conference
   • Excerpt from Fred Cook's Talk to Directors at Stanford's Directors College
     —Fred Cook, Frederic W. Cook & Co.
   • Why Committees Need To Track Internal Pay Equity Within Their Own Companies
     —Myrna Hellerman, Sibson Consulting, and Blair Jones, Semler Brossy Consulting Group
   • The Internal Pay Equity Audit: Response to Outside Influences through Inside Analysis and Actions
     —Myrna Hellerman, Sibson Consulting
   • Internal Pay Equity Total Compensation Worksheet
     —Myrna Hellerman, Sibson Consulting
   • Internal Pay Equity: The Basic Benchmark
     —Excerpt from the September-October 2005 issue of The Corporate Counsel
   • Internal Pay Equity
     —Fred Cook, Frederic W. Cook & Co., Inc.
   • PEMs: The Magic Bullet?
     —Mark Van Clieaf, MVC Associates International
   • Levels of Work and Internal Pay Equity
     —Mark Van Clieaf, MVC Associates International
      
3. Companies that Use Internal Pay Equity
   • El Paso Compensation Committee Report (2006)
   • Dupont Compensation Committee Report excerpt (2005)
   • Intel Compensation Committee Report (2005)
   • Libbey Inc. Compensation Committee Report (2005)
   • Whole Foods Market Compensation Committee Report (2005)
   • Kimco Realty Compensation Committee Report (2005)
   • Big Lots Compensation Committee Report (2005)
   • North Bay Bancorp Compensation Committee Report (2005)
   • Standard Parking CorporationCompensation Committee Report (2005)
      
4. Investor Desire for Internal Pay Equity
   • Updated Executive Compensation Policy - Tally Sheets and Internal Equity Checks
     — Council of Institutional Investors
      
5. Internal Pay Equity Total Compensation Worksheet
   —Myrna Hellerman, Sibson Consulting  

 
6. Internal Pay Equity Panel "2nd Annual Executive Compensation Conference"
   • Conference Summary
   • Video Archive and Accompanying Materials
   • NASPP Follow-On Session: Implementing Tally Sheets, Internal Pay Equity and Other Essential Tools
      
7. Rolling Back Compensation Practice Area
   
   
8. Hold Until Retirement Provisions Practice Area
   
   
9. Clawback Provisions Practice Area
   
   
10. Caps on Pay Elements & Total Compensation Practice Area
     
11. Media Articles
    • "Nice Work If You Can Get It: Chief Executives Quietly Enrich Themselves for Mediocrity," Larry Elliott, The Guardian (1/23/06)
    • "The SEC’s Test," Washington Post (1/17/06) (registration required)
    • "Disclosure Won’t Tame CEO Pay,” Joseph Nocera, N.Y. Times (1/14/06) (registration required)
    • "Memo to Activists: Mind CEO Pay," Jesse Eisinger, Wall Street Journal (1/11/06) (subscription required)
    • "The Boss Actually Said This: Pay Me Less," Gretchen Morgenson, N.Y. Times (12/18/05) (subscription required)
    • "How to Slow Runaway Executive Pay," Gretchen Morgenson, N.Y. Times (10/23/05)
    • "Congressman Tries Again in Fight to Limit CEO Pay," Loren Steffy, Houston Chronicle (7/12/05)
    • "Gulf Between Top, Bottom Gets Wider," Kathy M. Kristof, L.A. Times (5/31/05)