Executives Defend Pay Plans

Posted March 21, 2007 at 6:46pm

The top brass at some of the country’s largest corporations have sent word to their D.C.-based lobbyists: Stop legislation bubbling in Congress that would negatively affect executive compensation.

For chief executive officers and other corporate honchos, proposals to limit nonqualified deferred compensation and measures to shine the spotlight on high pay packages are not just run-of-the-mill corporate and tax issues. They are personal for industry players in a range of sectors including pharmaceuticals, financial services and manufacturing, lobbyists say.

Galen Reser, the top Washington, D.C., lobbyist for PepsiCo, said his company’s executives have made the deferred compensation issue a legislative priority. A PepsiCo executive testified before the House Ways and Means Committee recently against a Senate-passed measure.

“The Senate-drafted provisions, we believe, went way beyond what the intentions were,” Reser said. “There are close to 1,000 [PepsiCo] employees who are potentially impacted.”

Although some in-house lobbyists say they have reservations about lobbying for something that can be perceived as protecting the paychecks for their wealthy bosses, Reser said he has no qualms about lobbying on the issue because it is much broader than just CEO pay.

“We’re proud of our plan,” he said. “It’s fully transparent, and there are no special privileges for some and not others, so we feel quite comfortable in defending it.”

Because the issue of lobbying on executive pay can raise eyebrows in boardrooms and on Capitol Hill, many in-house lobbyists who are working the issue would speak only if their names and companies were not identified.

One in-house lobbyist for a major corporation said that executives are “bellyaching” about the Congressional spotlight on their pay and potential changes to deferred compensation plans. The executive suite also is concerned about the company losing tax write-offs and the impact on retaining top employees if some proposals make it into law. Deferred compensation plans not only impact executives’ personal bottom lines but also their ability to recruit new employees and keep existing workers in “golden handcuffs.”

“There is definitely concern in the boardrooms about how this would affect attracting talent,” this lobbyist said.

Corporate executives back at headquarters often view their federal lobbying operations as cost-centers, but this issue has given the lobbyists a direct connection to their bosses’ pay. “It has become clear from some of our clients that they have been told to make this a priority. It is a huge priority for top executives,” said one lobbyist who would not be quoted by name.

Kenneth Kies, a tax lobbyist with Clark Consulting’s federal policy group, said that his firm’s parent company, Clark Consulting, is the largest administrator of nonqualified deferred compensation plans.

“Contrary to the image that’s been created by some, these plans are used by people making $80,000, $90,000, $100,000 a year,” he said. “Ninety-one percent of the Fortune 1,000 have deferred comp plans. That’s why employers are so upset about this.”

Kies declined to name specific companies that he represents saying, “most of them don’t really want to be the poster child” for the issue.

Many companies have chosen to push the issue through their trade associations and coalitions with other companies.

Dorothy Coleman, vice president of tax and domestic economic policy at the National Association of Manufacturers, said the group is tracking very closely any compensation issues that are bubbling up on Capitol Hill, especially on changes to deferred compensation.

“For us, it’s a big priority,” Coleman said. “If these changes were enacted, they could pretty much negate the use of nonqualified deferred compensation.” Coleman agreed that corporate executives use such compensation to supplement retirement plans and to reward employees for staying with the company.

Lynn Dudley, vice president of retirement policy at the American Benefits Council, which represents Fortune 500 companies, said that changes to the deferred compensation programs, such as one passed by the Senate, could throw plans into disarray.

“You’d have to start over, go back to the drawing board,” which would cost an entire company — not just top executives, she said.

Tom Lehner, director of public policy for the Business Roundtable, an association of top CEOs, attended a House Financial Services markup on Wednesday of legislation sponsored by the panel’s chairman Rep. Barney Frank (D-Mass.). The bill would give shareholders in public companies a nonbinding vote on executive compensation packages, and the Business Roundtable has concerns with that bill, he said.

“You’re eroding one of the critical board functions,” Lehner said. “We don’t want to see board decisions on issues like compensation start to become politicized.”

Financial Services spokesman Steve Adamske stressed that Frank’s measure would not set limits on pay. Instead, it would allow shareholders a nonbinding vote on executive pay plans. Should the measure become law, “CEOs can, if they would like to, ignore the vote,” he said.

The Business Roundtable’s members also have made the deferred compensation matter a priority, Lehner said.

“We are against using the tax code to try and dictate compensation policy,” he said. “Its impact is much broader than just CEOs. This is one of those instances where the roundtable as a trade association has been pretty active on behalf of its members.”

Tax lobbyist Lindsay Hooper, a founder of Capitol Tax Partners, said that it’s hard to find an executive that isn’t interested in the issue, but some in-house lobbyists said that they hadn’t heard a peep from the home office.

Other in-house lobbyists reported that their bosses have given them a red light when it comes to the issue.

“My CEO has told me not to lobby on it, and I’m glad about that, but candidly it affects me too,” said one top in-house lobbyist at a large, multinational company.

Some lobbyists said they feared that taking a high profile on any executive compensation issues could hurt their credibility on Capitol Hill.

“This is as greedy an issue as I’ve seen in Washington,” said an in-house lobbyist. “After you’ve made this request for you and your bosses, you have one less favor you can ask for your corporation and its shareholders.”