Business
Shareholders Should Have a Say in Pay for Boss
By BlissPR
Feb 19, 2008 - 10:38:18 AM

According to a new survey by BDO Seidman, LLP, one of the nation ’s leading accounting and consulting organizations, only thirty-one percent of chief financial officers at leading U.S. technology businesses indicate that their company allows shareholders to vote on their executive compensation plans, compared to more than two-thirds (69%) that do not. Yet, a majority (61%) of the CFOs personally feel shareholders should have a say on executive compensation plans, compared to over one-third (39%) who do not. More over, two-thirds (67%) of the CFOs say their company ’s compensation plans have been impacted by regulatory changes focused on improved disclosure and a majority (65%) of these financial leaders believe that Section 404 of Sarbanes-Oxley has led to improved processes.

These findings are from the BDO Seidman 2008 Technology Outlook Survey which examined the opinions of 100 chief financial officers at leading technology companies located throughout the U.S., including a subset in the Silicon Valley. The technology businesses in the study have revenues ranging from more than $100 million to $15 billion. The survey was conducted in January of 2008.

“At a time when regulatory organizations are pushing for more executive compensation disclosure, it is reassuring that CFOs at technology businesses are supportive of shareholders having a greater voice in approving executive compensation levels, ” said Andy Gibson, a Partner in the Technology Practice at BDO Seidman, LLP and Co-Leader of the firm ’s National Executive Compensation Practice. “In addition, relatively few CFOs indicated that executive compensation disclosure changes, such as 409A and FAS 123R, are having significant impact upon their company ’s abilities to attract and retain talent. ”

“Although technology companies were hesitant to adopt Section 404 of Sarbanes-Oxley, the majority have realized improved processes due to their compliance efforts and do not believe 404 has adversely impacted their level of risk-taking, ” said Hank Galligan, a Partner in BDO Seidman ’s Technology Practice. “The CFOs at these technology companies are also very optimistic that 404 costs will stabilize this year. ”

Other major findings of the 2008 BDO Seidman Technology Outlook:

• Executive Compensation Disclosure. Two-thirds (67%) of CFOs at technology businesses indicate that their company ’s compensation plans have been impacted by legislative and regulatory changes, such as 409A and FAS 123R, focused on improved disclosure. Of those impacted, over one-quarter (27%) described the impact as high, thirty-seven percent described the impact as moderate and thirty-six percent said low.
• Little Impact on Recruitment. Despite the impact on compensation plans, the vast majority (81%) of the companies indicate these disclosure changes have had little impact on their ability to attract and retain talent. When asked which financial tool is most effective in recruiting, retaining and motivating executives in the technology industry, forty-two percent cited restricted stock and thirty-eight percent cited stock option grants. Grants of profit interest (11%) and stock appreciation rights (9%) were also cited by a number of the CFOs.
• Reporting Challenges. When asked which financial reporting requirement poses the greatest challenge, in terms of compliance, a large percentage of CFOs identified both Section 404 (49%) and FIN 48 (36%). Only 12% cited 409A and three percent said it was other requirements.
• SOX – Section 404:
  • Benefits. Although there has been much criticism of the difficulties involved in complying with Section 404 of Sarbanes-Oxley, almost two-thirds (65%) of the CFOs of tech businesses feel that 404 has led to improved processes, compared to just over a third (35%) who feel 404 has curtailed innovation at their businesses.
  • Risk? While thirty-nine percent of these financial executives believe Section 404 has curtailed corporate risk-taking at their companies, a majority (59%) feel risk taking has not been impacted.
  • Costs Stabilizing. A majority (53%) of the CFOs believe their 404 compliance costs will stabilize this year, compared to twenty-two percent who anticipate costs to climb and twenty-four percent that expect a decline.
  • Inhouse, Outsource or Co-source. Over half (54%) of technology companies manage their Section 404 compliance functions in-house versus only eleven percent that outsource the function to an external provider. Just over one-third (35%) of the CFOs indicated they manage their 404 compliance through a co-sourcing relationship (a combination of in-house and outsourcing) with an external provider.