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Investors Want Lasting Changes in Executive Compensation Policies, Not Window Dressing Says CFA Institute Centre for Financial Market Integrity

New York, March 13, 2008 − In the wake of Congressional hearings on executive compensation and the continued distress of the global investment markets, the CFA Institute Centre for Financial Market Integrity today restated its call on behalf of investors worldwide for improved disclosure, transparency, and shareowner influence on executive pay practices.

“The attention of the public, regulators, and Congress may have had a positive effect in limiting some of the more egregious pay packages, but there is more work to be done,” said Kurt Schacht, CFA, managing director of the CFA Institute Centre. “Considering the extent and apparent misunderstanding of subprime exposures, it is curious to see CEOs depart with compensation arrangements that tended to preserve, and in some cases, accelerated unvested benefits. Granted, companies now seem sensitive to the disconnect between pay and performance and the use of excessive employment agreements. However, given the magnitude and severity of the subprime impacts, one would expect those in charge to have likewise suffered some personal financial loss.”

 “Unfortunately a board can change even the most thoughtfully designed compensation arrangements mid-stream, to the detriment of investors,” added James Allen, CFA, senior policy director for the CFA Institute Centre’s capital markets policy group. He cited the decisions to allow the Merrill Lynch and Citigroup CEOs to retire rather than be terminated. “Investors are looking for lasting changes and not just window dressing to placate the subprime moment. The recent announcement by Washington Mutual to exclude mortgage loan loss provisioning from the underlying calculations of incentive compensation does not bode well for strengthening compensation accountability,” said Allen.

Allen noted that “shareowners, management, and directors alike should enjoy the rewards of a successful enterprise. Vigilance is important to ensuring that incentives are properly calibrated and aligned. Companies need to go further than managing the public relations challenges of executive compensation. Success in managing corporate risks must rank alongside corporate returns in determining rewards.”

Schacht added that corporate reaction to the SEC’s recent efforts to improve pay disclosures have fallen short, resulting in another exercise in corporate boilerplate. “We endorse the SEC’s call for increased substance in executive compensation disclosures, including information about the metrics used in determining incentives,” said Schacht.

In December 2007 the CFA Institute Centre asked the SEC for improvements to its executive compensation and related-party disclosure rules. In its letter, the CFA Institute Centre recommended 10 changes to existing SEC rules, such as limiting companies' ability to use "competitive considerations" as a reason to avoid disclosure of compensation strategy and disclosing the role a company's CEO played in determining his/her own compensation (see letter).

The CFA Institute Centre is the arm of CFA Institute dedicated to promoting fair and open markets on behalf of its more than 94,000 members and investment professionals who practice in 135 countries. It acts as an advocate for investor protection and high professional standards. (View the CFA Institute Centre’s official position briefing book.)

CFA Institute Centre for Financial Market Integrity
The CFA Institute Centre develops timely, practical solutions to global capital market issues. Established in 2004, the CFA Institute Centre builds upon the CFA Institute mission to lead the investment profession globally by setting the highest standards of ethics, education and professional excellence. It carries forward the organization’s 60-year history of standards and advocacy work, especially its Code of Ethics and Standards of Professional Conduct for the investment profession. More information may be found at www.cfainstitute.org/centre.

CFA Institute
CFA Institute is the global membership association that administers the Chartered Financial Analyst (CFA) and Certificate in Investment Performance Measurement (CIPM) curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 94,000 members, who include the world’s 81,000 CFA charterholders, in 131 countries and territories, as well as 135 affiliated professional societies in 56 countries and territories. More information may be found at www.cfainstitute.org. (Bloomberg users can find CFA Institute at 497458Z).