The Task Force recommended five guiding principles, urging public companies to:

• Establish a clear link between pay, strategy and performance;

• Adopt best practices; · Eliminate controversial compensation practices–such as excessive golden parachutes, overly generous severance arrangements; gross-ups; and golden coffins–that conflict with notions of fairness and pay for performance;

• Demonstrate credible board oversight of executive compensation; and

• Foster transparency with respect to compensation practices and appropriate dialogue between boards and shareholders.

The task force plans to encourage companies to commit to best practices in executive compensation. AT&T, Cisco Systems, and Hewlett-Packard, are among the companies already committed to adopting the task force’s guiding principles.

For the full report, click HERE.

Grumblings about excessive executive pay have a long history but petulant investors armed with peashooters have now been reinforced by government officials bearing automatic weapons.  Boards are in the cross hairs because it is their direct responsibility to set executive pay and the public is outraged that some people collected huge payouts for blowing up companies that required government bailouts. (Of course, the government itself played a leading role in creating the crisis, but that is another story.)

The public outrage has been duly noted by regulators and politicians and they are doing something about it.  TARP recipients have had their board-approved compensation policies summarily rewritten by the government.   Double-dipping TARP recipients now have a government pay czar micro-managing their entire compensation process. Banking supervisors have announced that they will review compensation policies at all banks to see that pay practices do not incent excessive risk-taking.   Treasury Secretary Geithner has issued principles of compensation that he believes are consistent with sound risk management and long term growth for all firms, not just financial institutions. He is seeking legislation that would require Board compensation committees to be more independent and to be given better access to outside expertise.  Of course, greater independence and resources will mean fewer excuses for failure. The G-20 has announced that its members have reached broad agreement on reforming compensation in financial institutions and will seek to implement similar standards in each participating country.

Taken together, the various government pronouncements place the onus squarely on the Board to be much more assertive in carrying out its duty to design and oversee the company’s compensation plans.  This time the government will be watching to see if  Boards are serious about linking the amount and form of pay to long term value creation, to the amount and nature of the risks being taken and to the time horizons over which results are experienced by the company.  The intended result is clear and hard to argue with.  The public does not want to see this movie again:  Executives Walk Away with Millions After Wrecking the Company and Handing the Keys to Taxpayers.

Granted, some of this is common sense. There are some compensation practices that, on their face, create perverse incentives for excessive risk taking, such as mortgage brokers being paid upfront commissions for generating mortgage volume without regard to the ability of the borrowers to repay the loans.  Or institutional sales people being paid big bonuses for selling tranches of long-term, illiquid CDO’s packed with complex and poorly understood risks which will blow up long after the bonus checks are cashed. These, and many other compensation schemes that thrived before the crisis, are variations of  the well-known “trader’s option”.  A trader takes a big risk that management doesn’t see clearly.  Heads, the trader and the firm win big.  Tails, the firm loses big and the trader doesn’t get a bonus or has to get a job elsewhere. Better yet for the trader is pocketing a big bonus that can’t be clawed back after the bet blows up.  A cynical trader’s agenda is simple. Why not take big risks with the firm’s money when the rewards of success are huge and the penalties for failure – in the worst case — are small?  This sort of thing has gone on a long time on Wall Street but never on such a grand scale as during the prelude to the financial crisis. Employees had trader’s options on management. Management had trader’s options on the shareholders.  Shareholders had traders options on the taxpayers.

So why not just use common sense to ferret out all the trader’s options and be done with it?  First, you cannot be sure that you will find and eliminate all the trader’s options if you cannot monitor and limit how much risk  people take.  This requires effective risk management capabilities at ground level.  Second, trader’s options and other perverse temptations must be replaced with other incentives.  What are these new incentives going to be and how will they affect the total amount and types of risk taken by the company?  There is no easy way out because risks must be taken – zero risk means zero profit.

Many boards have wrestled with linking pay to long term value creation, but linking pay to risk-taking is brand new territory for most. Wise boards will conclude that a company with an effective enterprise risk management capability has a much better chance of taking smart, profitable risks, while avoiding excessive risk-taking — and of convincing a skeptical world that it is doing so.

The logical starting point for demonstrating that your compensation plans do not incent excessive risk-taking is to define and quantify the risk you are taking now in comparison to the maximum amount of risk that is prudent for your company to take. This is just the sort of question that an enterprise risk framework is designed to address.  The framework will treat all types of risk consistently so they can be aggregated for the company as a whole. It does this by posing the same question for any and all activities that produce risk: “How much could we lose in a given period of time with a given probability”.  The potential losses from all activities are combined to determine the total risk that the company is taking now. The framework also helps management and the board arrive at a credible number for the maximum risk that is prudent.  One way of doing this is by choosing a target debt rating that is necessary for a sustainable and successful business strategy and observing the potential loss that is associated with that debt rating. If the total risk of the company exceeds the maximum prudent risk, the company is, by definition, taking excessive risk.

These risk assessments are not easy or uncontroversial. Many assumptions and judgment calls are required.  In fact, many firms did this badly in the run up to the financial crisis, providing a painful learning experience.  Despite the difficulties,  a company that uses best practice risk management methodologies to determine if it is taking excessive risks will be in a far stronger position to defend itself than a company that relies only on uniformed, seat-of-the-pants guesswork.

With these risk tools in place, the other elements of a defendable compensation system can be more easily identified and implemented.  Risks must be tracked so that they can be visible to management and be available as input into the compensation process. Excessive risk-taking is much more likely in a company where risks are hidden, ignored or not subject to enforceable limits.  Decisions must be made about who is responsible for taking each kind of risk and how much risk they will be allowed to take.  The company must decide how risk-adjusted performance of business units or individuals will be measured.  One established method is to adjust earnings by subtracting a risk capital charge proportional to the risks that are taken.

With this solid foundation, the compensation committee can address the crucial question of how much to pay for risk-adjusted performance. Many factors come in to play here that require balanced judgment.  The most difficult issue may be reconciling a risk adjusted compensation plan to the realities of the talent market. If that market continues to ignore risk,  then the company may lose people for doing the right thing. But if  the current public mood persists, risk-adjusted performance will emerge as a prominent element of any defensible compensation system.

Before getting enmeshed in the narrow technicalities and conventional wisdom of different compensation formulas, the Board should remember that compensation is only one part of a much bigger question: Is the company doing a good job of assessing and managing its enterprise risks?  If not, diving right in to complicated  compensation schemes is putting the cart before the horse.  If a company does not have or is not building effective enterprise risk management, it will not be in a position to know what its risks are in the first place and it will be poorly positioned to demonstrate that its compensation practices do not incent excessive risks or value-destroying business decisions.

Dan Borge is a director at LECG, an expert services group, in New York.

Among Equilar’s findings:

• In 2008, CEOs at Fortune 100 companies received $348,101 in total other compensation compared to $356,175 in 2007.

• Use of the corporate aircraft by Fortune 100 CEOs rose by 28.9 percent from 2007 to 2008, increasing from $109,743 to $141,477.

• In 2008, 74 percent of Fortune 100 companies reported an increase in pension benefits for their CEO–$10.7 million in 2008 compared to $10.3 million in 2007.

• Median value of nonqualified deferred compensation plan balanced fell from approximately $4.8 million in 2007 to $3.6 million in 2008.

• In 2007, 21.1 percent of Fortune 100 companies reported eliminated perquisites, compared to 29.2 percent in 2008.

In 2009, public backlash led to the decline of many of these perquisites. David Sasaki, associate research manager at Equilar notes that overall perquisites began to decline after the big three automakers used corporate planes to travel to Washington while requesting a taxpayer-funded bailout. “The area that has seen the most scrutiny is tax gross-up payments on perquisites, where companies pay for the taxes incurred from the receipt of a benefit such as personal aircraft usage,” adds Sasaki. “At least 11 Fortune 100 firms have cut this benefit and there are likely more since the data for this report was gathered.”

With new Securities and Exchange Commission disclosure rules in effect for three years, it is now possible to compare data from fiscal years 2007 and 2008. In 2008, 29.2 percent of Fortune 100 companies reported the elimination of certain perquisite programs. These cuts either occurred during 2008 or will occur in the upcoming 2009 fiscal year. According to Equilar, among companies eliminating executive perquisites in 2008 and 2009, tax reimbursements, financial planning, and personal use of corporate aircraft were discontinued most frequently.

Directorship: What is Wall Street thinking when it pays these huge bonuses in this economy?

David Weild: From Wall Street CEOs down to the business unit heads, they are smart enough to understand the social and political implications in their pay decisions. Yet they are bound by their business instincts to think first about one thing: “How do we retain our key talent.”

Essentially, every manager of every investment bank goes through an exercise every year of:

1. What are competitors saying they will pay comparable staff (firms need to know this so that they can assess the risk of keeping/losing an employee)?
2. Who are my key franchise-maintaining performers/producers and how do I have to pay them to ensure that I keep them?
3. Who are the people that if they leave, won’t adversely impact our franchise? (typically, you take money that you might have paid to these folks and make sure you take care of the key talent).
4. Even if the corporation lost money this year, what lines of business were highly profitable where if we don’t pay up to keep these people we will lose them to the competition?

D: What about those who appear to take advantage of the latest short-term financial dislocation? Derivatives being the latest in a long line.

D.W.: When new businesses emerge on Wall Street (for example, mortgage-backed securities in the ‘80s, high yield in the early ‘80s, derivatives in the ‘90s) there are a limited number of qualified professionals, margins are fat, the market is growing and everyone competes for this talent. Demand exceeds supply.  If a firm undercompensates key talent, the business goes into decline and the cost to shareholders is higher than if they had paid higher competitive compensation to begin with.

However, a new product may have these dynamics for only a decade or so and the talent then oftentimes needs to find a new career. When we see a market dislocation, such as occurred during the S&L Crisis over a decade ago, or the Credit Crisis of 2008, it is a signal that prompt attention is needed – the opportunities created can be enormous however short-lived but the risks may be equally large and often unknown.  The economy needs this combination of outsized opportunity to attract the capital flows and talent needed to develop it effectively. Then, effective risk management is needed as a counterweight to staunch the potential economic wounds.

D: Is Wall Street ever guilty of overpaying?

D.W.: Yes, there are plenty of times when firms try and buy talent to build new businesses and in that process they overpay for people. There are plenty of instances where a lot of money gets spent on salespeople, traders and bankers and the firm’s shareholders never make a dime – it could be because the plan was flawed to begin with (there have been plenty of financial supermarket ideas that hoped to get synergies from cross-selling insurance and brokerage products which never worked out – AXA-DLJ, Prudential Insurance-Bache Halsey Stuart Shields, Travelers Insurance-Smith Barney – but firms didn’t know they wouldn’t work out until after they made the investment). Or, it could be that the plan is underfunded and the firm can’t stay the course. Or, it could be that the market turned against the strategy, as it sometimes does (think about how trading spreads were crushed in the equities business by decimalization or how retail brokerage commissions were disintermediated by online trading).

D: How should we look at Wall Street compensation then, what factors should be considered?

D.W.: The fact that pay is so high on Wall Street ignores the risks and the lack of longevity/stability for professionals.  Doctors and lawyers, frankly, have much lower career risk. I say this for three reasons:

1. Wall Street is extremely Darwinian.  They hire the best.  Eighty hour weeks for young bankers are the norm.  The stress of trading is the stuff of legends.
2. Turnover/purging of professionals is extremely high. When I was at Prudential Securities, I once calculated that, after 10 years, I was the last of 30 professionals that remained.  I made it another 4 years before there was a change at the top – reporting lines were changed and I was caught in the political purge that ensued.  Market cycles are very ugly on the downside with mass terminations not uncommon.   Staff is arguably compensated for a total lack of job security with high pay.
3. Enormous amounts of money are at stake.  To hire and retain the best, you need to pay competitively.   Goldman Sachs has hired and retained the best and pays the most and of the large firms has arguably performed the best.
4. Rampant age discrimination.  The law protects older employees from disproportionate firings.  However, the law does not require that older people get hired proportionately.  As a result, the likelihood that anyone will make it to 50 in an investment bank or senior trading role is low in comparison to other businesses.

D: The bottom line?

D.W.: Pay is high on Wall Street because it needs to be.   The right way to control it is not to regulate pay but to regulate risk taking. Then, consider related issues like the all important transaction incentive, and, above all, increased transparency. The market can do a better job of fixing the economy than the government but for that to occur, economic incentives must be better aligned with long-term public interest.   Consider, for example, how unsustainable teaser rates and no-money down mortgages created dangerous economic incentives.  Similarly, allowing market participants to package and sell securities without retaining any risk or responsibility for these instruments fomented full blown systemic risk. Taking profitability out of supporting small capitalization equities depresses the entrepreneurial economy by undermining the functioning of the IPO feeder system to the public stock markets.

We need better-informed legislation and regulation to create proper incentives, checks and balances.  The bottom line:  Put the carrot in the right place but keep the carrot.

David Weild is a senior advisor at Grant Thornton and Chairman of Capital Markets Advisory Partners, a capital markets think-tank. He can be reached at: David.Weild@GT.com

On July 31, 2009, the House of Representatives approved the Corporate and Financial Institution Compensation Fairness Act of 2009. Rep. Barney Frank (D-MA) introduced legislation that would require an annual, non-binding advisory shareholder vote on pay, as well as increasing regulatory standards related to compensation committee independence at all public companies. Certain provisions will also apply to certain financial institutions that intend to discourage excessive risks by imposing significant new restrictions on the use of compensation incentives.

The provisions on say on pay are expected to take effect during the 2011 proxy season. This would apply a year later than legislation proposed by the Treasury, attached to the Investor Protection Act of 2009, also introduced in July.

Key provisions of the House-approved bill are summarized below.

Say on Pay
Annual Shareholder Approval of Executive Compensation: All public companies must give their shareholders an annual, non-binding vote on executive compensation matters disclosed in the proxy statement for named executive officers, including the Compensation Committee Report, the CD&A, the compensation tables and any related
materials.

• PM&P Observation: Congressional opponents of this provision unsuccessfully sought to replace it with a triennial shareholder vote, rather than an annual vote – a concept originally proposed by the pension fund of the United Brotherhood of Carpenters and Joiners.

Shareholder Approval of Golden Parachute Arrangements: In the event of a change-incontrol transaction (i.e., acquisition, merger or asset sale), shareholders of public companies must be given a non-binding vote on any compensation agreements related to the transaction with named executive officers. This information must be provided in the transaction’s proxy statement in a “clear and simple form.”

Disclosure of Institutional Shareholder Votes: Any institutional investment manager owning at least $100 million of equity at some point during the preceding 12 months must annually report any vote it cast on an executive compensation or parachute arrangement, unless such vote would be publicly reported elsewhere.

Potential Exceptions: The SEC has discretion to exempt certain filers. As an example, the Act cites the potential impact on smaller reporting issuers (historically defined by the SEC as companies with a public float of less than $75 million).

Effective Date: The SEC must issue rules within six months of the Act becoming law. Shareholder votes would be required to be included in any proxies filed on or after six months following the promulgation of the rules.

• PM&P Observation: Importantly, mandatory Say on Pay for most public companies may well be pushed into the 2011 proxy season, unless the dates are amended as the bill is considered in the Senate.

Compensation Committee Independence
Stricter Standards of Independence for Members: To be considered independent, Committee members cannot accept any consulting, advisory, or other fees outside of pay received for their board service.

Compensation Consultants: Any compensation consultant retained by the Committee must be independent within standards to be established by SEC regulation. Importantly, such regulations must be “competitively neutral among categories of consultants” and preserve the Committee’s ability to retain the services of members of any such category.

Disclosure: Companies must disclose in their proxy materials whether the Committee retained and obtained the advice of a compensation consultant meeting SEC standards for independence. Interestingly, the final Act does not include language from an earlier draft that would have required an additional potentially awkward disclosure as to why a
Committee chose not to hire an independent consultant.

Authority of Committee Relating to Compensation Consultants, Counsel and Advisors: The Committee retains sole authority (but not the obligation) to hire, compensate and oversee the work of independent compensation consultants, counsel and other advisors. However, the Act is clear that the Committee is free to accept or reject the individual’s advice, and members remain obligated to exercise their own judgment in fulfillment of their duties.

Potential Exceptions: As with Say on Pay, the SEC can exempt certain filers from these requirements as it deems appropriate, giving consideration to, as in the earlier example, smaller reporting issuers.

Committee Funding: Companies must provide adequate funding, as determined by their Compensation Committee, for the hiring of independent compensation consultants, counsel or other outside advisors.

Study and Review: The SEC will conduct a two-year study, to be submitted to Congress, examining the use of independent consultants by Compensation Committees.

Effective Dates: Companies must meet the member and outside advisor independence standards within nine months of the passage of the Act, or risk delisting from the respective stock exchange. The disclosure requirements are effective for proxies filed on or after the first anniversary of the passage of the Act (in most cases, the 2011 proxy season).

Enhanced Reporting and Regulation of Compensation Incentives at Financial Institutions
Applicability and Definitions: This requirement only applies to “covered financial institutions,” defined as any depository institution, registered broker-dealers, credit unions, investment advisors, Fannie Mae, Freddie Mac and other institutions that the Federal regulator determines should be subject to this section. The Act defines a “Federal regulator” as the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Board of the FDIC, the Directors of the Office of Thrift Supervision, the National Credit Union Administration Board, the SEC and the Federal Housing Finance Agency.

Disclosure of Incentive Programs: Covered financial institutions must disclose to the appropriate Federal regulator the structures of all incentive-based compensation arrangements sufficient to determine whether they: (i) are aligned with sound risk management; (ii) account for the time horizon of risk; and (iii) meet other criteria deemed appropriate by the Federal regulator to discourage overly risky employee behavior that could threaten the safety and soundness of the company or seriously adversely affect economic conditions or financial stability.

Prohibition on Certain Incentive Arrangements: The appropriate Federal regulator will issue regulations prohibiting any incentive arrangements or features determined to encourage risks that could threaten the safety and soundness of the company or have serious adverse effects on economic conditions or financial stability. There is a limited grandfathering rule that would protect from government recovery any incentive compensation paid under an arrangement that is in place when the Act is passed and does not extend for more than 24 months.

Exceptions/Clarifications: Covered financial institutions with assets of less than $1 billion are exempt from the disclosure/prohibition requirements. The Act specifically states that companies are not required to report compensation provided to any individual employee, and also clarifies that companies do not need to make disclosures under this section if they do not have incentive-based payment arrangements.

Study: The Comptroller General will study the relationship between compensation structures and excessive risk taking, focusing on: (i) compensation structures used between 2000 and 2008; and (ii) a comparison of companies that failed, or nearly failed, to companies that remained viable throughout 2007 and 2008, including the compensation practices of such companies. The Act defines companies that “failed or nearly failed” as those that received “exceptional assistance” under the TARP (AIG, Citigroup, Bank of America, Chrysler, GM, GMAC and Chrysler Financial), and companies that participated in the AIFP, TIP, AGP and SSFI Programs. It also includes Fannie Mae, Freddie Mac and companies that participated in the SEC’s Consolidated Supervised Entities Program as of January 1, 2008.

Effective Dates: Federal regulators will complete regulations for these requirements within nine months of the Act’s passage, and the study of incentive use will be completed within one year of passage.

Conclusion
A battle is anticipated over the details of this House-passed bill, particularly the regulation of financial sector compensation incentives, when it is considered by the Senate this fall. While Say on Pay is not a new concept, having passed the House by a substantial margin two years ago, the regulation of compensation incentives in the financial sector–especially for those companies that did not receive government assistance–is expected to be a significant stumbling block. Government interference in private contracts (as in the recent AIG saga) remains a highly controversial issue and one the Treasury chose not to attach to its own draft of Say on Pay legislation. We will continue to closely monitor and update the status of this legislation.

Pearl Meyer & Partners is an independent compensation consultant.

BT, which is the largest telecom company in the United Kingdom, has adjusted their pay mechanism so that executives will receive a reduction in base pay, but an increase to bonus potential, ensuring that total salaries will only be significant in the event of profitability.

“We set our exec base pay below the average for comparator companies with the potential for our execs to receive above-average pay through variable compensation in return for excellent and sustained performance,” BT said.

BT lost $2.1 billion in Q4 2008 due to failures at BT Global Services, its network and information technology arm. The head of the unit, François Barrault, who resigned in November, receiving a $2.6 million termination fee following his departure.

According to Bloomberg, the SEC is looking to require companies to disclose information regarding the specific experiences that qualify a given director. This would include experience as relates to issues such as compensation and accounting rules.

“What the SEC wants to do is prompt companies to make sure they’re appointing directors who can do the job and not just look pretty on a roster,” says Stephen Davis, a senior fellow at the Millstein Center for Corporate Governance and Performance.

Some celebrity directors in the past have included cyclist Lance Armstrong (Morgans Hotel Groups), U.S. military veterans General Tommy Franks and Admiral Joseph Prueher (Bank of America), and former basketball hall-of-famer Oscar Robertson (Countrywide).

“Those kinds of people, celebrities, add little to the boards on which they serve,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It’s a problem.”

The statement comes on the heels of reports that Citigroup was increasing many of its employees’ base salaries to offset government restrictions on bonuses.

The Treasury said the administration plans to achieve a balance in the bonus system that would reward top executives’ good performance while discouraging excessive risk taking.

The planned pay increase, however, will not specifically benefit managers and other high-level employees, but is meant as a widespread retaining tool. “Retaining and attracting the best talent is very important to the success of Citi and all its stakeholders,” said the bank.

Figures are as-yet unreported, but people close to the matter said base salaries could rise by as much as 50 percent. Officials from Citi say that the increase base salaries will not result in higher overall payments, as bonuses and other perks would be cut to compensate.

The Royal Bank of Scotland defended its decision to grant its new CEO a pay deal worth as much as 9.6 million pounds, reports the Associated Press.

The bank says it is largely based on performance-related qualities and will benefit shareholders. Stephen Hester’s new pay package is the latest controversy to hit the bank, Britain’s largest government-controlled bank following an industry bailout last year.

The new pay package comes after former CEO Fred Goodwin received a multimillion pound pension, despite being blamed for the aggressive expansion of the bank, ultimately leading to its demise. Under that agreement, Hester will receive a fixed 1.65 million pound cash payment, including his 1.2 million pound salary.

RBS chairman Philip Hampton, who was also put in place after the government bailout in October, noted that the majority of Hester’s package is not in cash and based on his performance.

“This means his financial interests are strongly aligned to the interests of all our shareholders in the short-term and over the coming years,” said Hampton. “RBS has the largest balance sheet in world banking so it is critical that Stephen succeeds.”

Hester’s pay package was agreed in the same week that Goodwin agreed to a voluntary cut of his pension payments. Prime Minister Gordon Brown threatened legal action against Goodwin after a public and political outcry against Goodwin’s pay. Goodwin agreed to reduce his annual payout from 555,000 pounds to 342,500 pounds a year.

Goldman, which recorded a Q1 2009 net income total of $1.8 billion, has benefited from a lack of competition in the once-thriving banking sector, as well as revenues generated from lucrative currency trading. July will see the release of the firm’s second-quarter profits, which are expected to be impressive.

Goldman has told staff that they will receive record bonus hikes should the firm continue its run of profit. Company CEO Lloyd Blankfein said in a letter tot lawmakers last week that Goldman must “ensure that compensation reflects the true performance of the firm and motivates proper behavior.”

Staff numbers at Goldman total approximately 28,000; over 900 employees were paid bonuses of $1 million or more last year, in spite of the recession.

Obama’s recent appointment of an executive compensation czar to oversee pay at companies that have received federal assistance could result in the government’s eventually dictating executive compensation practices for all companies, reports the Dallas Morning News.

“This is the type of thing that could be a nice great experiment, and they may decide that if the rest of America can’t get its act together, there may be something similar coming through,” said Bruce Ellig, author of The Complete Guide to Executive Compensation. “This could be a broad-gauge extension across industries.”

Kenneth Feinberg is the new czar who will set the pay for 175 top executives at seven companies that received federal assistance.

While Feinberg may not be concerned with the 100 largest companies in Dallas-Fort Worth, Congress might directly influence executive pay.

The top paid Dallas-Fort Worth executive was Keith Hutton, CEO of XTO Energy, a Forth Worth-based natural gas company. Hutton was paid a total of $29.7 million, which includes his base salary, cash incentives, long-term stock or option awards, change in pension value, nonqualified deferred compensation and any other compensation.

Feinberg’s recent appointment may be the first step in which the government has more oversight over executive compensation.

Two top bonus earners are two former bankers at the recently-acquired Merrill Lynch, new BofA vice chairman of investment banking Fares Noujaim, and executive vice chairman of investing Harry McMahon.

Noujaim received an offer of $15 million over two years, with an additional $5 million retention bonus. McMahon’s specific bonus was unreported.

“Competitive recruiting in investment banking and capital markets continues to be very intense and we’re taking the steps necessary to retain key talent in response to competitive pressures,” said a BofA spokesperson.

The former CEO of the bailed-out Royal Bank of Scotland Group (RBS), Sir Fred Goodwin, has agreed to forgo about half his pension, which led to public outrage earlier this year, reports The Wall Street Journal.

Goodwin was awarded a annual pension of £703,000, which included credit for ten additional years of work. His normal pension would have been £579,000. Under the new agreement, his pension is approximately £342,500 per year.

Goodwin’s original pension created such ire in Britain that he has avoided being seen publicly, especially after his Edinburgh home was vandalized. Many see him as the cause of RBS’s near-collapse as well as a symbol for the banker excess and greed that led to the financial crisis. Currently, the U.K. government owns 70 percent of RBS.

“Yes, I was angry,” said Greenberg, responding to a question from AIG’s lawyer Theodore Wells.

Wells argued that Greenberg, through his private firm Starr International, raided an AIG retirement program holding $4.3 billion in stock because he was angry about being ousted in March 2005.

In July 2005, Greenberg stepped down as chairman while Starr’s other shareholders restated the purpose of the fund. In a memo that Wells presented in court yesterday, Starr’s shareholders said they rescinded previously stated purposes of the fund and reaffirmed the fund’s “ultimate purpose” as a charitable trust.

“I don’t think we had an obligation to tell them that,” Greenberg said.

There was a video played in court where Greenberg told retirement plan participants at the time that there were “sufficient shares in the trust for a couple hundred years.” But later noted that he was exaggerating because it was a motivational speech.

After dismissing the jury for the day, U.S. District Judge Jed S. Rakoff asked Greenberg if he had moved the funds to Bermuda to avoid the possibility of “attachment,” a legal procedure where someone seizes property.

“Yes, it was,” Greenberg answered.

The civil trial that began on Monday is expected to last as long as a month. Greenberg is expected to take the stand again later today.

In Georgia, executive pay for senior executive rose three percent in 2008 to $1.88 million, according to an Atlanta Journal-Constitution analysis of pay packages of more than 100 executives at Georgia’s 20 largest publicly owned companies.

The increase came in a year when 13 of the 20 companies saw their net income fall, and 17 saw the price of their stock drop. About a third of the executives studied did not receive performance-based short-term bonus or incentive payments in 2008, the SEC filings showed. That was nearly three times as many as missed such payments, made for meeting financial goals, in 2007.

Neville Isdell, former Coca-Cola chairman and CEO, ranked first in the AJC survey with a pay package valued at $23.1 million, up 7 percent from the year before. Still, critics of executive pay and increased shareholder activism are expected to reform the system, possibly leading to a drop in these numbers.

Steve Kaplan, from the Harvard Business Review, writes that his research indicates that CEO pay has failed to keep pace with the rising competition of top hedge fund managers, investment bankers, private equity investors, money managers, and lawyers.

The research found that: pay of other groups has increased substantially since the mid-1990s, and by at least the same order of magnitude as the CEOs’–evidence that CEOs aren’t benefiting from cozy relationships with boards—CEO pay in the U.S. peaked around 2000; average pay has declined since then while median pay has been flat; average and median pay for S&P 500 CEOs declined in 2008 and are likely to do so again in 2009; CEOs made up only about 3 percent of the people with the top 0.1 percent of U.S. adjusted gross income in 2004-2005, a fraction that was little changed from a decade earlier; and the top 20 hedge fund managers earned more than $20 billion in 2007, substantially more than the $7.5 billion combined income of all of the 500 CEOs of the S&P 500.

American International Group is taking former CEO Maurice R. Greenberg to court, accusing him of ransacking a trust that it says was set to pay top performers, reports The New York Times.

AIG contends that Greenberg unlawfully took $4.3 billion in stock in 2005, the year he was forced out as CEO. Greenberg and his lawyers say that those AIG shares, owned by Starr International, a privately held company where he serves as chairman, were not held in a trust at all.

Greenberg had the authority to sell the shares and invest the proceeds in new offshore insurance businesses and in a new charitable arm.

Greenberg sold the $4.3 billion block of stock in 2005, long before the price crashed, keeping much of his personal fortune in AIG shares. When the government took a 79.9 percent stake in the company, Greenberg and other shareholders essentially lost everything they had invested.

AIG will be represented by Theodore V. Wells Jr., a white-collar criminal defense lawyer whose clients have included I. Lewis Libby Jr., known as Scooter, the former chief of staff to the former vice president; and one-time junk-bond financier, Michael R. Milken.

AIG contends that Starr International was a “compensation trust,” fulfilling the wishes of Starr, who died in 1968. Greenberg is expected to argue that the only trust that existed was Starr International’s charitable arm, which is also its sole shareholder.

The Treasury Department appointed Washington lawyer, Kenneth R. Feinberg, to oversee the compensation of employees at the seven companies receiving financial assistance from the government, reports The New York Times.

American International Group, Citigroup, Bank of America, General Motors, and Chrysler are among the recipients of government funds.

Feinberg will have the broad discretion to set the salaries and bonuses for their five most senior executives and their 20 most highly paid employees.

The new plan calls on Congress to adopt legislation that would let shareholders vote on pay levels and require public companies to strengthen the independence of board panels that set up executive pay.

However, the proposal is not deemed harsh by companies receiving or not receiving aid. The rules do not dig deep into corporate boardrooms, government officials said.

Still, the new rules leave once juggernaut corporations leaving their leaders’ salaries to be determined to a Washington paymaster. Feinberg will be responsible for setting the pay of Citigroup CEO Vikram S. Pandit, whose total pay came to $38 million in 2008; Kenneth D. Lewis, CEO of Bank of America, who received $9 million in 2008; and Fritz Henderson, CEO of General Motors, who received $8.7 million last year when he was president of the company.

There is currently no salary cap at the seven companies, but if they limit executive pay to no more than $500,000, Feinberg’s approval will be automatic.

Feinberg will also have the right to review the compensation for the 100 most highly paid employees and any other executives. He will serve as an advisor in establishing an overall compensation structure at companies that have received federal assistance.

The Obama administration is preparing to enact new guidelines on compensation that would take effect across the financial sector, reports The New York Times.

Along with these guidelines, the administration is also preparing to announce new regulations that would restrict the bonuses of executives at financial firms that received TARP funds to no greater than one-third of their annual salaries. Both of these new regulations would expand on the previous regulations that only applied to banks that were given “exceptional assistance” from the government.

”A centerpiece of sensible reforms will be to tie compensation to better measures of long-term investment and return and to adjust them to reflect the risk,” Treasury Secretary Timothy Geithner told a Senate appropriations subcommittee on Tuesday.

A private meeting between Geithner, Securities and Exchange Commission (SEC) chair Mary Schapiro, Federal Reserve Governor Dan Tarullo and executive pay experts to discuss the new guidelines and compensation policies. Under the new regulations, the Federal Reserve and the SEC would set the compensation guidelines.