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Putting a Pricetag on Executive Compensation
Pearl Meyer & Partners’ Survey Shows Tally Sheets Becoming Key Tool For Capturing Real Costs of Complex Packages—Yet Many Boards Never Told Results

Boston, November 29, 2005 - Wary of being taken by surprise by unexpected windfalls owed to senior executives, companies are turning to tally sheets to better understand the real total costs of complicated compensation and benefits packages, according to a new survey by compensation consultants Pearl Meyer & Partners (PM&P). Tally sheets – which itemize the cost of many elements of benefits and compensation—are most often being used by companies to project the potential financial impact of a senior executive departing as a result of retirement, termination, change-of-control, or other circumstances.

“Putting together tally sheets is a new exercise for Compensation Committees, which have put a priority on better understanding and controlling the actual costs of executive compensation,” said Joseph Rich, President of Pearl Meyer & Partners. “The real story highlighted by our survey is that the use of these analytic instruments is on the rise. Only 14% of our respondents do not intend to develop a tally sheet, which indicates that more and more companies consider them an essential tool for understanding the interaction between various compensation and benefits elements.”

According to the recent opt-in PM&P survey, of responding firms, 44% have currently completed or are in the process of completing tally sheets. An additional 23% of responding firms are considering tally sheet development. Among public companies responding to the survey, nearly three-quarters (73%) are currently using or considering tally sheets.

The PM&P survey found that tally sheets tend to focus on Chief Executives (89%) and Named Executive Officers (72%), with only 34% of respondents expanding coverage to Section 16b officers.

Only about one-third (38%) of the survey respondents indicated that their Compensation Committees shared the results with their full Boards of Directors. “This relatively low number highlights that the results of tally sheets are not as widely used as we might have predicted,” said Rich. “However, we anticipate that percentage will increase sharply as tally sheets and their use evolve.”

The Outlook for Tally Sheets
The PM&P survey results underscore Rich’s notion of tally sheet evolution. Among the responding companies using or in the process of developing tally sheets, not all are yet conducting them as frequently as they intend, or including every element of compensation or benefits they consider important:

• 75% of firms who currently use tally sheets indicated that they intend to complete tally sheet analysis on an annual basis
• 74% of firms who are considering or do not yet use tally sheets also indicated that tally sheets should be implemented on an annual basis
• Only 43% indicated that information about company performance on incentive payments is currently included, yet
• 67% of all respondents indicated that information should be in tally sheets
• 43% also indicated that information about impact of company performance on equity incentive values is in current tally sheets, while going forward 63% indicated that this information should be included
• 72% of all respondents indicated that the impact of change in control arrangements were already part of current or planned tally sheets

The “One Number” Myth
Given negative headlines about high profile outsized executive paychecks—many of which were associated with acquisitions and terminations—Rich said that arriving at a single, definitive bottom line for the cost of executive compensation has become something of a holy grail among both Directors and some regulators. “In reality,” Rich said, “it is unrealistic.”

“The ‘one-number’ sentiment is valuable and is pushing firms, compensation committees, and service providers to re-think compensation and how that data is presented,” Rich continued. “But the bottom-line cost of CEO pay differs widely based on the circumstances under which payment is due, including a possible separation or acquisition, and how well the individual and the firm performed over time.”

About the Survey
The survey group is composed of 107 cross-industry organizations, of which 82% are publicly held, for-profit companies. The survey was conducted in September 2005. To request an executive summary of the survey results go to www.pearlmeyer.com.

About Pearl Meyer & Partners
Founded in 1989, Pearl Meyer & Partners is recognized for its counsel to Board Compensation Committees and senior managements. The firm specializes in the evaluation, design, development and implementation of compensation programs for executives, employees and Boards, as well as issues related to corporate governance. Services also include customized marketplace surveys, organizational development and sales incentives, all supported by strong actuarial and benefits expertise. Headquartered in New York, Pearl Meyer & Partners maintains offices in Atlanta, Boston, Charlotte, Chicago, Houston and Los Angeles.

Pearl Meyer & Partners is a practice of Clark Consulting (NYSE: CLK), a leading publicly traded firm in its field, serving more than 3,800 U.S. companies nationwide with comprehensive advice on the design, financing and administration of compensation and benefit programs.

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