The following day, the Denver Regional Office sponsored the largest securities conference in the region, the 40th Rocky Mountain Securities Conference (begun during the reign of Bob Davenport who served as the head of the Denver Regional Office).  With George Curtis acting as chair, he attracted a considerable number of out of town dignitaries to the conference, including Chairman Cox, former Chairman Levitt, Senator Sarbanes, Linda Thomsen and Walter Ricciardi, the top two people in the Division of Enforcement, John White, head of Corp-Fin, Charles Niemeier from the PCAOB and Judge Stanley Sporkin.  The cast included a number of folks from the Denver Regional Office, including Amy Norwood, Assistant Regional Director, Don Hoerl, associate regional director, and Kevin Goodman, associate regional director, regulation.  

Students from The Race to the Bottom attended the conference and have written posts on the remarks.  These posts will appear throughout the day.

The theme of the panel was a look back at six years of SOX. Panelists defended the law, while noting that changes need to be made in the way it is implemented. Senator Sarbanes described the state of the nation before SOX, saying that there is danger of collective amnesia about how severely Enron and Worldcom affected investor confidence at the time. He justified the process of passing SOX, saying it was not, as has been asserted, a rushed job but included extensive committee meetings with “lots of experts.” And after all, said the Senator, Section 404 is really only two simple paragraphs.

Senator Sarbanes is proud of the fact that the bill had true bi-partisan support, as evidenced by the final committee vote of 17-4. His sentiments were echoed by Chairman Cox, who compared the significance of SOX to the 1933 Act, saying both came out of extensive country-wide dialogue on what was wrong with the system at the time and how it needed to be fixed. Senator Sarbanes remarked that “A crisis is a terrible thing to waste.”

Not surprisingly, Chairman Cox believes the benefits of SOX outweigh its limitations and costs (while mentioning that the SEC is surveying costs). Not only has it been good for investor confidence in the U.S., but the “rest of the world” likes it, approves it, and has copied it. “The global consequences are not without difficulty, but net, net—it is all to the good.”

Chairman Levitt spoke briefly and directly to his point: “Enforcement is the soul of the Commission.” Asserting that the test of whether a system or structure is “good” is its ability to change, he said, “Every time I came up with the perfect solution, in about two months it became imperfect, and we had to change it again.” Chairman Levitt referenced Secretary Paulsen’s recently-issued Blueprint, saying that while the ideas will be debated for several years, Paulsen did the country a favor by raising the issues. However, the suggestion for a principles-based regulatory system—which Levitt described as “mushy”--is “dead wrong.”

Prof Brown asked why Sec 307 (requiring corporate counsel to report infractions up the ladder) was included. Senator Sarbanes bluntly replied that there was a sentiment to “beat up” on lawyers equally with accountants. But he noted that the bill stopped short of requiring counsel to go outside the company, leaving the issue of “noisy withdrawal” to continue to be debated.

In answer to what impact SOX has had on SEC operations, Chairman Cox quoted statistics to support the obvious answer that SOX changed the scale of the agency. The SEC went from reviewing 500 companies in 2002 to 45,000 now. It is responsible for distributing billions of “fair funds” fees. Went from a budget of $514 million in 2002 to $811 million by 2004. (When asked if he thinks the current budget is enough, Chairman Levitt’s one word answer: “No.”)

Throughout the panel, and indeed throughout the day, Chairman Cox and other Commission officials gave the sold-out conference attendees a head’s up on areas of increased SEC activity. The Commission is now the regulatory agency for credit rating agencies. A “close study” is being done on auction-rate securities. Continued development of on-line information. A summary of the comments from the enforcement panel of SEC notables will be provided in another post.

Information about the 40th Annual Rocky Mountain Securities Conference can be found here.

With that in mind, that Harvard Law School just announced a policy of open access to the articles of its faculty.  As the press release noted:

• Under the new policy, HLS will make articles authored by faculty members available in an online repository, whose contents would be searchable and available to other services such as Google Scholar. Authors can also legally distribute the articles on their own websites, and educators here and elsewhere can freely provide the articles to students, so long as the materials are not used for profit.   

The articles are likely available already on SSRN but that data base only permits searches by abstract, not the contents of the paper.  The data base proposed by the Harvard Law Faculty will allow for textual searches.  The policy will, therefore, facilitate Internet searches, making the information easier to find and likely increasing the number of citations to the pieces in the data base. 

The impact will likely be modest but it does increase the Internet footprint of the Harvard faculty.  Most likely other law schools will follow, particularly those with the resources to implement this type of policy.  It does not, however, do much to advertise the unique ideas in the scholarly work.  For that, other avenues will be necessary, including blog posts that are written in an accessible format that link to papers and articles providing greater detail on the topic.

It should be noted that The Race to the Bottom is now in the Lexis-Nexis data base, specifically in the newspaper file.  This will also increase the footprint of the Blog, one already augmented by the circulation of all posts in the SM Blogwatch, a publication issued by Securities Mosaic, a newsletter distributed to thousands of lawyers operating in the corporate securities area.   

The appellants, Free Enterprise Fund and Beckstead and Watts, LLC, continue their assault on SOX, describing the PCAOB as “by design, vesting public officials with massive unchecked powers,” the exercise of which is “shielded from all political accountability.” In laymen’s terms, the Free Enterprise Fund believes that SOX, and more specifically the PCAOB, places smaller accounting and securities firms at a disadvantage due to what they allege to be over burdensome fees and due diligence regulations.

While the complaint did not challenge any decisions of the Board or the manner in which the Board has carried out its authority, it contested the board’s constitutional authority to act at all by asserting violations of separation of powers and appointments clause violations principles.

Addressing the separation of powers issue, Appellants argue that the district court conclusively asserted, without elaboration, that the President retained sufficient removal and supervisory authority over PCAOB members because “ SEC Commissioners can be removed for cause . . . and PCAOB members can be removed by the SEC .” Dismissing this notion as “non sequitur,” Appellants insist that this structure completely strips the President’s power to remove Board members when the constitutional test for a removal provision is whether the President “retains sufficient supervisory control.”

Regarding the appointment’s clause issue, Appellants describe the ruling that they lacked standing as “meritless.” While the district court agreed that the SEC commissioners are not the “head of the SEC” for purposes of the Appointments Clause, it nonetheless held that Appellants “lack standing” because the Chairman “has voted for each PCAOB member,” so Appellants’ “injury is not traceable to [the] infirmity” of depriving the Chairman of his constitutional appointment power. But, Appellants argue “injury” is precisely the “infirmity” of being regulated by Board members who have not been appointed in a constitutional manner because they were selected by all of the Commissioners, rather than just the Chairman.

During oral argument on April 15^th, Judge Brett Kavanaugh raised numerous questions about the precedent for an independent body such as the PCAOB operating within or under another, such as the SEC, so that board members are two levels away from executive-branch control.

Michael Carvin, who represents the Appellants, responded by characterizing the PCAOB is “an independent agency outside an independent agency," and warned that if the oversight board is found to be constitutional, it could give rise to other powerful government-like bodies with no check on their power and no accountability to elected officials. Attorneys for the PCAOB rejected that assertion, saying the SEC has "pervasive" mechanisms of control over the accounting-oversight board. He compared the oversight board to industry self-regulatory groups such as the New York Stock Exchange or the Financial Industry Regulatory Authority, albeit with more SEC control.

Another issue that generated interest came from Judge Judith Rogers, who questioned whether the oversight board is free to make final decisions without the approval of the SEC, noting that its rules and budget must be authorized by the SEC. While Appellants acknowledged that point they contend that the board's investigative and enforcement activities are immune from SEC review, and that Congress gave the SEC power only to veto the board's actions, not control it on a day-to-day basis or remove board members at will.

The judges did not raise any questions regarding the less heated issue of ripeness, which suggests the argument may not be a persuasive one for the appellate court. Since the Plaintiff challenging the PCAOB did not appeal first to the SEC, Appellees raised a ripeness defense as grounds for a motion for summary judgment.

The primary materials can be found on the DU law corporate governance site. Posts on the district court case can be found here.

This is further proof of the commoditization of the Starbucks product.  Despite all of the efforts at improving quality, the company puts out a commodity that can be obtained in other coffee stores and restaurants, often at a lower price.  The company has not done a particularly good job of emphasizing why the purchase of a latte from Starbucks is better than in other locals.  While the effort to market a special blend of coffee (no doubt expensive but likely to be ineffective) or improve the skills of the baristas may result in a modest improvement in quality, it is unlikely to attract in (or keep) the hordes of coffee drinkers that the company needs to maintain its earnings. 

Some effort has been made to expand the menu, with sports drinks (in partnership with Pepsi) and smoothies, an apparent stab at the health conscious market, and "a more-indulgent sweet, icy beverage developed with an Italian company."  But while none of these products has yet reached the stores, they look to be little more than additional commodities, something that may bring in those seeking the convenient but not resulting in strong consumer loyalty. 

Social responsibility is the answer.  To the extent coffee drinkers think they are improving the world through the purchase of a Starbucks latte, they will be less likely to abandon the company when similar products start to flow at places like McDonalds.  Our poster child for this approach is Chipotle, where eating a burrito is more than a culinary experience.  From the looks of it, it will take some additional bad quarters for the company to realize that it needs to take a different approach against the competition, something that will include social responsibility and, by the way, free Internet.

His appointment got this Blog to thinking about the role of law professors on the Commission.  They actually have a long history of serving on the Securities and Exchange Commission, including two of the early chairmen, William O. Douglas (Yale) and James Landis (Harvard).  Bill Cary, appointed chair by Kennedy, came from academia (Columbia), as did Harold Williams, appointed by Jimmy Carter, although he was teaching in the  Graduate School of Management at the University of California.  More recent examples include Harvey Goldschmid (Columbia), Isaac Hunt (Akron), and David Ruder (Northwestern).  Chairman Cox took a year off from practice to teach at the Harvard Business School.  Others have gone on to law teaching careers, including Joe Grundfest (Stanford) and Roberta Karmel (Brooklyn).     

If anyone knows any others, send in a comment and let us know.

Less often do we have an opportunity to complement decisions so when an opportunity arises, it behooves this Blog to take it.  The decision by VC Lamb in Weiss v. Swanson is a spring-loading/bullet-dodging options case.  Using reasoning in Tyson, and following the reasonable approach articulated in Ryan, he refused to dismiss the case, either on the demand issue or on a motion to dismiss.  Essentially, he found that the pleadings were sufficient to show that the practices had occurred and that the board was not disinterested, mostly for having received the options.  We have a student post on the subject below.

The opinion allows the case to proceed to discovery.  It is altogether possible that after discovery the case will not survive a motion for summary judgment.   But in this instance, the court did not use excessively high pleading standards to prevent the plaintiff from getting at the information he needs to determine what actually happened and whether a fiduciary duty violation occurred.  It is a thoughtful, well reasoned decision. 

Weiss alleged that on 22 occasions between July 1996 and July 2005, Linear Technology Corporation’s board of directors set the strike price of option grants below fair market value to the financial advantage of the defendant directors and officers without disclosing the practice to shareholders. Specifically, Weiss claimed that the board used material, inside information of which they had advanced knowledge to grant options before quarterly earnings releases when the news was good (“spring-loading”), and after quarterly earnings releases when the news was bad (“bullet-dodging”).

As Professor Erik Lie of the University of Iowa points out, timed option grants are not illegal per se when the following conditions are met: 1) none of the documents are fraudulent; 2) the practice is clearly communicated to shareholders; 3) the timing is properly reflected in earnings; and 4) the timing is properly reflected in taxes. Business Week adds that for many companies, the plan’s charter or the company’s bylaws may explicitly prohibit option grant timing.

The court agreed that plaintiff pled sufficient facts to show that the practice of spring-loading and bullet-dodging was material, becoming the first Delaware court to conclude that bullet dodging can be material information.  Weiss, at 13 ("Taking Weiss's allegations in this case as true, it is reasonable to infer that stockholders would consider the practice of timing options described in the complaint to be important in deciding whether to approve the option plans or to reelect board members.").  Nondisclosure of the practices "give rise to an inference that the Director Defendants, in violation of their fiduciary duties, intended to circumvent the restrictions found in the plans." 

In addition, the court found that demand was excused because all of the directors considering demand actually received the challenged options and, as a result, were not disinterested.  In addition, the court noted that the company conducted an internal investigation and concluded that there was "no evidence of fraud or misconduct" in connection with the challenged options.  As the court noted:  "Given the contrary inferences from the complaint, 'the court questions how it is that the interests of the corporation are not, or at least do not appear to be, adverse to the interests of the individual defendants." 

In considering a motion to dismiss in addition to demand excusal, the court concluded that the complaint sufficiently alleged a breach of fiduciary duty in connection with the improper disclosure of the option practices.  Moreover, the plaintiff adequately alleged a claim for waste.  "Weiss alleges that the defendants should not have received any of the timed options at all, and that the grants were approved without any valid corporate purpose."  

The primary materials for this post are available on the DU Corporate Governance website.

On Monday, Aflac shareholders made history by being the first group of shareholders in United States corporate history to vote in a non-binding advisory capacity on executive compensation. In the historic action, shareholders voted 93.05% in support of the company’s executive compensation policies. Only 2.52% voted against the executive compensation policies; the remaining votes were abstentions.

How much of a victory for say on pay does this action represent? On one hand, companies who worry about shareholder actions being adverse to executive interests may breathe a sigh of relief. However, Aflac’s shares were at an all time high last year, and its CEO Dan Amos is very popular with shareholders. So Aflac may not be the best indicator of what may happen with say on pay initiatives in corporations where shareholders have stronger incentives to admonish executives. This year, more that 90 say on pay resolutions were filed. Companies such as Verizon and Blockbuster who are facing similar shareholder action may not find the results so favorable. The Aflac action shows that say on pay need not be problematic for a corporation, but it does not put an end to the concerns.

Most of the directors in the survey received total compensation in the $200,000 to $300,000 range.  A few, particularly those serving on the board of Goldman Sachs, received almost $700,000 in total compensation.  There are several observations that can be made about this data.  The first is that when companies have independent boards, what they really mean is that they have directors who meet a stock exchange definition of independence that does not by any stretch ensure that the directors are independent in fact. 

Second, the size of the fees for some directors no doubt provide an incentive to want to stay on the board.  As we have noted on this Blog, the only real way to remove a director is to have him or her not be renominated by the board.  Proxy contests where shareholders oust existing directors and withhold campaigns where they seek to deny a director a majority of the votes cast rarely occur and when they do, usually fail.  As a result, directors wanting to maintain their position have an incentive to side with management rather than shareholders.  While their fiduciary obligation runs to shareholders, state (read Delaware) law has largely eliminated these obligations, making it easy as a legal matter for directors to take a pro-management stance.  The results of this can be seen most clearly from the rise in CEO compensation. 

Without state law exercising any real restraint and with the exchanges turning a blind eye to the relationship between compensation and independence, the solution looks likely to come from other sources.  The Democratic contenders for president have become proponents of say on pay, suggesting a growing likelihood of increased federal involvement and, frankly, an increased role in the corporate governance process for the SEC.  In this regard, federal involvement must be seen as arising entirely out of the failure of the traditional regulators of corporate governance to adequately ensure that boards act in the best interests of shareholders. 

Finally, the data in these posts demonstrate once again the need for access.  Only when shareholders have access to the company's proxy statement for their nominees and incumbents confront the possibility of losing an election will their attention be more likely to turn to the interests of shareholders. 

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Occidental Petroleum (OXY-NYSE) 2008 proxy statement.

Director Compensation . Occidental Petroleum board met six times last year. Although six directors received more than $100,000 in director’s fees paid in cash, the non-employee directors as a group averaged $392,514 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards and “other compensation,” which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure . Mr. Syriani, the lead director, has a tenure of twenty four years, so there is concern as to whether he remains independent. Additionally, Mr. Syriani chaired the key Audit Committee, despite him not being an Audit Financial Expert. Three Directors have 23 to 27 years tenure each, and there are concerns of independence and succession.

CEO Compensation . The compensation paid to the CEO, Ray R. Irani, was $77,628,745 last year; a relatively small portion of which came in the form of cash ($1,300,000). $1,891,414 of Mr. Irani’s compensation was "other compensation." Roughly half of his compensation was tied to stock awards, and while most of the remaining compensation was in the form of options awards.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Johnson & Johnson’s (JNJ-NYSE) 2008 proxy statement.

Director Compensation . Five directors received more than $100,000 in director’s fees paid in cash, and the non-employee directors as a group averaged $194,304 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure . On average, the non-employee directors have served on the board for 6.5 years. Arnold G. Lango has the longest tenure at seventeen years. Eight of the directors also sit on other boards. One director alone sits on the boards at American Express, Exxon Mobil, and Marriot International.

CEO Compensation . The CEO, William C. Weldon, received $31,916,566 in total compensation last year, a relatively small portion of which came in the form of cash ($1,725,000). Over $3,000,000 of his compensation came from "other compensation," which mostly included dividends equivalents earned as part of a non-equity compensation plan. Almost one third ($9,188,120) of his compensation was tied to non-equity performance incentives and another third ($9,8954,532) was in the form of stock and options awards, the value of which was dependent upon company performance. Change in pension value and other deferred compensation comprised the remaining $7,888,757 of Mr. Weldon’s pay.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from State Street's (STT- NYSE) 2008 proxy statement.

Director Compensation. The board met thirteen times during 2007. The average attendance was 75%. Three directors received more than $100,000 in director’s fees paid in cash, and the non-employee directors as a group averaged $228,575 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules. Providing such a large portion of director’s fees in stock allows State Street to pay its directors handsomely while saving cash and complying with the exchange rules at the same time.

Director Tenure. On average, the non-employee directors have served on the board for over 9.5 years. Robert E. Weissman, the lead independent director, has an nineteen year tenure. Several of the directors also sit on other boards. One director alone sits on the boards at Stone Panels, Nanoscale Components, and Worcester Municipal Research Bureau.

CEO Compensation. One final point of interest is the compensation paid to the CEO, Ronald E. Logue. Mr. Logue recieved $28,344,955 last year, a relatively small portion of which came in the form of direct salary ($1,000,000). The majority of his compensation was stock and options awards worth $16,072,913 and a bonus of $3,750,000. Additionally, Mr. Logue benefitted from the increase in pension value and nonqualified deferred compensation earnings of $7,414,697, and "other compensation" of $107,345.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Disney's (DIS-NYSE) 2008 proxy statement.

Director Compensation. The board met seven times during fiscal 2007. Average attendance was approximately 93%. Although no directors received more than $100,000 in director’s fees paid in cash, the non-employee directors as a group averaged $221,504 in total compensation for their services. As can be seen in the table, much of the directors’ compensation came in the form of stock awards and options grants, which are considered director’s fees for purposes of complying with exchange rules. Providing such a large portion of director’s fees in stock and options allows Disney to pay its directors handsomely while saving cash and complying with the exchange rules.

Director Tenure . On average, the non-employee directors have served on the board for just 4.5 years. Many of the directors also sit on other boards. One director alone sits on the boards at Nike, Inc., Washington Mutual, and Conservation International.

CEO Compensation. One final point of interest is the compensation paid to the CEO, Robert A. Iger. He was paid $27,699,201 last year, a relatively small portion of which came in the form of direct salary ($2,000,000). The majority of his compensation was a cash bonus of $13,670,686, with combined stock and options awards of $10,174,840. Additionally, Mr. Iger benefitted from the increase in pension value and nonqualified deferred compensation earnings of $1,108,498 and "other compensation" of $739,852. This included personal air travel, security, and "other," which can include vehicle benefits, health club membership, an annual physical exam and financial consulting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Baxter’s (BAX-NYSE) 2008 proxy statement.

		Fees Earned or				Stock				Options				All Other
		Paid in Cash				Awards				Awards				Compensation
Name		($)(1)				($)(2)				($)(3)				($)(4)				Total ($)
Walter E. Boomer			$81,500			$	59,926			$	61,638			$	1,531			$	204,595
Blake E. Devitt			93,500				59,926				61,638				1,498				216,562
John D. Forsyth			81,500				59,926				61,638				1,531				204,595
Gail D. Fosler			80,000				59,926				61,638				1,531				203,095
James R. Gavin, M.D., Ph.D.			77,000				59,926				61,638				1,531				200,095
Peter S. Hellman			92,000				59,926				61,638				1,498				215,062
Wayne T. Hockmeyer, Ph.D.(5)			22,083				22,509				20,563				—				65,155
Joseph B. Martin, M.D., Ph.D.			74,000				59,926				61,638				1,531				197,095
Carole J. Shapazian			75,500				59,926				61,638				1,531				198,595
Thomas T. Stallkamp			118,500				59,926				61,638				1,498				241,562
K.J. Storm			93,500				59,926				61,638				1,531				216,595
Albert P.L. Stroucken			92,000				59,926				61,638				1,531				215,095

Director compensation – Fees earned in cash for directors averaged $81,000, with one director receiving over $100,000. Stock and option awards, which are considered director’s fees for purposes of exchange rules, were a uniform $121,564.

Director tenure – Most directors have been on this board since 2003, with one director’s tenure going back to 1997 and one to 2000. Two directors are also on three other boards; six directors are on one or more boards; two directors are executives with other corporations and do not serve on additional boards other than that of their employer. The board met nine times in 2007, with the usual additional committee meetings, having 84% overall attendance.

CEO compensation – Robert Parkinson’s 2007 compensation was $17.6 million, of which $1,296,153 was salary and another $3 million in cash per the company’s incentive plan. The stock and option bonus was $10,842,624, with much of the remaining compensation ($2,461,223) coming from the change in value of previous stock awarded but not issued. As with many corporations, Baxter compares its executive compensation plan to other health care firms, and has a policy of maintaining its salary payments within 50% of all firms, and incentive payments within 60%. Since the company’s $1.7 billion net income was up 22% over the previous year, and its share price rose 27% (against an industry average of 7%), executive bonuses were fully paid.