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Executive Compensation Focus of Delves' Presentation

Donald Delves addresses MSF students and faculty.Donald Delves, the president and founder of The Delves Group, was a guest speaker in the MS in Finance Speaker Series, providing his perspective on stock options as part of compensation packages. The author of "Stock Options & The New Rules of Corporate Accountability," Delves presented a synopsis of his book while also assessing the current challenges in CEO compensation facing companies.

The opening of Delves' February 28th lecture could have been a proposal or pitch to a potential client if not for the audience of students and professors gathered to hear the company president's evaluation of the state of stock options. His talk demonstrated just how much of his job involves reforming the very idea of stock options, the most prevalent form of compensation for executives. One slide entitled "Why Don Cares" headed a list of discrepancies within the options market that fueled the case for another Delves catch-phrase, "Your bad accounting makes my job hard."

Nearing the top of the list was the notion, according to Delves, that "CEO pay is out of control." He cited the significant spike in the amount of stock dedicated to options -- the allotment jumped 10% from 3-5% in 1993 to 13-15% in 2003. Delves noted that boards of directors play tremendous roles in expensing stock options and that the positive change in CEO overcompensation will start and end with directors. "Typically executives are not going to do anything to hold themselves more accountable," he said. "Things are going to be done by the board of directors."

Donald Delves and Dan Mauro, MSF student, who introduced him.Delves disclosed some of his testimony to the Senate Subcommittee on Financial Management during the lecture to strengthen his claim against the "unprecedented and unnecessary growth in executive pay." Perhaps he would be less adamant about the importance of effective and rational CEO compensation if not for the principle tenet of his mission -- the notion that the compensation given an executive must equate to financial performance and to the value created by the executive.

Delves wants compensation committees to think more about financial performance and less about stock price. But with his appeal comes a dramatic restructuring of the way in which all the human resources of a company are compensated. Delves' discussion on ownership rights was much more inclusive of lower-level personnel. "We must now start thinking about how we'll share ownership with employees."

Michael Weisbach and Don Delves.During his visit, Don Delves met with several members of the finance faculty, including Michael Weisbach, Golder Chair in Corporate Finance.

--Michael Romain
March 2005