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High Level Investor Relations Counsel Guides Path For Billion-Dollar Company To Announce New CEO Employment Agreement And Major Stock Grant

Preparing Board of Directors and Senior Management For Shareholder and News Media Inquiries

Amidst national concern over Wall Street abuses and high pay for senior executives, our client, a billion-dollar company on the East Coast, faced a difficult communications challenge when it was decided that its CEO would receive a large grant of stock. The timing also coincided with the U.S. just starting to emerge from a major recession.

Background and Situation Analysis

For many years, the CEO of this publicly-traded company had been significantly underpaid when compared to his industry peers. The Board of Directors was concerned about the imbalance because the CEO's peers were running companies with operating margins well below the industry norm or losing money and market share.

To rectify the situation, a special committee of the board was formed to study industry metrics and make a recommendation to "right a wrong." After a lengthy, detailed analysis by an outside executive compensation firm, the board decided the CEO would be offered a long-term employment contract and a large amount of restricted stock.

The restricted stock grant was tied to the performance of the company, and the stock would be vested over several years. The overall strategy was to maintain continuity in management and raise the compensation of the CEO to an appropriate level.

As the decision process ensued, the board and senior management were concerned about the timing and possible ramifications of the announcement, primarily because when calculated at the company's current stock price over a 90-day period, the value of the stock grant would approach $20 million...a number that could raise issues among large buy-side shareholders, employees, business partners, and customers.

CEO pay was a controversial subject across the U.S. in light of the two-year recession. Public opinion surveys showed that an overwhelming number of Americans believed that CEOs were receiving huge salaries and other forms of specialized compensation, while many of their companies were losing money and suffered poor stock performance. The belief was that compensation should be tied to results, not title.

The Plan

After reviewing data from its executive compensation consultant, the company retained Nicolazzo & Associates to manage the communications process surrounding the announcement. As the strategy unfolded, N&A met with the chairman of the special board committee, the company's CEO and CFO, and outside legal counsel. The focus of early discussions was to develop a plan that would communicate the board's thinking to award the stock grant and mitigate any downside to the announcement. In addition, it was necessary to satisfy all disclosure requirements.

At N&A's suggestion, to communicate fully and completely the new compensation agreement, it was decided to combine the announcement with the company's quarterly earnings statement. As a result, the 10-Q document, filed approximately a week after earnings were announced, would contain additional detail on the stock grant.

From a tactical perspective, N&A developed a series of critical communications documents that encompassed:

• Special language for the company's earnings conference call script
• A memo to employees
• A detailed Q&A document for senior executives
• A key message document for more than 100 managers
• Language for the earnings news release
• A detailed chronology of critical points that were reviewed by the board

Additionally, to prepare the CFO for questions during the earnings teleconference and the post-announcement period, the agency conducted a media training session. During this session, the CFO was counseled during a mock Q&A exchange, with N&A staff taking on the role of a Wall Street analyst and business reporter.

The Results

Given its sensitive nature, the execution of the announcement worked exceptionally well. Wins for the client:

• The company was praised by its key audiences for locking up the CEO in a long-term employment agreement.
• There was no mention of the value of the package in the news media coverage that followed the announcement.
• The company's stock price dropped slightly at the time of the announcement, but quickly regained momentum.
• When the company filed its 10-Q subsequent to the announcement, no additional concerns were raised and no media coverage ensued.

By engaging special outside communications counsel and executing a detailed, focused strategy, the company lived up to, and exceeded, its fiduciary responsibility and accomplished its goal of increasing the CEO's compensation package and retaining his services for the long term.