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Sarbanes-Oxley News & Developments
Compensation and Cash FlowWhy companies are using metrics from the cash flow statement and not just the income statement.
> > Jeffery Immelt does not believe that General Electric Co. should offer stock options and similar incentives to retain its chief executive. That is one reason the CEO worked with the company compensation committee to connect his paycheck more directly to cash-flow performance metrics. Starting January 2004, GE will use performance share units in calculating the equity compensation for Immelt. In addition to his annual salary and a bonus not connected to cash flow, Immelt will receive 250,000 PSUs with a potential value of $7.5 million. The PSUs will vest in five years if - and only if - cash flow from operating activities rises an average of 10% annually during that time.
Although most companies have not gone as far as GE, many are headed in the same direction. There seems to be support for using metrics from the cash flow statement, and not just the income statement, to measure annual performance and to award bonuses.
In all, 20% of the largest US based, publicly held companies use a cash-flow metric to calculate short-term compensation, says Russell Miller, a principal at Mercer Human Resources Consulting.
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Source: CFO
Published:2004-01-20
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