Letters

Executive compensation and transparency

We are relieved that the ACS Board of Directors has developed another mechanism for allowing the members of the society to obtain access to the executive compensation program for its top executives. However, we are writing to express our frustration at how complicated it is to obtain this information and our concern about the level of compensation that has apparently been routinely provided at the highest levels of the ACS organization.

In an ACS Comment coauthored by ACS President Charles P. Casey and ACS Board Chair James D. Burke titled "ACS Executive Compensation and Transparency," rather than simply providing the compensation information, members were asked to jump through multiple hoops to get information (C&EN, May 24, page 57). At the end of this path, one still does not find the information on the Web--members can only enter a request for the information, and then it is sent to them as a file attached to a subsequent e-mail message.

Beyond the difficulty of obtaining the information, our most important concern is the level of compensation itself. ACS is a professional society, not a for-profit corporation, and yet the 2002 salary of then-executive director John K Crum was $586,360. Apparently, this was not enough reward, because in addition to that he received another $134,375 in "awards and bonuses." Of course, the executive director also needs an expense account, which adds another $14,478, leading to a grand total of $767,834. What contributions were made by the executive director to merit these bonuses and awards?

One can rightly ask why these compensation levels are so high. It is difficult to believe that ACS could not find a capable executive director for compensation less than three-quarters of a million dollars a year. Furthermore, if the compensation program is so rational, why was it kept secret from the members for so many years?

In our opinion, the system used by ACS for determining executive compensation is seriously flawed. We therefore submit the following recommendations:

(1) The ACS should make public, in a much more accessible way, the history of total compensation of all of its employees paid more than $150,000 per year.

(2) The next membership survey should ask members simply: "Do you believe that the 2002 compensation of the ACS executive director of $767,834 was appropriate?" This will allow ACS to obtain reliable information on whether the membership is concerned about compensation issues.

(3) We believe in the market forces to which the comment pays such homage. However, if ACS is serious about meeting the market for its executive compensation, it should offer what it takes to hire capable executives, without requiring that the executive director be paid more than anyone else in the organization. If, for example, the search for the president of the Chemical Abstracts Service is more competitive than the search for the ACS executive director, then the CAS president should be paid more than the director.

(4) "Awards and bonuses" and special retirement enhancements for top executives should be eliminated. The funds used for these perks should be redirected to reward specific achievements made directly by any people in the system who have gone beyond their job descriptions to make things better for the society and its members.

We trust that the board of directors will do all they can to make executive compensation policies at the ACS more open, objective, and responsible.

Robert G. Bergman, University of California, Berkeley
Gerard Parkin, Columbia University
John E. Bercaw, California Institute of Technology
Kenneth N. Raymond, University of California, Berkeley
Roald Hoffmann, Cornell University
James M. Mayer, University of Washington
Eric N. Jacobsen, Harvard University
Christopher A. Reed, University of California, Riverside
Allen J. Bard, University of Texas, Austin
Robert H. Grubbs, California Institute of Technology

BURKE RESPONDS: In response to the letter by Bergman and cosigners, let me begin by thanking them for expressing their concerns about our processes for determining and communicating the compensation of ACS executives. It is important for ACS members to hold their elected leaders, including the board of directors, accountable for their performance. It is likewise important for society members to understand how the ACS Board manages its duties, as well as the underlying premises for the board's actions.

We take seriously our duty to oversee executive compensation responsibly. We are likewise committed to keeping our members informed. That is why the ACS Board of Directors voted to disclose the information contained on the IRS Form 990 more directly than ever, and with details. We wanted to provide easier access to the information while maintaining the Form 990's intent for a fair balance between an employee's right to privacy and proper disclosure to shareholders (in our case, members). Until now, our Form 990, like those of many other not-for-profit organizations, was available only by requesting it from ACS or from websites that offer only aggregate numbers.

The new process of accessing the information on chemistry.org, like any Web-based protocol, involves a sequence of steps to be followed faithfully. We restricted the information to ACS members, who are the principal constituents for it. Of the 250 ACS members seeking the information so far, we have received only a handful of complaints about ease of access.

Let's now discuss executive compensation. Our peers and competitors agree that ACS is a world-class, complex organization. We are the world's largest scientific society with 159,000 members, an envied array of member services, and annual revenues of $420 million. We are a leading publisher of scientific journals and databases. Their net contributions after expenses are the principal source of revenues for supporting our services and programs for members. ACS also manages about $1 billion in assets--most notably, the $500 million ACS Petroleum Research Fund, which annually provides $20 million in funds for research in academia. We are much larger and more successful than we were 20 years ago, and our future is bright.

ACS NATIONAL MEETING

The fall national meeting in Philadelphia is just around the corner (Aug. 22&#150;26). For more information, consult the meeting technical program in the Aug. 2 issue of C&EN. The most up-to-date version of the program can be found online at http://chemistry.org/meetings/<br > philadelphia2004.

As chair of the ACS Board of Directors, which alone has responsibility for the ACS executive compensation system, I assure you that the board takes this obligation very seriously and monitors it closely. At least every other year, we engage the services of independent, nationally respected compensation consultants to survey executive salaries offered by employer groups comparable to ACS in size, revenues, and scope. It is a common practice for organizations to use firms specializing in executive compensation to provide expertise and objectivity in designing compensation programs. This year, Aon Consulting is conducting our survey. We seek these data to ensure that our compensation system is balanced, fair, and competitive in attracting outstanding executives. We don't want to lead the market, nor do we want to trail it.

Nevertheless, no matter how rigorously consulting firms may survey other employers and offer perspective on designing executive compensation programs, we receive no precise standards of comparison since there is no other organization quite like ACS. In the end, it is up to the board to make informed judgments in the best interests of the society. If better ways exist for providing objective data, the board would welcome such suggestions.

In light of this background, is the system "seriously flawed"? Flawed, in the sense that all operational models, including those for compensation systems, are incomplete and await refinement? Inevitably. That is why we regularly review ours, trying to find a better process. Seriously flawed? I don't think so. Do we get things wrong sometimes? The board, a very talented group of independent thinkers, follows "best available practices" as well as we know how, but we don't claim to be infallible.

Let me now comment on the numbered points raised in the signers' letter. First, according to our legal counsel, it would be a clear invasion of privacy to publish the salaries of all ACS employees other than the ones we are legally required to publish. Disclosing them would invite numerous lawsuits. Also, the board does not require that the executive director be paid more than anyone else in the organization. In fact, the current executive director is not the highest paid ACS employee.

The current compensation study will make recommendations to the board of directors on total compensation, including awards and bonuses, which are standard elements of many compensation systems. Current bonuses are based on very difficult-to-achieve objectives, which, if accomplished, would bring tremendous value to ACS and its members. I assure our members that all ACS employees are valued people who are fairly rewarded and compensated for their outstanding accomplishments.

The board took an unusual step for a not-for-profit by posting salary information on the Web for our members. As the society's fiduciary steward, the board pledges to each ACS member transparency and openness in its activities, including executive compensation. We'll continue to keep members informed on this topic.

In closing, let me again thank the signers for raising these important issues. All of us seek what is right for the society and our profession, even if we don't always agree on the right things or the right ways to achieve them. We progress by listening openly to one another, and the cosigners and I have tried to do that. I hope that, as a result of our dialogue, everyone understands that the board is devoting substantial time and resources toward ensuring an honorable executive compensation program.