5 February 2007 - In the past few weeks, some of our clients have asked us about the continued viability of incentive compensation arrangements for executives where the compensation committee exercises discretion at the end of the performance period to determine the payment amounts. Our clients' concerns have arisen because of (1) reports of increased attention being focused on these arrangements in IRS audits; (2) greater detail about these arrangements that must be disclosed because of the new SEC proxy disclosure rules; and (3) media criticism of such arrangements.

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