The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

July 15, 2024

Use of Climate Metrics Skyrocketing Among Large Cap Companies

Despite investors taking a more critical approach to ESG metrics recently, this Farient Advisors memo discusses the rise of climate metrics among a group of 500-plus exchange-listed companies in nine countries, based on research by the Global Governance and Executive Compensation (GECN) Group. Farient reports:

The use of environmental measures in incentives has increased to 61% globally, with significant increases across the various regions. For example, in the U.S., 52% of large-cap companies now use environmental incentive measures, up significantly from 34% in 2022 and 8% in 2021.

Of these environmental metrics, emissions metrics are the most common:

GHG emissions are the most common environmental measure, increasing by 33 percentage points over last year. This considerable jump coincides with increases in companies setting emissions reduction targets and disclosing them publicly. In fact, 63% of S&P 500 and STOXX Europe 600 companies have publicly disclosed Scope 1 and 2 emissions reduction goals for 2030.

The memo also provided these other key research findings:

– Common climate-related metrics include GHG emissions reductions, energy efficiency improvements, and the achievement of specific sustainability targets.
– Companies typically integrate these metrics into short-term incentive (STI) plans, and they are increasingly incorporating them into long-term incentive (LTI) plans.
– This trend is particularly noticeable in sectors with significant environmental impacts, such as energy, utilities, and manufacturing.

Meredith Ervine

July 11, 2024

Pay Equity: Conducting a Thorough Audit (Part 2)

Today, I’m sharing more from this Zayla Partners article on conducting a thorough pay equity audit. (See yesterday’s blog for a description of the tools and methodologies for the compensation analysis.) The article lists the following key phases of most pay equity audits:

– Step 1: Set goals and get leadership involvement. Outline the reasons for conducting the audit, expected outcomes, required resources, and executive support needed. Educate leaders on the business case for pay equity.
– Step 2: Review existing policies and practices. Look closely at current compensation structures, job frameworks, salary bands, and pay setting guidelines through an equity lens. Identify process gaps that allow inequities.
– Step 3: Collect and clean employee compensation data. Gather pay data on base salaries, bonuses, equity awards, and other monetary benefits for all employees. Remove names and personal identifiers, standardize job titles and framework levels.
– Step 4: Analyze for statistically significant pay gaps. Leverage tools like multiple regression analysis to reveal pay disparities across gender, race, tenure, and other variables. Do this while controlling for legitimate causes of pay differences like performance ratings, education, experience, and job level.
– Step 5: Conduct an in-depth qualitative analysis. For high-risk employees flagged by the analysis, look deeper into performance reviews, qualifications, responsibilities, and other factors. Confirm whether legitimate business reasons explain pay differences.
– Step 6: Identify root causes and make action plans. Uncover policies, processes, or cultural dynamics that make for inequities to persist. Define concrete remediation plans made to address the root causes, including pay adjustments, process changes, training, and accountability mechanisms.
– Step 7: Put your solutions in place and follow-up. Execute remediation plans, communicate with employees, re-run audits, review progress, and refine actions as is necessary. Doing regular audits and ongoing monitoring prevents new inequities from developing.

The article then goes into more detail on steps 6 and 7 — the work that follows the compensation analysis — including developing an action plan and remediation strategies, like compensation adjustments, job level realignments, and succession planning, strengthening hiring and pay-setting practices, and increasing pay transparency — plus ongoing pay equity strategies to maintain fairness.

This and other resources — including our “Checklist: Pay Equity Data Collection and Interpretation,” which addresses legal considerations to consider upfront — are posted in our “Gender & Racial Pay Equity” Practice Area.

Meredith Ervine 

July 10, 2024

Pay Equity: Conducting a Thorough Audit (Part 1)

This Zayla Partners article on conducting a thorough pay equity audit gets into the nitty gritty of the analytical techniques for pay equity audits. For folks who understand what a pay equity audit is and why it is important, but haven’t worked through one and don’t have an understanding of how the analysis works, the article gives this explanation:

Pay audits use a range of analytical techniques and tools to uncover potential compensation inequities. Regression analysis identifies predictors of pay and figures their impact (while considering legitimate factors). This helps to isolate potential discriminatory variables.

Visual data analysis through scatter plots, quartered distributions, and other visualizations makes it easy to spot outliers and anomalies that need further investigation. Dashboard reporting on HR analytics platforms shows audit findings across multiple pay dimensions and breaks everything down into problematic segments.

Survey data adds qualitative context around employee perceptions of compensation fairness, transparency, trust, and engagement. Discussions with employees and managers through interviews provide firsthand experiences and insights into potential equity barriers. Reviewing job titling conventions, descriptions, and framework levels helps find discriminatory practices.

Comparing internal pay against market salary ranges helps to locate outlier positions. The best approach combines quantitative statistical tools with qualitative techniques to understand what’s behind inequities. A multi-modal analysis provides a complete view into compensation equity.

Tomorrow, I’ll be sharing the article’s coverage of key steps in any thorough pay equity audit — including the important work that follows the compensation analysis.

Meredith Ervine 

July 9, 2024

More Activist Campaigns Cite Pay Issues

A recent Semler Brossy article examines data from 30 activist campaigns from 2021 to 2023 with a focus on understanding the relationship between the core activist campaign objective and the company’s compensation programs. The data showed that “70% of campaigns cited executive compensation as an issue, and 43% of these campaigns recommended specific changes to current compensation practices or program design.” Surprisingly, the team wasn’t able to identify advance warning signs to boards through proxy advisor recommendations or prior say-on-pay vote results. However:

[A]ctivist campaigns still considerably impacted vote results in the subsequent year after initiation of a campaign. Controlling for the impact of adverse proxy advisor recommendations, our analysis indicated that votes were 12% lower on average in the year following an activist campaign. With a notable decline in average vote results and an increase in failure rates following campaign initiation, it’s evident that activist concerns can manifest in other areas, even if the overall campaign is not successful.

Considering the weight of these campaigns on future say-on-pay results, the article makes this recommendation to boards:

In the same way that the full board might allocate a meeting every year to address broader shareholder and strategic issues, the compensation committee should dedicate one meeting per year, usually in quarter two or quarter three, to reviewing the pay program.

These meetings should focus on how well the program supports business priorities, alignment of pay and performance, congruence of metrics with externally communicated goals and strategy and assessment of the rigor of the goal-setting process. The committee should also evaluate areas where the program could make the company more susceptible to unwanted attacks by activist shareholders, such as consistently low incentive payouts over time.

Meredith Ervine 

July 8, 2024

Court Grants Motion for Limited Injunction of FTC’s Non-Compete Ban

Here’s something I shared last Friday on

On Wednesday, HR Dive reported on a significant development in one of the legal challenges to the FTC’s noncompete ban. The article says:

A Texas federal judge on Wednesday granted a tax services firm’s motion for a preliminary injunction of the Federal Trade Commission’s nationwide ban on noncompete agreements in employment contracts and has stayed its effective date for the plaintiffs.

As noted, this injunction is limited to plaintiffs and plaintiff-intervenors, but the Court intends to issue a ruling on the merits by August 30, 2024 (before the September 4 effective date). The judge said there’s a “substantial likelihood” that the rule will be found arbitrary and capricious.

Meredith Ervine

July 3, 2024

2024’s Comp-Related Shareholder Proposals

This blog from the Freshfields team summarizing their very comprehensive report “Trends and Updates from the 2024 Proxy Season” notes that annual meeting and proxy season compensation considerations are “expanding beyond say-on-pay and approval for company equity plans” since “this year a variety of executive compensation proposals emerged.” Pages 77 to 80 of the report describe the over 65 known compensation-related proposals submitted as of mid-June:

– 33 proposals requested shareholder approval of termination pay for executives exceeding 2.99x the sum of the executive’s base salary plus target short-term bonus
– 12 proposals requested the company broaden the scope of existing management and executive clawback policies
– 6 proposals requested companies adopt policies requiring named executive officers and certain others to retain a percentage of stock acquired through equity programs until reaching retirement age

Liz previously blogged about a proposal uniquely structured as a binding bylaw amendment (rather than a precatory request) that sought to fix director compensation at $1* absent shareholder approval. Michael Levin of The Activist Investor recently discussed how this proposal fared — it was either omitted from the proxy or received single-digit support, with an average support rate of 2% — and the limited feedback the proponents received from various parties during the process. We recently connected with Aon’s Karla Bos on this topic, and she shared these thoughts with us:

Given the binding nature, there have to be significant concerns before many institutional investors will take that level of flexibility away from a company, especially on a prospective basis and as directors are taking on more and more oversight.

I strongly believe that many institutions do not relish the idea of spending their already too limited time considering and engaging on another recurring ballot item when they believe they have adequate and even more appropriate recourse to address areas of concern.

That said, the binding proposal approach at well-targeted companies could still be something to watch in general as investors continue to seek new ways to make themselves heard, especially since companies may well respond to vocal messaging and engagement even when support for the associated proposals has not been high.

*Has anyone else only recently noticed that $1 won’t even pay for a single item from a fast food “dollar” menu anymore!?! The things I learn during summer road trips…

Meredith Ervine

July 2, 2024

Commissioner Lizárraga Weighs in on Delayed Section 956 Rulemaking

In a recent speech at an Americans for Financial Reform event in mid-June, Commissioner Lizárraga lamented (subject to the standard disclaimer) that federal financial regulators have yet to promulgate the joint rulemaking required by Section 956 of the Dodd-Frank Act that would prohibit any type of incentive-based compensation arrangement that encourages inappropriate risks by a covered financial institution. As I shared this spring, the FDICOCC and Federal Housing Finance Agency adopted a notice of proposed rulemaking to implement Section 956 of Dodd-Frank in early May, but the notice of proposed rulemaking will not be published in the Federal Register until all six agencies (including the SEC) propose it.

Commissioner Lizárraga used this speech to make counterarguments to those who say this rule is no longer needed today. He starts by reminding listeners that Congressional mandates are, as named, mandatory, and notes:

Of 330 rulemaking provisions in the Dodd-Frank Act, only 148 were mandatory. And of those, only 22 had a deadline of less than a year after enactment. Section 956 was one of them.

He also argues that last year’s regional banking crisis illustrated that this rule remains necessary, saying:

The Federal Reserve Board’s April 2023 report examining the factors that contributed to SVB’s failure found that its compensation packages for senior management were tied to short-term earnings and did not include any risk metrics, which may have contributed to an excessive focus on growth and short-term profitability at the expense of effective risk management.

He concludes by acknowledging that joint rulemaking with several sister agencies requires a lot of cooperation and coordination, but he’s encouraged to see this rule on the SEC’s short-term agenda.

Meredith Ervine 

July 1, 2024

Our Proxy Disclosure & Executive Compensation Conferences — Register Soon for Early Bird Pricing!

We cannot wait to meet in San Francisco on October 14 & 15 and engage with you in person at our “2024 Proxy Disclosure & 21st Annual Executive Compensation” Conferences! Check out our terrific lineup of experienced speakers and all the timely topics they’ll be addressing.

We’re giving everyone more time to lock in our “early bird” deal for individual in-person registrations ($1,750, discounted from the regular $2,195 rate). This rate now ends July 26 — extended to align with NASPP! We hope many of you decide to join us in San Francisco, but if traveling isn’t in the cards at that time, we also offer a virtual option (plus video replays & transcripts!) so you won’t miss out on the practical takeaways our speaker lineup will share. (Also check out our discounted rate options for groups of virtual attendees!)

You can register now by visiting our online store or by calling us at 800-737-1271.

– Meredith Ervine 

June 27, 2024


As Meredith blogged about earlier this year, the use of relative TSR remains a popular method for awarding exec comp and not just for tech companies. Willis Tower Watson found in its latest LTI Policies and Practices Survey Report that TSR is the predominant performance metric in long-term incentive (LTI) awards.

Last week, WTW published an article concluding that, for TSR-based LTI awards, “[t]here almost always is a fair value premium over the underlying stock price for each target unit granted, and it often can be significant.” This is important for compensation accounting and disclosure purposes. WTW looked into why those premiums exist and ran a simulation to test whether the Monte Carlo method used to value the awards is working appropriately. Here’s what they concluded:

As relative TSR prevalence in LTI award designs continues, valuation questions and skepticism inevitably will continue among companies and executives. This analysis supports the theory that valuation premiums for TSR-based awards are appropriate. The Monte Carlo method is working as intended to capture the true value of these award designs. If your organization is concerned about the level of valuation premium, consider exploring plan design alternatives to evaluate the tradeoff between a plan’s potential value and the associated accounting value.

Fair warning: This article gets deep into the math around fair value premiums. Despite being a (super cool) former high school mathlete, I found it rather hard to follow in a quick read and was thankful for the TL;DR of “The Monte Carlo Method is working” at the end.

— Meaghan Nelson


June 26, 2024

Time to Assess Year 2 PVP Disclosures

In a memo published earlier this month, Willis Towers Watson analyzed pay versus performance year 2 trends. WTW reviewed the disclosures of ~530 sample organizations in the S&P 1500 and found that year 2 disclosures were consistent with year 1:

– The majority of organizations continued to use profit or income measures for their company-selected measure. This comes as no surprise, as a short list for determining the company-selected measure was to review the measures used in company executive incentive plans, which tend to rely heavily on profit or income measures, especially in annual incentive plans.

– In terms of the total shareholder return (TSR) comparator group, the market pointed to the use of an industry index, with 80% of organizations opting for that route.

– The locations of the PVP disclosure continues to be near the CEO pay ratio, and graphical descriptions of PVP were heavily favored over narrative descriptions.

Additionally, WTW analyzed the disclosures of individual companies to see if companies changed their PVP disclosure–and 31% of them did.

Of the types of revisions and changes WTW examined, alterations to disclosed pay or performance values were more common than revisions of PVP disclosure decisions. PVP disclosure decisions include determining the company selected measure or TSR comparator group.

In case you missed it, earlier this month, the NY Times engaged Equilar to help with a more specific PVP analysis of executive pay (specifically CEO pay) comparing “traditional pay” (Summary Compensation Table and CEO Pay Ratio disclosure) and new-ish “Compensation Actually Paid”. The article named names and summed up its findings as “So now we have two complete data sets using distinct and complementary analytical methods, both demonstrating what we’ve always known: It’s good to be the boss.” If naming names is of interest, the WSJ also analyzed 2023 exec comp data–but for CFOs.

— Meaghan Nelson