– Broc Romanek, CompensationStandards.com

In his “Dodd-Frank.com Blog,” Steve Quinlivan identifies the first five companies to use the optional advisory approval of golden parachute arrangements permitted by Dodd-Frank in connection with an annual meeting. In our ” Say-on-Parachute/Severance Arrangements” Practice Area, I have posted a list of links to proxy statements filed by companies trying this approach out…

– David Chun, Equilar

We just released our latest report on CEO pay trends in the S&P 500. After pay declines in 2008 and 2009, CEOs saw their total compensation rise 28.2% from 2009 to 2010, to a median of $9 million. A few other findings:

– Bonuses were the component of compensation that saw the most growth in 2010, with a 43.3% rise. The median bonus was $2.15 million. 85.1% of CEOs received an annual bonus payout in 2010, compared to 73.6% in 2009.

– Options are still the most common equity vehicle, but performance shares and restricted stock are on the rise.

– Both stock-based awards and bonus payouts became a larger part of the pay mix, at 38.2% and 27.2%, respectively, of total 2010 pay.

– Broc Romanek, CompensationStandards.com

Much has been written about the first year of mandatory say-on-pay for most companies here in the US. But how has say-on-pay fared in Europe, where it has been mainstream for a bit longer. Here is news from Ted Allen of ISS:

In Europe, it appears that greater engagement has helped dampen investor dissent over executive remuneration this proxy season. In the United Kingdom, it is notable that just one firm (easyJet) has seen its pay practices voted down. At that company, there was a dispute with the founding shareholder, so that was not a typical instance of investor dissent. In previous years, a couple of U.K. companies with early meetings had usually been punished by investors by this point.

In the Netherlands and Sweden, where “say on pay” votes are long-standing agenda items, investors also have not voted down any remuneration reports. (By contrast, 13 U.S. companies have failed to receive majority support for their pay practices this year.)

One reason for this muted opposition could be the amount of engagement this season. It appears that companies in the U.K. and Continental Europe made a greater effort this year to engage with investors and proxy advisory firms. In addition, the EU Shareholder Rights Directive is prompting issuers to deliver their agenda materials to investors sooner, which is leaving more time for engagement.

One trend that may in part reflect greater advance consultation between issuers and their key shareholders is the large number of U.K. firms that have decided to follow a recommendation in the U.K.’s Corporate Governance Code and hold annual elections for all directors. A majority of FTSE 100 companies have adopted this reform. There also has been reasonable take-up by smaller companies outside the FTSE 350, which are not required to comply. In addition, several Irish companies, including CRH Plc, have agreed to hold annual elections.

– Broc Romanek, CompensationStandards.com

I have now posted the speakers for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Here’s the “Proxy Disclosure Conference” agenda – and here’s “The Say-on-Pay Workshop Conference” agenda.

I’ve assembled an all-star cast to ensure you are fully prepared for Round 2 of say-on-pay. Not only are ISS and Glass Lewis representatives speaking multiple times, but you will hear from in-house people about how they grappled with proxy advisor recommendations they didn’t agree with. From companies that nearly failed say-on-pay. From many well-known compensation consultants and proxy solicitors. And perhaps most importantly, from the folks that actually vote the proxies – institutional investors – including these speakers:

– Vineeta Anand – AFL-CIO
– Donna Anderson – T. Rowe Price Associates
– Anne Chapman – Cap Re
– Michelle Edkins – BlackRock
– Kurt Schacht – CFA Institute
– Anne Sheehan – CalSTRS
– Albert Meyer – Bastiat Capital

Less Than Three Days Left for Early Bird: Save 25% by registering by this Friday, May 13 at our early-bird discount rates.

– Broc Romanek, CompensationStandards.com

Last week, four more companies filed Form 8-Ks reporting failed say-on-pay votes – and a fifth reported a near failure. The companies that failed were: Stewart Information Services (48%); Dex One (48%); NVR (44%); and Penn Virginia (39%). The near failure is well described by Mark Borges in his “Proxy Disclosure Blog“: “Cooper Industries reports that its “Say on Pay” proposal was approved by a vote of 50.36% – 49.64%. While the company indicates in its proxy statement that abstentions are not to be considered votes cast at the annual meeting (and, thus, have no impact on the vote’s outcome), there were over 2 million abstentions recorded. Had they been considered “negative” votes, the proposal would have been defeated, 50.4% 0 49.6%. Needless to say, the company would be well advised to pay close attention to its shareholders’ concerns about its executive compensation program.”

Less Than Four Days Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup – We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save 25% by registering by May 13 at our early-bird discount rates.

– Broc Romanek, CompensationStandards.com

Recently, it was noted during our “The Proxy Solicitors Speak” webcast that companies shouldn’t necessarily rely on proxy statements as their primary messaging vehicle when it comes to say-on-pay. In his IR Web Report, Dominic Jones really drives this point home – particularly with his examples of doing a Google search with the search terms being your company’s name and “executive compensation.” I strongly urge you to read Dominic’s piece.

– Broc Romanek, CompensationStandards.com

Over on TheCorporateCounsel.net Blog, I recently blogged about the relative dearth of pre-proposal comments – a project that the SEC set up after Dodd-Frank in an effort to get input even before they put out proposals. However, I do note that the AFL-CIO submitted this comment letter about Section 953(b) of Dodd-Frank, which is the section that deals with internal pay disparity disclosures (the same section that was recently the focus of a House hearing and a House Republican bill to repeal).

You should also note that, as ISS’s Ted Allen notes in this blog, the AFL-CIO recently began a campaign to urge shareholders to vote on say-on-pay as it launched its Executive PayWatch site for 2011 – and there is an internal pay disparity component to it. Ted’s blog is repeated below:

The AFL-CIO has launched the 2011 version of its Executive PayWatch Web site and is urging investors to help rein in CEO pay by participating in the advisory votes on compensation that all large and mid-cap companies will hold this year. “Although non-binding, it’s the first time that shareholders have had this opportunity,” Richard Trumka, president of the AFL-CIO, said at a press conference on Tuesday. The labor federation is analzying corporate pay disclosures and plans to vote against the compensation practices at some companies, but hasn’t publicly identified those firms. An AFL-CIO affiliate, the American Federation of State, County, and Municipal Employees, has launched a “vote no” campaign against the pay practices at Pfizer and Johnson & Johnson.

The PayWatch site features a searchable database that includes CEO pay information from 299 S&P 500 companies that have filed proxy materials. According to the labor federation, the average 2010 compensation at those firms was $11.4 million, up 23 percent from 2009. On average, these pay packages included $3.8 million in stock awards, $2.4 million in stock options, $2.4 million in non-equity incentive plan compensation, $1.2 million in pension and deferred compensation, $1.1 million in salary, a $251,413 bonus, and $215,911 in other compensation. Trumka said the average total compensation for S&P 500 CEOs is now about 343 times that of the average American worker, up from 42 times in 1980. “We believe that executive pay has gotten out of whack,” he said.

AFL-CIO officials also expressed concern that House Republicans had introduced legislation to repeal another Dodd-Frank Act provision that would require companies to disclose the ratio between the total compensation received by the CEO and the median pay received by the firm’s employees. Corporate advocates have denounced this provision, arguing that it would be extremely costly to collect this data, and that the foreign and part-time employees should be excluded from this calculation. Trumka denounced this attempt to “water down” Dodd-Frank and said this pay ratio disclosure “would have a profound impact” and prod boards to set compensation based on a company’s own organizational needs, rather than based on the pay at other companies.

The SEC has not yet proposed rules to implement this provision but plans to do later during the second half of the year. The AFL-CIO is urging the commission to require companies to include both their foreign and part-time workers in the pay ratio calculations. The AFL-CIO’s Paywatch site specifically criticized the pay practices of six companies: Occidental Petroleum, Hewlett-Packard, Reynolds American, Rite Aid, Abercrombie & Fitch, and PulteGroup.

Also see Vanessa Schoenthaler’s blog about the PayWatch site.

– Mark Poerio, Paul Hastings

Here is a quick note about strategies that companies are taking with respect to this year’s “say-on-pay” advisory vote on their executive compensation:

Defuse Proxy Red Flags – Extraordinary items in the Summary Compensation Table are one common thread among the 10 “no” votes so far in 2011. For example:

– At Stanley Black and Decker, 2010 total compensation for all executives was 3 to 4 times the level reported for 2009. The company’s executive summary in its proxy statement did not address this directly.

– At Shuffle Master, the disclosure of several lucrative severance arrangements proved exceptional, while 2010 bonuses were conspicuously high and criticized at Beazer Homes, Umqua Holdings, and several others.

– Several “no” votes have arisen from poor pay-for-performance correlations, with 85% of the unfavorable recommendations from ISS being rooted in failure of its stock performance test, based on one-year and three-year total shareholder returns). ISS has issued unfavorable recommendations for 11% of filed proxy statements, per a recent study by Semler Bossy.

For all of the above vulnerabilities, a primary 14A defense should involve use of an executive summary to introduce the CD&A with a convincing justification – by reference to corporate performance or circumstances – for the compensation disclosed in the summary compensation table (here’s information about all of the “no” votes to date in 2011).

Get Out in Front of the Message – ExxonMobil and Goldman Sachs have issued additional definitive proxy materials in order to highlight and justify their executive compensation and governance practices.

Respond to Negative Voting Recommendations or Outcomes – The ISS performance test is vulnerable to being criticized as too blunt an instrument, and it is becoming more and more common for public companies to take issue with ISS:

– through filing additional proxy materials (e.g. Disney), or

– by justifying the board’s decision-making in the Form 8-K reporting its unfavorable say on pay vote (e.g. Umqua Holdings).

For general executive compensation information, don’t forget my site, ExecutiveLoyalty.org

– Broc Romanek, CompensationStandards.com

Last week, MDC Holdings filed this Form 8-K to report that it became the 11th company to fail to gain majority support for its say-on-pay, with only 34% voting in favor. In addition, Janus Capital Group filed this Form 8-K – with only 41% voting in favor – to become the 12th company with a failed say-on-pay. We continue to maintain our list of links to Form 8-Ks filed by companies with a failed SOP in our “Say-on-Pay” Practice Area.

– Broc Romanek, CompensationStandards.com

Last week, Cogent Communications filed this Form 8-K to report that it became the 10th company to fail to gain majority support for its say-on-pay, with only 39% voting in favor. Ted Allen’s blog provides some analysis, including noting significant levels of “no” votes at Pfizer and Johnson & Johnson (both of whom are S&P 500 companies).

Less Than Two Weeks Left for Early Bird: Our Say-on-Pay Intensive Conference Lineup – We have announced the line-up for our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save 25% by registering by May 13 at our early-bird discount rates.