The Advisors' Blog

– Robert Newbury, Towers Watson

Our firm has a new blog called “Executive Pay Matters” and here is a recent entry:

Equilar’s 2011 Executive Compensation Summit yielded some interesting observations from the June 13-15 panels and discussions:

– Dodd-Frank regulations: The general consensus of the panelists was that the regulations on clawbacks, CEO-to-median-employee pay ratio and other compensation-related provisions probably wouldn’t be to the exchanges until July 16th and that there would be a 90-day period for the exchanges to respond. At that point, the SEC would have up to a year to respond. Thus, the general sentiment was that many of the Dodd-Frank rules that have yet to be implemented probably won’t be instituted until the 2013 proxy season.

– Say on parachutes: While considerable attention has been focused on say on pay, there was some discussion related to anticipated increased attention and focus on say on parachutes. So far, these proposals have been under the radar, but there’s the potential for additional scrutiny to the extent that deals continue to increase if/when market conditions allow.

– Pay for performance: This discussion highlighted the greater use of graphic/tabular disclosures to get companies’ pay-for-performance message across. As we’ve all experienced, there are continued questions around how best to measure performance and pay and whether the SEC will provide any clarity regarding those questions (the general sentiment: doubtful).

– Clawbacks: One panel discussed clawback provisions and concluded that, while many companies have them, most do not comply with what’s expected to be required under Dodd-Frank. That said, most companies do not want to modify them at this point, but instead will wait until the final rules are issued to adopt/modify their provisions. (There also was some discussion about implementing clawbacks now with language stating that they would need to be compliant with any ongoing changes in the regulatory environment.)

– Say on pay: While say on pay was obviously a hot-button issue for 2011, one speaker observed that it’s really just another avenue for investors to review and comment about issues regarding pay. Instead of withholding votes from board/compensation committee members to express dissatisfaction with pay decisions, investors were voting against say-on-pay resolutions where they had issues with pay. With the former, potential remedies could possibly involve ousting a director; with the latter, there are a number of more targeted, reactive steps a company can take to respond to shareholders ahead of the next say-on-pay vote.

Recognizing ours is a society built on competition, one presenter predicted that there will be a growing interest in keeping score as it pertains to say on pay in coming years, particularly relative to peers. There was also some debate about what constitutes an acceptable level of say-on-pay support or, alternatively, what was too much opposition. There was general agreement that anything below 70%-80% support means the company should really be examining what went wrong in terms of the compensation program relative to peers.

Finally, there was recognition that the easy work is largely behind us, meaning that companies have for the most part now rid themselves of problematic pay practices. The real work of identifying and implementing pay policies to incent the workforce in a way that’s in alignment with shareholder interests is just beginning.