May 3, 2012
Should US Companies Consider Using New Summary Pay Charts Modeled on UK Proxy Advisor Reports?
– Broc Romanek, CompensationStandards.com
This recent blog by Doug Friske and Steve Seelig of Towers Watson is interesting:
Our short answer would be yes. U.S. companies should be considering all of the alternatives for explaining how they pay for performance for their 2012 proxies, even in advance of new SEC rules mandating enhanced pay-for-performance disclosures, as required by Dodd-Frank. For this reason, U.S. companies may want to take note of what companies in the U.K. will be seeing in reports from Research, Recommendations and Electronic Voting (RREV), the U.K.-based arm of ISS. RREV’s voting advisory reports will include four summary pay charts that show for the highest paid executive:
1. The “expected value” of their arrangements versus the “realized” value
2. Total bonus earned versus company profit, and as compared to peers
3. Salary and bonus earned versus TSR growth, and as compared to peers
4. Salary level compared to peers.
At a recent meeting our U.K.-based consultants attended with RREV, the U.K. proxy advisor mentioned that the four charts are not used to quantitatively define voting recommendations, but instead will be used to provide extra “color” and potentially highlight any disconnects for further consultation. RREV representatives also noted that they have no intention of importing the U.S. approach to pay-for-performance analysis to the U.K. because they recognize the differences in the markets.
The new RREV charts represent another alternative U.S. companies might want to consider to depict how they pay for performance. In particular, we have not seen many companies use a depiction of the Total Compensation number from the Summary Compensation Table juxtaposed against the actual pay realized or realizable as an absolute measure of how well calibrated their plans may be to performance. Similarly, peer comparisons tend to also focus on pay opportunity granted, rather than on realizable pay earned. Of course, once Dodd-Frank regulations are promulgated, all companies may be required to depict pay earned versus TSR growth, if the SEC adopts that approach.