ISS Governance QuickScore, which is designed to identify governance risk, replaced the GRId database on February 25th. With the first wave of QuickScore results now out, ClearBridge Compensation Group conducted an analysis of these results as well as the prior proxy season’s say-on-pay vote recommendations and vote results. Key findings include:
– Of the four governance pillars, Compensation is the most highly correlated with the Overall QuickScore, by a significant margin
– While QuickScore is not a direct input to ISS’ Say on Pay evaluation process, Compensation QuickScores demonstrate a strong link with ISS’ Say on Pay vote recommendations
– 97% of companies that scored a “6” or better on Compensation QuickScore received a “for” vote recommendation in 2012
– 71% of companies that scored a “10” on Compensation QuickScore received an “against” vote recommendation in 2012
– ISS has significant influence on the vote outcome. When ClearBridge 100 companies received an “against” recommendation from ISS on Say on Pay, median Say on Pay vote results were only 59%, vs. 95% when ISS recommended “for” Say on Pay
Marking a first for the market, roughly 64 percent of shareholders in Zurich-based Julius Baer voted against management’s non-binding say-on pay resolution at an April 10 annual meeting, Reuters reported. The vote follows a March referendum that will usher in sweeping changes in investor oversight of executive remuneration for all Swiss companies, and reflects continued concerns over pay, particularly among financial services firms. (Credit Suisse will hold its meeting April 26, while UBS shareholders are slated to convene on May 2.)
Concerns over pay at Julius Baer, a private bank catering principally to individuals and families, were notable, touching on the lack of a ceiling on variable pay, equity awards vesting in under three years, and a lack of disclosure on remuneration arrangements such as severance pay. Responding to the vote, the group said in a statement it “will take the appropriate measures to work towards a positive vote at the next [annual meeting].”
Meanwhile, shareholders of multinational foods group Nestle meeting in Lausanne April 11 gave majority backing to management’s advisory pay vote, though exact figures were not disclosed. Addressing attendees on the implication of the pay reforms adopted in the March referendum, Nestle Chairman Peter Brabeck-Letmathe warned that “the political and regulatory environment for publicly listed companies is becoming more difficult in this country” though added the company wants to stay in Switzerland.
Separately, the Financial Times reported this week that the head of Austria’s second-largest bank by assets, Raiffeisen Bank International, told employees he would return Euro 2 million of his roughly Euro 5 million 2012 pay package, saying that executive remuneration could sometimes “turn out to be too high.” In an email to staff, Herbert Stepic said he was taking the action because the size of his payout was “neither in accord with my own self-conception nor with the Raiffeisen banking group’s foundation of values,” adding it was his contribution to cost-savings initiatives being undertaken by the bank.
This Skadden alert describes a new proposed IRS regulation providing guidance on the $500,000 deduction limit for compensation paid by certain health insurance companies to their employees – and analyzes its complexity. This will be a difficult provision as it has none of the exceptions of Section 162(m) as we know it – plus, you would be surprised at how many companies get brought into the definition of “health insurance provider” because of some entity in their controlled group.
The WSJ’s Emily Chasan recently wrote this article:
With the Standard & Poor’s 500-stock index striking a fresh record high Thursday, many executives who were issued stock options during the financial-crisis era could stand to take home substantially more money than expected when the options were granted.
In a study on Thursday of realizable pay figures, or the amount of compensation an executive could have taken home in a given year, compensation researcher Equilar found that at 20 companies with the highest realizable pay figures last year, 26.5% of executives’ pay stemmed from 2010 equity awards. By comparison, strong stock market performance in 2012 depressed the value of most recent stock option grants, which only comprised 15.5% of the executives’ realizable pay.
“Because the stock market was so low in 2010, a lot of companies were giving their executives greater numbers of options,” said Aaron Boyd, director of research at Equilar. “For many companies, the current value of the awards is a lot higher than what was originally estimated, since a lot of the estimations were based on slower growth estimates.”
Over the past few years, companies have increasingly looked to emphasize realizable pay, which includes stock option and equity grants that have vested, but may or may not have been cashed in. That differs from the compensation figures required by the U.S. Securities and Exchange Commission, which focus on the potential value of an equity grant on the date it is given. Realizable pay typically trails that figure when stock performance is negative, but can often exceed it when stock performance is positive, according to Equilar.
Of the 20 companies where executives had the highest amount of realizable pay in 2012, 16 reported double-digit total shareholder returns that year.
Here is a blog by the team at Katten Muchin who worked at getting a say-on-pay case that was filed against AAR Corp. in Northern Illinois dismissed last week. In this blog, Jim Barrall parses the decision – and here is Wachtell Lipton’s analysis.
As noted in its Form 8-K, Biglari Holdings is the 6th company holding an annual meeting in 2013 to fail to gain majority support for its say-on-pay (33% support since abstentions count as “against”). Hat tip to Karla Bos of ING Funds for pointing this out!
And here’s a teaser for Towers Watson’s upcoming webcast. Based on the disclosures so far, Towers Watson found that more companies than ever included a pay-for-performance summary: 26% in their 2013 proxies, compared to 17% for 2012 and 9% for 2011. Tune in for more…
Here’s a chart from Steven Hall & Partners of the say-on-pay stats so far this proxy season – and here’s a press release from them showing CEO pay levels are up 7% so far this season…
In this podcast, Sylvia Groves of Governance Studio describes the efforts by a hedge fund to reward directors on a dissident slate by paying them a share of future returns in addition to traditional director compensation – and these directors would be paid more than the other directors! (here’s a note that Sylvia wrote about this) – including:
– What is happening at Jana Partners?
– Why do you think it’s problematic?
– What is the fix?
As noted in its Form 8-K, Vermillion is the 5th company holding its annual meeting in 2013 to fail to gain majority support for its say-on-pay (44% support) – although the company’s recent annual meeting was for 2012. Hat tip to Karla Bos of ING Funds for pointing this out!