– Broc Romanek, CompensationStandards.com

As noted in this press release, over 80 board members, senior executives and investment professionals from 40 pension organizations in 12 different countries gathered at the University of Toronto’s Rotman School of Management to examine and discuss five action steps they could take for the good of their own beneficiaries that would at the same time promote “the greater good” by fostering a more sustainable form of capitalism – culminating in this “Ten Strategies for Pension Funds to Better Serve Their Beneficiaries.” This is a “must read” document…

– Broc Romanek, CompensationStandards.com

In this article, Farient’s Robin Ferracone has some practical observations about comp committee members:

In the second year of Dodd-Frank, executive compensation continues to be top of mind as proxies roll off the presses and say-on-pay votes are cast. As part of the season, there is no shortage of director conferences to attend to hone our director skills, particularly in the area of executive compensation. This is a good thing.

Recently, a prominent individual at an investment company was going to speak on a panel at one such conference. In preparation for the panel, he asked my opinion on two governance policy questions:

1) Should compensation committees include at least one compensation expert as a member of the committee?

2) Should compensation committee members be rotated on and off of the committee?

As a business person who currently serves on boards and chairs a compensation committee, and as an executive compensation consultant who has served a myriad of compensation committees over the years, I have not surprisingly formed some opinions on these two topics.

I am always amazed when boards treat compensation, like human resources (HR) in general, as an area that should be intuitively obvious. However, just like audit committee members are most effective when they are financially literate, compensation committee members are most effective when they have a certain amount of compensation literacy and expertise. It helps when people on the compensation committee have a generally familiarity with both the strategic and technical aspects of compensation. It helps when compensation committee members have a feel for the issues based on real experience with the subject matter, not just as a line executive or onlooker.

The good news is that board directors can either come to the table with compensation experience or obtain such experience “on the job.” Take Laurie Siegel, for example, who chairs the compensation committee at CenturyLink, a $15B telephone company. Laurie is a seasoned HR executive and early in her career worked with me as an executive compensation consultant.

Obviously, she comes to the table with ready-made skills and can be immediately effective as a compensation committee member. But board directors without this deep knowledge also can gain expertise by engaging in educational programs, and insisting on getting a tutorial from the company’s internal staff and/or consultant that includes both Compensation 101 (i.e., executive compensation in general), and the compensation philosophy, programs, and processes for the specific company at hand.

These learning opportunities, coupled with about a year of service on the compensation committee, can give directors who are new to the compensation committee the experience and skills they need to become highly effective compensation committee members. I’d also suggest that those on the nominating and governance committee put compensation expertise on the list of qualifications for new board members.

As for the second issue, whether or not board members should be rotated on and off of the compensation committee, my view is that rotation is a good thing, but in measured doses. I would roll members on or off the compensation committee one at a time. My experience is that new blood can bring fresh thinking, which is healthy, but institutional knowledge on the committee also provides needed stability and a deeper understanding of the company’s culture.

Further, compensation committee members should serve on that committee for a minimum of three years before rotating off. Similarly, compensation committee chairs should stay in their role for at least three years. Too much turnover in either compensation committee membership or the chair role can create too much disruption, which can be bad for the organization. Clearly, these are board governance decisions, and board qualifications and rotational policies should not be dictated by investors or the government.

Finally, expertise and a certain amount of stability in the compensation committee membership help avoid one of the biggest mistakes that new compensation committee members make, which is to import their experience from a very different environment, such as academics or private equity, to the company at hand. Not that experience in a different environment isn’t useful, it is. But compensation is a delicate cultural issue and must be tailored to the unique circumstances of the organization at hand. This means that what works in one environment often won’t in another, particularly when crossing industries or ownership structures (e.g., private to public).

To sum up, my experience is that compensation committees function best when the people sitting on these committees, and certainly the chair of these committees, have some expertise that is directly relevant, either through background or experience, and that rotating people on and off the committee in measured doses can bring new thinking to the table without the downside effect of wholesale disruption. Aligning executives with investor interests can best be achieved when the right directors, with the right experience, training, and resources, and are in the right seats at the right time.

– Broc Romanek, CompensationStandards.com

Here’s an interesting article entitled “Can Huge CEO Golden Parachutes Hurt You?”…

– Broc Romanek, CompensationStandards.com

The title of this piece from the Huffington Post says it all: “Bankers Explain How They Cannot Possibly Live On $1 Million Pay.” Does the same apply to those CEOs who have grown accustomed to having huge piles of money thrown at them?

– Broc Romanek, CompensationStandards.com

Over the past few months – presumably in response to the Jana Partners situation – several companies have filed Form 8-Ks under Item 5.03 to report by-law amendments that disqualify someone from serving as a director if they receive compensation for such service from someone other than the company. In late May, Marathon Oil filed this Form 8-K. In late June, McGraw Hill filed this Form 8-K.

Then last week, Halliburton filed this Form 8-K, refining the concept and requiring new director candidates to actually sign an agreement and representation. And then a few days ago, Air Products & Chemicals filed this Form 8-K, which also requires new candidates to sign a representation that the candidate “is not, and will not become a party to, any agreement, arrangement or understanding with any person other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of the Corporation that has not been fully disclosed to the Corporation.”

Thanks to footnoted’s Michelle Leder and Katten Muchin’s Claudia Allen for the tips!

– Subodh Mishra, ISS Governance Exchange

Companies have fared modestly better in 2013 than in 2012 with regard to shareholder support for their pay policies and practices, according to an ISS analysis of voting results through July 1. Across the full Russell 3000 index, average support has increased over calendar 2012 by roughly one-half percentage point to 91.3 percent, while the number of votes with less than majority support has declined to 45 from 52 during the first six months of the year for 2013 and 2012, respectively. Still, not all companies are seeing gains, with smaller firms–defined herein as Russell 3000 companies falling below the S&P 1500–in fact showing less support this year than last, albeit by just basis points.

The decline in support at smaller companies this year is matched by an increase in concerns over pay-for-performance, as defined by ISS, and, consequently, “against” recommendations by the proxy adviser. In fact, “high” levels of concern tied to pay-for-performance were evidenced at 13.6 percent of companies tracked in the first half of 2013, nearly one point more than during the same period last year. Moreover, smaller companies saw an uptick in the portion receiving “against” recommendations, which saw a 1.5 point jump in 2013.

By comparison, S&P500 companies saw declines in both concerns over pay-for-performance and ISS “against” recommendations on advisory pay votes. With respect to the former, “high” levels of concern dropped 4.1 percentage points to 8.5 percent in 2013, while adverse recommendations similarly declined by 3.6 point to 10.3 percent of 416 large capital companies analyzed thus far in 2013. The distribution among indices of failed votes also has tilted toward smaller companies this year compared with 2011 and 2012.

Russell 3000 firms falling below the S&P1500 make up fully one-half of all failed votes to date in 2013, compared with 29.8 percent in calendar 2012 and 22.2 percent in 2011.
Taken together, these trends suggest larger companies are doing more to conform pay policies and practices to that deemed ideal by shareholders, while, concurrently, investors are sharpening their focus on smaller portfolio companies’ compensation structures.

By sector, average support levels increased across the board, save for Consumer Discretionary and Telecommunications Services Firms, where declines were evidenced in 2013. Financials, meanwhile, saw no year-over-year change from 2012. Consumer Discretionary firms saw average support dip largely on the back of three firms, including two–Abercrombie & Fitch and The Children’s Place Retail Stores–where support languished in the teens, and at Morgans Hotel Group, which netted just 27.4 percent support. The Telecommunication Services sector, which represents a relatively small universe of firms relative to others, was weighed down by Cogent Communications Group and Level 3 Communications, where voting support tallied 39.7 and 54.2 percent, respectively. All other firms in the sector saw support in excess of 80 percent.

The distribution of companies with higher levels of say-on-pay voting support also showed improvement in 2013, with more than 78 percent of companies seeing approval of 90 percent or more. By comparison, that figure stood at 74.7 percent during the same period in 2012. Offsetting the swelling ranks of companies in the highest support-level band were fewer companies in the 70 to 90 percent range and those without majority support. Companies with support between 50 and 70 percent was static year-over-year at roughly 5.7 percent of the total.

– Broc Romanek, CompensationStandards.com

We are very excited to announce that Corp Fin Director Keith Higgins will be part of our “Annual Proxy Disclosure Conference” on September 23rd. Registrations for our upcoming pair of conferences (combined for one price) – in DC and via video webcast – are strong and for good reason. The full agendas for the Conferences are posted – but the panels include:

– Keynote: “Keith Higgins, Director, SEC’s Division of Corporation Finance”
– Keynote: “Former Congressman Mike Oxley”
– Q&A with ISS
– Q&A with Glass Lewis
– Say-on-Pay Shareholder Engagement: The Investors Speak
– Compensation Committees & Advisors: The NYSE & Nasdaq Speak
– Realizable Pay Disclosure: How to Do It
– How to Improve Pay-for-Performance Disclosure
– We Don’t Have a Good Pay Story: What Do We Disclose?
– How to Avoid Executive Pay Disclosure Litigation
– Peer Group Disclosures: What to Do Now
– In-House Perspective: Strategies for Effective Solicitations
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– The Art of Supplemental Materials
– Dealing with the Complexities of Perks
– Say-on-Parachute & Post-Deal Disclosure Developments
– Compensation Accounting, Tax & Risk Assessment Disclosures
– Shareholder Proposals & Executive Pay
– The Rise of Political Contribution Disclosures

– Broc Romanek, CompensationStandards.com

We have posted the transcript for our recent webcast: “Law Firms & Independence: What to Do Now.”

– Broc Romanek, CompensationStandards.com

Here’s a thought piece from former Secretary of Labor Robert Reich about CEO pay…

– Broc Romanek, CompensationStandards.com

With the three year anniversary of Dodd-Frank bearing down on us tomorrow comes this rumor – from this Bloomberg article – that the SEC is close to proposing pay disparity rules – perhaps as soon as August 21st! Normally, I don’t blog about rumors since they often don’t come true – but new SEC Chair White has promised to move the Dodd-Frank rules along and last week’s Reg D rulemaking proves that she means business. So perhaps we will see an entire set of the “Gang of 4” proposals soon enough.

Meanwhile, as noted in this Ning Chiu blog, there has been a bit of press about the pay ratio requirement in Dodd-Frank – as well as a House bill to stop it.

Registrations for our upcoming pair of conferences – in DC and via video webcast – are strong and for good reason. The full agendas for the Conferences are posted – but the panels include:

– Q&A with ISS
– Q&A with Glass Lewis
– Say-on-Pay Shareholder Engagement: The Investors Speak
– Compensation Committees & Advisors: The NYSE & Nasdaq Speak
– Realizable Pay Disclosure: How to Do It
– How to Improve Pay-for-Performance Disclosure
– We Don’t Have a Good Pay Story: What Do We Disclose?
– How to Avoid Executive Pay Disclosure Litigation
– Peer Group Disclosures: What to Do Now
– In-House Perspective: Strategies for Effective Solicitations
– The SEC Staff Review Process
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– The Art of Supplemental Materials
– Dealing with the Complexities of Perks
– Say-on-Parachute & Post-Deal Disclosure Developments
– Compensation Accounting, Tax & Risk Assessment Disclosures
– Shareholder Proposals & Executive Pay
– The Rise of Political Contribution Disclosures