– Broc Romanek, CompensationStandards.com

In her NY Times column last Sunday, Gretchen Morgenson covered clawbacks at length…

– Broc Romanek, CompensationStandards.com

This Morgan Lewis memo describes the European “Capital Requirements Directive IV” (CRD IV), which contains a new cap on bonuses payable to certain classes of employees within the financial services sector. It takes effect on January 1st. Here’s the new development, excerpted from the memo:

Once in force, CRD IV will apply to all bonus payments made to “material risk takers”, which commentators initially assumed would, in broad terms, amount to those employees previously identified as “code staff” under the Financial Conduct Authority’s Remuneration Code. However, in May 2013, the EBA published a consultation
paper in which it sought to significantly widen the class of employees who would be caught by the bonus cap. After receiving negative feedback to the consultation paper, the EBA, on December 17, issued its final draft RTS, which adopt a far narrower approach.

– Broc Romanek, CompensationStandards.com

I just blogged more fully about Corp Fin’s Reg S-K study that came out on Friday over on TheCorporateCounsel.net. From page 100, here is the excerpt from the study about how executive pay disclosures could be changed:

Executive compensation requirements. Although the requirements for executive compensation disclosure have been amended more often than any of the other disclosure requirements in Regulation S-K, executive compensation disclosure is sometimes pointed to by companies and practitioners as an area with lengthy, technical disclosure. The executive compensation disclosure requirements should be evaluated in light of these concerns and reviewed to confirm that the required information is useful to investors. The review could also evaluate whether further scaling is appropriate.

– Broc Romanek, CompensationStandards.com

Here’s a funny t-shirt that I recently spotted during my travels:

– Broc Romanek, CompensationStandards.com

Last week, Glass Lewis made available it’s 2014 proxy voting guidelines to its subscribers only. Here’s some analysis of the new guidelines from Towers Watson and Goodmans (I’m posting memos on GL’s update in our “Glass Lewis Policies” Practice Area).

– Broc Romanek, CompensationStandards.com

Here’s the most recent global look at the state of say-on-pay, courtesy of Profs. Thomas & Van der Elst…

– Broc Romanek, CompensationStandards.com

As noted in this Towers Watson study, pay for directors increased 3% at the median among the Fortune 500 according to proxies filed by June 30th. The findings include:

– Total direct compensation for outside directors increased 3% at the median over the prior year. The typical Fortune 500 director receives almost $227,000 in total direct compensation, up from about $220,000 in last year’s study.

– The median value of total cash compensation increased 8% over the last year, while median stock compensation remained flat. The increase in total cash fees was driven primarily by increases in annual cash retainer values as well as the continuing shift toward flat, retainer-based committee compensation and away from more variable forms of pay, such as per-meeting fees.

– Compensation committee members received a pay bump due, in part, to the additional time and effort required for service on this committee. The median retainer paid to compensation committee members increased 25% last year and now equals what audit committee members receive ($10,000).

Also check out Shearman & Sterling’s annual review of director comp disclosures for large companies that just came out…

– Broc Romanek, CompensationStandards.com

Over the last few weeks, Fusion-io became the 71st failure in ’13 with 36% support (Form 8-K) with just 26% support – and RCM Technologies (Form 8-K) became the 72nd with 28% support.

Did you realize that the number of say-on-pay failures has risen 75% in two years? Here is my 45-second video about the success rates for say-on-pay over the past three years (that I made before the 72nd failure occurred):

– Broc Romanek, CompensationStandards.com

I thought that I should clarify my blog from last week – when Nasdaq filed the compensation committee independence proposed rule changes on November 26th, they were immediately effective. Two days ago, the SEC published the notice of filing and immediate effectiveness of the proposed rule change.

As noted in Section III of the notice (pp. 9-10), the rule change has a 30-day operative delay from the date of filing. That period will expire before companies are required to comply with Nasdaq’s compensation committee composition rules since the transition period for compliance is unchanged. Specifically, companies must comply by the earlier of: (i) their first annual meeting after January 15, 2014, or (ii) October 31, 2014.

In addition, at any time within 60 days of the filing of the proposed rule change, the SEC summarily may temporarily suspend such rule change if it appears to the SEC that such action is: (i) necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Exchange Act. I have no expectation that they would take such action. I have posted memos on the Nasdaq’s changes in our “Compensation Committee” Practice Area.

– Subodh Mishra, ISS Governance Exchange

Top European company executives saw average overall pay increase by nearly 7 percent largely stemming from long-term incentives, according to a new Hay Group study. “Top Executive Compensation in Europe 2013,” which tracks trends in executive remuneration for more than 1,500 senior executives in 21 countries working for 332 of the continent’s 500 largest companies, finds base salaries increased just 2.5 percent, with overall gains due to more companies introducing long-term incentive (LTI) plans while also increasing the value of such plans. “Long-term incentive payments play a more important part than ever in the executive reward mix,” said Carl Sjostrom, Hay Group’s regional director for European reward services, in an Oct. 29 statement. “Not only are they more widespread, payments made under such plans are rising too.”

According to Sjostrom, both are symptoms of the current “conundrum” facing remuneration committees; namely, how companies can continue to keep a lid on pay increases for their most critical people and at the same time attract and retain top talent. Growth in LTI plans evidenced in 2013 is in keeping with recent trends, according to the study, which dates back to 2009. Of the 332 companies examined, 84 percent now utilize such plans compared with 78 percent in 2012. Moreover, the size of awards has also risen by 8.5 percent since 2012, according to study findings.

Meanwhile, though average basic pay across Europe fell in real terms (i.e., below regional levels for inflation), there were wide variations in reward between countries, industry sectors and job titles, the study finds. Executives in France, Germany, Italy and Spain, for example, all saw zero change in their basic pay, on average, while counterparts in Switzerland received a 1.7 percent increase and those in Sweden and the U.K. received 2.7 percent. At the sector level, differences were more marked. Executives in utilities and energy enjoyed a 10.5 percent rise in “total cash” while, at the other extreme, those in the automotive sector were paid 14 percent less than last year.

While pay rises for chief executives were kept well below inflation (their average total cash increase was 1.1 percent), heads of functions and divisional leaders have benefited from rises of around 5 percent. Other key findings of the study include:

– Pay rises for CEOs remain muted but other senior executive roles have seen a significant increase.
– Large variations were found between countries and industry sectors: Spain and Switzerland top the league of highest paying countries, while Nordic countries are the most restrained.
– The pharmaceutical sector continues to pay best, but the greatest increases in “total cash” (salary plus short-term incentive) were found in the insurance and utility sectors. In banking, total cash fell significantly below the overall average.
– Average total direct compensation for CEOs was just over Euro 3 million, whereas the average for other executive roles was Euro 1.5 million.

The study also finds a continuing rise in the use of compulsory deferred bonus plans, which in 2009 were employed by just 19 percent of companies, with the number growing to 41 percent this year after peaking at 43 percent in 2012. According to Sjostrom, post-crisis regulations imposed on the financial services sector not only hit banks but also influenced pay practices in other industries. “Extending deferral time periods with the mantra of ‘the longer the better’ has now been tested against economic realities and though deferrals are clearly working well for many companies, others have decided that alternative incentive combinations also have their place,” said Sjostrom.

Study authors also warn companies to resist the “urge to lower the targets that trigger incentives,” in a bid to recognize and reward top performers, suggesting they will break the link between pay and performance, and, potentially, “trigger another round of governance rules and regulations.” “As Europe’s economy recovers, and the talent market picks up, we expect to see greater discord between companies and investors-and also between different investors with different investment goals,” warned Sjostrom. “This, plus a continued increase in regulatory pressure, means companies will have to learn to better engage and assert themselves to explain the business case for reward.”