– Broc Romanek, CompensationStandards.com

For the 4th year in a row, ExxonMobil has put together a 12-page “executive compensation overview” that supplements its proxy statement, as noted in this 80-second video:

– Broc Romanek, CompensationStandards.com

In his blog, McGuireWoods’ Steven Kittrell reports that the IRS announced last week that it has selected 50 companies to get a special 409A audit (also see this Groom memo). The lucky winners have already won the audit lottery by being selected for an employment tax audit. In the 409A component, the IRS auditors will be looking at:

– initial deferral elections;
-subsequent deferral elections; and
– payments, including the six-month delay for specified employees.

The inclusion of the six-month delay indicates that all of the recipients of this IRS 409A review will be public companies. The focus will be on the top 10 highest compensated employees.

– Broc Romanek, CompensationStandards.com

Here’s a note from Cleary Gottlieb:

Companies with securities listed on NASDAQ must file a one-time certification of compliance in regard to the amended compensation committee listing rules as provided in Rule 5605(d) and IM-5605-6 within 30 calendar days following the earlier of the issuer’s first annual meeting occurring after January 15, 2014, or October 31, 2014. We note that, while the certification form contemplates that all companies are required to file, according to the frequently asked questions posted by, and informal conversations with, NASDAQ Listing Qualifications Staff, the following issuers are not required to submit the certification: asset-backed issuers and other passive-issuers, cooperatives, limited partnerships, management investment companies and controlled companies. (Such issuers may wish to confirm this point with their own listing analysts.)

However, all other companies, including foreign private issuers, must submit the certification electronically through the NASDAQ OMX Listing Center by the applicable deadline. In order to help gather the information necessary to complete the form, NASDAQ has posted the certification form in preview mode on its website. Calendar year companies take note, the deadline is (or will soon be) looming!

– Broc Romanek, CompensationStandards.com

In this 2-minute video, I run down 23 great ways that Merck enhances the usability of its 2014 proxy statement:

– Broc Romanek, CompensationStandards.com

Somewhat related to Mike Kesner’s blog about “Coke’s Cautionary Tale: Fungible Share Requests,” yesterday’s WSJ contained this interesting op-ed by Holman Jenkins:

Gilda Radner is dead and Emily Litella lives, and it’s too bad it’s not the reverse.

Emily Litella was the hard-of-hearing “Saturday Night Live” character who would launch an outraged monologue based on a simple misunderstanding and, when corrected, conclude sweetly, “Never mind.” Never mind is also the right response to the media-generated controversy over pay practices at Coca-Cola Co. KO +0.86% David Winters, a fund manager whose clients own 2.5 million shares, is cast as the hero of the piece for loudly dissenting from Coke’s 2014 management compensation plan. Warren Buffett, whose company owns 9% of Coke, is the goat for dissenting not loudly enough, or something like that.

In fact, both men are waving wet noodles at a matter where their chastisements aren’t useful.

Mr. Buffett believes only a CEO should get stock because only a CEO realistically can influence the share price, yet the Coke plan would extend stock incentives to 6,400 managers. His tastes in this regard must be respected, but nothing in logic says stock-based compensation can’t be a cost-effective way to compensate even employees unable to influence the share price.

Both men dislike dilution, but Mr. Winters’s damning critique holds that Coke’s plan potentially would result in a “transfer of wealth” of $28 billion, or 16.6% of the company, from shareholders to employees. This is a whopping number but it’s also nonsense, the equivalent of saying a company that sells stock to the public is transferring wealth to the public—forgetting that the company is getting something in return.

Even if Coke were to issue all the authorized stock as stock options (which it wouldn’t) and every option were exercised (unlikely), Coke would get the strike price plus the services of 6,400 managers in return. Even then, given Coke’s notoriously flat growth prospects and reliance on the dividend to support its share price, the cost realistically would be a small fraction of Mr. Winters’s estimate.

That is, unless a miraculous takeoff occurs in Coke’s shares, which should delight Mr. Winters and other shareholders, and which, importantly, would occur only after the market had discounted the dilution implied by Coke’s widely advertised compensation commitments.

Since we’re using our brains, Mr. Winters also worries Coke will spend money on share buybacks to offset dilution that would be better spent elsewhere. This is nonsensical too, because offsetting dilution is a nonsensical reason to engage in share buybacks (not that companies don’t state this rationale), but also because Coke has no shortage of other ways to finance promising corporate opportunities.

But now we come to the larger point. If Mr. Winters doesn’t trust Coke management not to squander shareholder wealth on misconceived compensation schemes or dumb buybacks or any of the infinite ways management can squander shareholder wealth, he would be smart to sell the stock or lobby loudly for a change in management.

This is not to say Coke management or any management should be trusted. But it goes to the great rolling experiment of American corporate capitalism—the reliance on pre-emptively large carrots to reinforce behaviors that outsiders can’t observe or control directly. Coke explains in great detail its compensation plan. It throws out lots of numbers. But the devil isn’t in the details—it’s in the implementation.

Mr. Buffett, when explaining why he complained privately to Coke management but didn’t join Mr. Winters in voting against the compensation plan, said he trusts Coke management. This got him beat up in a typically formulaic New York Times piece, but he’s right in the sense that the answer to untrusted management is always going to be “get rid of management” and not “cast a meaningless vote against its compensation plan.”

Mr. Winters, for his part, demurred when asked exactly how Coke should redraft its compensation strategy. And he’s right too, because any compensation plan in the hands of untrusted management is a formula for wasting shareholder resources.

Executive pay is obviously an incendiary topic for American liberals, but there is a simpler reason why Coke has become a compensation cause célèbre: Mr. Winters produced a colorful PowerPoint with large type, claiming Coke’s plan is “bad for Coke” and a “bad example for corporate America.”

Now that’s an easy one for pundits straining for opportunities to position themselves to bask in the admiration of their readers. Pundits are always bravely in favor of good things and against bad things, and they don’t care who knows it. Plus, journalists need not hurt their brains actually trying to evaluate Coke’s compensation plan, which would mean confronting the basic problem of corporate governance.

Perhaps one day a computer will take in all relevant information and tell us how to optimize corporate decisions about where to invest, where to cut, how to market products, and we can do away with invidiously large incentives for management. Until then, large incentives appear to be the solution our restlessly pragmatic capital markets have settled on for influencing what goes on behind the corporate veil.

– Broc Romanek, CompensationStandards.com

– NY Times’ “Executive Pay: Invasion of the Supersalaries”
– Fiscal Times’ “The High-Stakes Fight Over How to Measure CEO Pay”
– NY Times’ “Pay for Performance? It Depends on the Measuring Stick”
– CFO.com’s “Why Not Pay Executives Like Private Equity Does?” (better to move away from TSR performance tests?)
– Bloomberg’s “How Out of Whack Is CEO Pay?” (video w/ Ken Feinberg)
– Steven Hall & Ptrs’ ” CEO Pay Up 7% for Early Filers – Realized vs. Realizable Pay Debate”
– The Atlantic’s “Why Do CEOs Make So Much Money?” (video)
– Payscale’s “CEO Pay in Perspective” (includes infographics on pay ratios)
– Salon.com’s “Robert Reich: “Paid-what-you’re-worth” is a toxic myth”

By the way, here is the ABA’s comment letter on the SEC’s pay ratio disclosure proposal – and all the comments submitted to date…

– 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 29th-30th. Registrations for our popular pair of conferences (combined for one price) – in Las Vegas and via video webcast – are strong and for good reason. Register by this Friday, as rates go up after that!

The full agendas for the Conferences are posted – but the panels include:

– Keith Higgins Speaks: The Latest from the SEC
– Preparing for Pay Ratio Disclosures: How to Gather the Data
– Pay Ratio: What the Compensation Committee Needs to Do Now
– Case Studies: How to Draft Pay Ratio Disclosures
– Pay Ratio: Pointers from In-House
– Navigating ISS & Glass Lewis
– How to Improve Pay-for-Performance Disclosure
– Peer Group Disclosures: The In-House Perspective
– 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
– The Art of Communication
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars
– Hot Topics: 50 Practical Nuggets in 75 Minutes

Act Now: Register by the end of this Friday, May 9th, to get a reduced rate of 20%!

– Broc Romanek, CompensationStandards.com

These companies recently failed their say-on-pay votes, bringing the total to 9 in 2014 so far:

– Biglari Holdings*
– Patriot Scientific*
– Sensient Technologies
– TCF Financial
– VCA Antech*

*Also failed in a prior year. Hat tip to Mark Lindemann and Judi Olstein of Mercer for spotting these!

– Broc Romanek, CompensationStandards.com

In this new study, GMI finds:

– Slim majority of S&P 500 companies (53.8%) cited at least one sustainability factor in shaping pay decisions
– While a majority of companies in the S&P 500 incorporate sustainability factors into executive compensation decisions, only 16% name specific metrics used to measure performance
– Only 10% of S&P 500 companies disclose specific sustainability targets in compensation plans
– Over 90% of energy and utility companies use sustainability metrics to determine a portion of pay, compared to less than 40% of telecommunications, technology, and cyclical consumer goods and services companies

GMI is hosting a webcast next Tuesday, May 6th on the study…

– Broc Romanek, CompensationStandards.com

Last week, I blogged about a wide-ranging interview with Warren Buffett on CBNC that covered many topics including his decision to abstain in a vote on Coca-Cola’s controversial equity compensation plan, even though he thought it was “excessive.” Here is a transcript of that interview. Warren sat on Coke’s compensation committee for many years – but he left Coke’s board in 2006. Now his son Howard sits on Coke’s board (but not its comp committee).

As reported in this WSJ article yesterday (and here’s a Reuters article), Coke likely will revise its compensation plan before it goes into effect next year, primarily due to Warren’s sentiments. This is pretty remarkable given that the plan received 83% support from shareholders at Coke’s annual meeting last week. Here is an excerpt from the WSJ article:

Mr. Buffett aired his reservations about the plan privately in recent weeks to Coke Chief Executive Muhtar Kent in three conversations, including at a dinner in Mr. Buffett’s hometown of Omaha, Neb., according to some of the people familiar with the matter. Mr. Buffett’s conglomerate, Berkshire Hathaway Inc., is Coke’s largest holder of stock in the company, owning 9% of the beverage giant’s shares.

Mr. Buffett has frequently expressed his distaste for pay plans that rely heavily on stock options, calling them “lottery tickets” for executives that often generate outsize rewards. Such options give the recipient the right to purchase shares at a later date for a set price. On Wednesday, Mr. Buffett said he has been clear with Coke management from the outset that he thought the plan was excessive. “I’m against the plan, and they know it,” Mr. Buffett said in an interview with The Wall Street Journal.