– Broc Romanek, CompensationStandards.com

Here’s news from this Reuters article:

Hillary Clinton, under pressure from the left wing of her Democratic Party to aggressively campaign against income inequality, voiced concern about the hefty paychecks of some corporate executives in an email to supporters. Striking a populist note, Clinton, who announced on Sunday she was running for president in 2016, said American families were still facing financial hardship at a time “when the average CEO makes about 300 times what the average worker makes.”

In a tightly scripted campaign launch in which there were few surprises, the comments were unexpected, at least by progressives, who saw them as an early sign she may shift away from the centrist economic policies pursued by her husband, former President Bill Clinton. “I definitely see the push from the left wing, which I think is great,” said Jared Milrad, a Clinton supporter who appeared in a video launching her campaign for the presidency.

Milrad said he saw the populist rhetoric as a sign that Clinton “has been listening” to backers such as himself who want her to embrace some of the economic policies pushed by Senator Elizabeth Warren, a hero of liberal Democrats. Warren favors tighter regulation of big banks and a bolstering of the social safety net.

PAY GAP WIDENING

The enthusiasm of some progressives was tempered by the fact that they have yet to see the details of Clinton’s policy proposals. “So far we don’t know very much,” said Zephyr Teachout, a one-time New York gubernatorial candidate. “I hope Clinton clarifies where she stands on these issues.” Leo Gerard, international president for the United Steelworkers union, was also guarded. “I think it’s too early to make any judgments on what I would call the very short opening statement, and we’ll see what happens as we go forward,” Gerard told reporters at a conference of the BlueGreen Alliance, a coalition of large labor unions and environmental groups.

The gap between the pay of chief executives from major corporations has skyrocketed over the past several decades. In 1965, CEOs earned about 20 times what a typical worker brought home, according to research by the Economic Policy Institute, a liberal think tank. In 2013, CEO compensation was nearly 300 times the pay of the average worker, the EPI study said.

Economic inequality has been a top campaign theme for Democrats for the past several years, including for President Barack Obama. While he often talks about the need to address economic inequality, he is frequently cautious about appearing to lash out at corporations and their executives.

In 2009, for example, he bashed “fat cat” Wall Street bankers for accepting big pay packages in the aftermath of the 2007-2009 financial crisis at a time when many Americans were suffering hardship. Faced with a barrage of criticism from Republicans, Obama stressed he was not anti-business.

Obama’s efforts to walk a fine line on economic populism highlight the balancing act that Clinton will face. While such rhetoric stirs enthusiasm on the left, she risks irking wealthy donors, including her backers on Wall Street.

Clinton supporters on Wall Street reacted with equanimity on Monday when asked about her vow to level the playing field for the middle class. “She will address inequality. The mistake would be to just assume that that’s populist,” said Lynn Forester de Rothschild, the CEO of the family investment company E.L. Rothschild and a Clinton supporter. “If rich people are not worried about today’s levels of income inequality, then they are stupid,” she said. Paul Beirne, a principal at Bernstein Global Wealth Management who supports Clinton, said there had been some movement toward better accountability in CEO pay, but more work was needed.

Meanwhile, this article notes how Barney Frank is disappointed in how say-on-pay has not had more influence on changing executive pay, particularly citing fund managers…

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this Reuters article:

CEOs at large U.S. companies collectively realized at least $6 billion more in compensation than initially estimated in annual disclosures in the five years after the financial crisis first hit, according to a Reuters analysis. The reason for the windfall: the soaring value of their stock awards. About 300 CEOs who served throughout the 2009-2013 period at S&P 500 companies together realized about $22 billion in compensation in the form of pay, bonuses and share and option grants, or an average of $73 million each, figures provided by executive compensation data firm Equilar show. That compares to about $16 billion initially reported in annual company summary compensation tables, which include estimates for the value of stock grants based on the price of shares at the time of awards.

The comparison does not include pensions and perks such as country club memberships and use of corporate jets for private use. The study also excludes rewards reaped by other top executives, such as chief financial officers and chief operating officers, and compensation for CEOs who did not serve the full five years.

Further gains in share prices in 2014 and so far this year will only have increased the gap between the annual disclosures and the amount actually derived from the awards, with the full picture for last year only becoming clear over the next couple of months. The S&P 500’s total return, including dividends, was 166 percent from the end of 2008 through Monday of this week, according to S&P Dow Jones Indices.

– Broc Romanek, CompensationStandards.com

You should register soon for our popular conferences – “Tackling Your 2016 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 12th Annual Executive Compensation Conference” – to be held October 27-28th in San Diego and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days, including:

– Keith Higgins Speaks: The Latest from the SEC
– Proxy Access: Tackling the Challenges
– Disclosure Effectiveness: What Investors Really Want to See
– Pay Ratio: What Now
– Peer Group Disclosures: The In-House Perspective
– How to Improve Pay-for-Performance Disclosure
– Creating Effective Clawbacks (and Disclosures)
– Pledging & Hedging Disclosures
– The Executive Summary
– The Art of Communication
– Dave & Marty: Smashmouth
– Dealing with the Complexities of Perks
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars: The Bleeding Edge
– The Investors Speak
– Navigating ISS & Glass Lewis
– Hot Topics: 50 Practical Nuggets in 75 Minutes

Early Bird Rates – Act by April 24th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 24th to take advantage of the 33% discount.

– Broc Romanek, CompensationStandards.com

With SEC Chair White recently indicating that the pay ratio rules will indeed get moved this year, it’s worth noting this Gretchen Morgenson column from yesterday’s NY Times:

Investors who take the time to wade through corporate reports on what their top executives are paid are all too familiar with the problem of information overload. But no matter how hard they look, there is one figure investors won’t find in the jumble of tables, charts and dollar signs in a proxy filing. And that is a comparison of what the company paid its chief executive with what its typical employee earned.

This piece of the compensation puzzle is known as the C.E.O. pay ratio, and it was supposed to have been included in public company disclosures by now. In 2010, Congress approved the Dodd-Frank law requiring such information to be an element in each year’s pay disclosures. The idea was to expose how wide the gap was between a company’s chief executive and its rank-and-file workers. To meet that requirement, the Securities and Exchange Commission in 2013 proposed a specific pay-ratio rule that companies disclose the median annual total compensation of all their employees — the level at which half of them earn more and half earn less — and compare that figure with the amount awarded to the chief executive.

How much does a C.E.O. make compared with a typical employee? To get a rough idea, the Center for Economic and Policy Research calculated the gap for some highly paid C.E.O.s. From left: Starbucks’s Howard Schultz, Disney’s Robert Iger, and Oracle’s Lawrence Ellison. “The pay ratio was designed to embarrass, but I think it’s actually a pretty good thing,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “The C.E.O.’s pay has to have a relationship to the pay scheme of everyone else, and I think it will force companies to rethink how they design their compensation packages.” But the rule ran into a buzz saw of opposition. Deploying the usual arguments — such a rule would be too costly and burdensome to calculate and wouldn’t provide meaningful information to shareholders — corporate lobbyists have so far kept the S.E.C.’s proposal in limbo.

Academic research shows that the worker-to-C.E.O. gulf has been widening. According to a 2014 study by Alyssa Davis and Lawrence Mishel at the Economic Policy Institute, a left-leaning advocacy group in Washington with a reputation for rigorous studies, chief executive pay as a multiple of the typical worker’s pay rocketed from an average of 20 times in 1965 to 295.9 in 2013.

Even though the S.E.C. has not approved the rule, that doesn’t mean we can’t calculate rough estimates for C.E.O. pay ratios. So I asked Dean Baker, co-founder of the liberal Center for Economic and Policy Research, to do just that for a dozen of the highest-paid executives. First, Equilar, the compensation analytics firm in Redwood City, Calif., provided figures on executive compensation in 2014 at a number of the nation’s largest companies. Filings from 64 companies that had submitted their proxies by March 30, 2015, were included in this exercise. Compensation consisted of base salary, cash bonuses, perquisites and the grant-date value of stock and option grants. Equilar found that among these 64 companies, the median C.E.O. pay package was $11.5 million, down 4 percent from last year. (A subsequent analysis, the Equilar 100 C.E.O. Pay Study, using proxies filed by April 3, found the median package was $14.3 million, an almost 5 percent increase from last year.)

Using the March 30 figures, Mr. Baker, an expert in labor economics, worked with Nicholas Buffie, a research assistant, focusing on the 12 highest-paid executives in the group. They estimated the median wage for all the other employees of each company and compared that with the corresponding C.E.O.’s total 2014 compensation. These are imprecise and rough estimates. Given the absence of detail companies provide about their work force — such as how many employees work in the United States versus abroad — it is impossible for any outsider to nail down a precise number.

Nevertheless, Mr. Baker said he felt comfortable with the median wage estimates, which were based on figures from Occupational Employment Statistics, a program of the Bureau of Labor Statistics, or from Payscale, a compensation analytics firm in Seattle. “Clearly the big winners in the economy over the last three to four decades have been those at the top,” Mr. Baker said. “This is one way to illustrate that.”

Several of the companies objected to the figures when asked to comment on them. But only one, Honeywell, provided a precise median wage figure of its own: $58,000, versus the $31,000 that Mr. Baker calculated. Some companies also argued that stock and option grants are paid out over time, not all in one year, skewing pay figures higher for their chief executive.

The company with the widest pay gap on the list was Walt Disney, whose chief executive, Robert Iger, received $43.7 million last year. Given Mr. Baker’s estimate that Disney’s median worker received $19,530 last year, that translates to a C.E.O. multiple of 2,238 to one. A Disney spokesman said that 92 percent of Mr. Iger’s compensation was based on the company’s financial performance, which was outstanding in 2014.

Second on the list was Satya Nadella, Microsoft’s chief. His pay package of $84.3 million last year placed him at 2,012 times the estimate of $41,900 for the median employee’s earnings at Microsoft. A Microsoft spokesman disputed the calculation, saying that a typical employee at the company earned “well north of $100,000,” and that much of Mr. Nadella’s pay would be realized only in coming years — if the company performed well. He contended that a better measure of Mr. Nadella’s pay for 2014 was $22.75 million. Using Microsoft’s figures, Mr. Nadella’s pay ratio would still be at least 150 to one.

Oracle’s founder, Lawrence J. Ellison, ranks third on the pay gap list: 1,183 to one by Mr. Baker’s calculations. Oracle’s spokeswoman declined to comment.

Next up was Steven M. Mollenkopf, chief executive of Qualcomm, whose $60.7 million in compensation puts him at 1,111 times the median worker estimate at the San Diego company, which makes wireless telecommunication equipment and software. A Qualcomm spokeswoman said only $28.7 million of Mr. Mollenkopf’s package should be used for a pay comparison. This would lower his ratio to 526 to 1.

Howard D. Schultz, founder and chief executive of Starbucks, ranked fifth. He received $21.5 million last year, or 1,073 times the typical barista’s salary. A company spokeswoman said its executive compensation was linked to company performance, “and our board has determined that Howard Schultz’s pay reflects both competitive considerations and value to the company.” She added that lower-level workers receive a wide array of benefits in addition to their salaries.

After Mr. Schultz, the pay gaps fall to 682 for Richard D. Fairbank at Capital One; 396 for David M. Cote at Honeywell, using its number; 340 for Rupert Murdoch at 21st Century Fox; 316 for Meg Whitman at Hewlett-Packard; 296 for W. James McNerney Jr. at Boeing; 291 for AT&T’s chief executive, Randall L. Stephenson, and 284 for Alex Gorsky, chief executive of Johnson & Johnson. A Honeywell spokesman said “more than 90 percent of our C.E.O.’s pay is variable, at-risk and long term,” emphasizing profit growth and stock appreciation.

An AT&T spokesman said 92 percent of the C.E.O.’s target compensation was tied to company performance, including stock price. Officials at the other companies declined to comment or didn’t return calls.

Again, these are rough estimates. But without an S.E.C. rule, the public companies that reveal their chief executives’ pay over the next few months will not have to account for the pay ratio comparison with their workers. That’s too bad. “These C.E.O.s are smart, hard-working people,” Mr. Baker said. “But there is no basis for believing that if companies don’t pay $84 million they won’t attract top talent. You go back 40 years and they had smart, hard-working people too. They were well-paid, but not like they are today.”

– Broc Romanek, CompensationStandards.com

Last week, Amalgamated Bank announced that five major energy companies have agreed to new measures that will limit potential golden parachutes for executives in the event of a merger or other change of company control. Amalgamated has negotiated several similar agreements with major companies since pioneering the first shareholder resolution on the topic in 2011 and this announcement coincides with news that CII has approved a new policy to urge the same policies at companies across the market.

– Broc Romanek, CompensationStandards.com

Last week, the Council of Institutional Investors approved a policy opposing automatic accelerated vesting of unearned equity in the event of a merger or other change-in-control. The recommended best-practice policy states that boards should have discretion to permit full, partial or no accelerated vesting of equity awards not yet awarded, paid or vested.

– Broc Romanek, CompensationStandards.com

Last week, the IRS issued final Section 162(m) regulations that address both IPO transitions and individual award limitations for the “performance-based” compensation exemption. These memos discuss the changes…

– Broc Romanek, CompensationStandards.com

Here’s a teaser of this new Towers Watson survey of pay-for-performance disclosure trends:

A new analysis of pay-for-performance disclosures among Fortune 500 companies by Towers Watson’s Executive Compensation Resources team reveals that company explanations of how pay is linked to performance vary widely — when they’re offered at all.

While the prevalence of pay-for-performance discussions in proxy statements increased steadily since Dodd-Frank was enacted in 2010, it appears to have plateaued in the last year. Just over a quarter (27%) of Fortune 500 companies provided some type of pay-for-performance discussion in 2014, which was down slightly from the 28% of companies that included such a summary in 2013.

– Broc Romanek, CompensationStandards.com

Last week, the SEC brought this enforcement action against Polycom’s former CEO (who was fired in 2013). The company was charged with inadequate proxy disclosure from 2010 to 2013 and improper internal controls. The SEC complaint is filled with striking details (if true) of how the CEO at Polycom created false expense reports so the company would pay for his personal expenses, such as this example:

On July 7, 2012, Miller directed his administrative assistant to buy him two tickets to an August 3, 2012 performance of the Broadway musical Jersey Boys in New York City. On July 24, 2012, Miller emailed his administrative assistant to ask if she had the tickets, and during that exchange he represented, “I am giving the JB tickets as a prize in a NYC PLCM office sales contest…. On PCARD place NYC PLCM Q3 Sales Incentive Contest[.]” At Miller’s direction, his assistant charged $576.20 to her P-Card for two tickets to the show, and submitted the expense for reimbursement with the description that Miller had provided. But Miller’s description of the expense was false, as he again used the tickets to attend the theatre with his girlfriend, and did not give them away to Polycom’s New York sales team or anyone else. Indeed, Miller’s August 3, 2012 night out with his girlfriend in New York cost Polycom more than $1,000. In addition to the tickets, Miller charged more than $275 to his Polycom credit card for post-theatre dinner and later, although he had eaten alone with his girlfriend, emailed his administrative assistant a bogus business description for the meal, including the names of purported attendees from a Polycom customer. Miller also directed his administrative assistant to book a limousine service to take him to the theatre and dinner, for which she charged more than $160 on her P-Card, at his direction, and obtained reimbursement from Polycom.

There are plenty of other examples to pique anyone’s interest. It’s another sad tale of what would seem to be, entitlement and fraud.

The SEC also penalized Polycom $750,000 and issued a cease and desist. The company’s proxy statement said: “No Excessive Perquisites” (emphasis in original) and explaining that “[a] small amount of perquisites are provided to our executives, consistent with the practices of our peer companies.” False and misleading statements, books and records violations, internal accounting controls failure, etc.

And in the complaint, the SEC stated: “Polycom employees discovered that Miller had expensed more than $800 worth of spa gift cards as purported gifts to Polycom employees, but that Miller had actually used the gift cards, at least in part, for himself. In response, Polycom’s CFO raised the issue directly with Miller and suggested a system for further review of Miller’s expense reports to avoid problems in the future. Miller reacted angrily at being second-guessed. On June 26, 2011, the CFO sent Miller an email emphasizing the importance of Miller’s and the company’s disclosure obligations, including a detailed description of the relationship between Miller’s expenses, rules requiring that Polycom disclose all perks he received, and the company’s proxy statements. Notwithstanding the clear instructions provided in Polycom’s annual financial reporting questionnaires, which Miller signed, and the CFO’s personal explanation in June 2011, Miller continued to charge and hide personal expenses from Polycom.”