– Broc Romanek, CompensationStandards.com

We have posted the transcript for our recent webcast: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”

– Broc Romanek, CompensationStandards.com

Last week, Delaware enacted amendments to its corporation law – effective August 1st – that will permit grants of restricted stock to be made by a corporate officer who has been delegated that authority by the board (within parameters). Prior to this change, the granting of options could be delegated to officers pursuant to DGCL Section 157(c), but not so for stock. Under the old law, some companies worked around this limitation by creating a board committee of one person (typically, the CEO-director). The law change presents the opportunity for delegation without using a “committee of one,” allowing the CEO (in a non-director capacity) or other delegated officers to make grants of stock. Of course, accurate and timely records must be kept and plans also would need to permit such administration.

Here’s the news from this Richards Layton memo:

The 2015 legislation amends Section 152 of the DGCL to clarify that the board of directors may authorize stock to be issued in one or more transactions in such numbers and at such times as is determined by a person or body other than the board of directors or a committee of the board, so long as the resolution of the board or committee, as applicable, authorizing the issuance fixes the maximum number of shares that may be issued as well as the time frame during which such shares may be issued and establishes a minimum amount of consideration for which such shares may be issued.

The minimum amount of consideration cannot be less than the consideration required pursuant to Section 153 of the DGCL, which, as a general matter, means that shares with par value may not be issued for consideration having a value less than the par value of the shares. The legislation clarifies that a formula by which the consideration for stock is determined may include reference to or be made dependent upon the operation of extrinsic facts, thereby confirming that the consideration may be based on, among other things, market prices on one or more dates or averages of market prices on one or more dates.

Among other things, the legislation clarifies that the board (or duly empowered committee) may authorize stock to be issued pursuant to “at the market” programs without separately authorizing each individual stock issuance pursuant to the program. In addition, the legislation allows the board to delegate to officers the ability to issue restricted stock on the same basis that the board may delegate to officers the ability to issue rights or options under Section 157(c) of the DGCL.

– Broc Romanek

Yesterday, the SEC posted the Sunshine Act notice to announce that it will propose the clawback rules required by Dodd-Frank next Wednesday, July 1st!

– Broc Romanek

We’ve had false start rumors before about when the SEC will adopt pay ratio rules – but this time it feels different given the heightened political attacks against the SEC. The latest is this Bloomberg article indicating the rules will be adopted by August 5th, which the article notes was not confirmed by the SEC. It’s according to “two people familiar with the matter who asked not to be named.”

That’s right before our August 7th deadline for our last discounted rate for our big “Executive Pay Conference” in San Diego and by video webcast. Act now!

– Broc Romanek, CompensationStandards.com

Many are talking about this New Yorker piece by James Surowiecki (for example, see this Cooley blog). Here’s an excerpt:

At root, the unstoppable rise of C.E.O. pay involves an ideological shift. Just about everyone involved now assumes that talent is rarer than ever, and that only outsize rewards can lure suitable candidates and insure stellar performance. Yet the evidence for these propositions is sketchy at best, as Michael Dorff, a professor of corporate law at Southwestern Law School, shows in his new book, “Indispensable and Other Myths.” Dorff told me that, with large, established companies, “it’s very hard to show that picking one well-qualified C.E.O. over another has a major impact on corporate performance.” Indeed, a major study by the economists Xavier Gabaix and Augustin Landier, who happen to believe that current compensation levels are economically efficient, found that if the company with the two-hundred-and-fiftieth-most-talented C.E.O. suddenly managed to hire the most talented C.E.O. its value would increase by a mere 0.016 per cent.

– Broc Romanek, CompensationStandards.com

This study by Towers Watson shows a trend of steadily declining levels of run rate, overhang and long-term-incentive (LTI) fair value as a percentage of market capitalization in equity compensation programs at Fortune 500 companies. While the decline in share-use metrics appeared to have plateaued in fiscal 2012, the latest study indicates that the pause was only temporary. Companies continued to reduce share usage over the most recently completed reporting year, driven by the growing emphasis on granting full-value share awards (e.g., time- and performance-based shares/units) over appreciation awards (e.g., stock options) across the universe of companies in their sample.

Don’t forget to send your nominations for our “Annual Proxy Disclosure Awards.” Here’s how that works. Deadline for nominations is Wednesday, July 1st…

– Broc Romanek, CompensationStandards.com

This Newsweek article is the latest in a number that note that some companies are using pay-for-sustainability metrics as part of their pay program. Here’s the article:

Back in 2005, when GE chief executive Jeff Immelt launched Ecomagination, an initiative to pedal plant-friendly technologies to the market, he famously quipped “green is green.” But despite Mr. Immelt’s pitch, the conventional wisdom has stubbornly remained that what’s good for the planet is going to hurt in the pocketbook.

Things might finally be shifting. From the data crunched for this year’s Newsweek Green Rankings, we found an interesting trend within executive compensation packages that challenges this assumption. For instance, for the first time since we have been tracking executive pay-links to green, the majority of the 500 largest listed companies — both in the U.S. and globally — linked at least part of their executive bonus payout to green factors like energy use and greenhouse gas emissions. In the U.S., 53 percent of companies tie executive bonuses to green performance targets; globally, the number is 69 percent. A decade ago, less than 10 percent of companies linked pay to environmental factors.

Today, companies across the board, including oil companies, industrial powerhouses, and major consumer brand-name companies make doing well on your bonus a function of doing good for the environment.

Below are a few of hundreds of examples.

Nestle links the monetary bonus of its executive board to direct (referred to as scope 1) and indirect (referred to as scope 2) greenhouse gas (GHG) emissions reductions, as well as the expansion of the use of natural refrigerants in their industrial refrigeration systems and the use of natural refrigerants in all new ice cream chest freezers in Europe.

Unilever chief executive Paul Polman has part of his bonus tied to achieving GHG emissions reductions targets both within Unilever and throughout its supply chain.

At Statoil, the executive vice-president (EVP) of Drilling and Production Norway earns a bonus linked to achieving an “absolute reduction of emitted carbon dioxide (CO2) emissions compared to business as usual;” the EVP of Drilling and Production International has his bonus tied to achieving improvements on “CO2 intensity;” and the EVP Marketing, Processing and Renewable Energy is paid a bonus linked to a “three-staged key performance indicator consisting of energy efficiency, emissions to air (CO2, NOx,SOx) and emissions to water.”

BASF, meanwhile, pays its corporate executive team a bonus for reaching the “BASF Group global goals on specific GHG emission reduction and energy efficiency.”

So at least for top executives, it looks like it is getting easier — or at least more profitable — to be green.

Also see this PowerPoint by Compensation Venture Group’s Fred Whittlesey
, posted in our “Pay-for-Sustainability” Practice Area.

And don’t forget to send your nominations for our “Annual Proxy Disclosure Awards.” Here’s how that works. Deadline for nominations is Wednesday, July 1st…

– Broc Romanek, CompensationStandards.com

Thanks to those that participated in this survey – a hot topic! Below are the results from our recent survey on hedging policies:

1. Does your hedging policy cover?
– Only officers? – 3%
– Only officers & directors? – 43%
– Officers, directors & employees? – 54%

2. Does the hedging policy cover?
– Only company securities granted by the company as compensation? – 3%
– All company securities without regard to how acquired? – 97%

3. If your company doesn’t currently cover all employees under a hedging policy, do you expect to expand it now to all employees?
– Yes – 27%
– No – 73%

4. Do you think there is a way to effectively enforce a broad hedging policy?
– Yes – 8%
– No – 61%
– Not sure – 31%

Take a moment to participate in our “Quick Survey on Board Portals” and our “Quick Survey on Annual Meeting Conduct.”

Don’t forget to send your nominations for our “Annual Proxy Disclosure Awards.” Here’s how that works. Deadline for nominations is Wednesday, July 1st…

– Broc Romanek, CompensationStandards.com

In this blog, IRRC Institute’s Jon Lukomnik discusses the two studies it recently conducted with Organizational Capital Partners. Here’s a blog on the first study – and here’s an excerpt from this new blog about the second study:

Of course, we also need to recognize that companies don’t exist in a vacuum. Investors and proxy advisory firms also over-rely on TSR. A second Organizational Capital Partners/IRRC Institute study reveals that there is no material difference in say-on-pay advisor recommendations or institutional investor voting based on a company’s economic value creation (or destruction) history. While there are historical reasons for this, the positive is that the disconnect between the desire for long-term value creation and how we compensate senior executives is starting to hit home. Since the reports were published, investors representing more than $1 trillion have told us that they are considering how to refocus on economic fundamentals.

However, the institutional voting pattern does mean that companies need to add a fourth bullet point to the action plan above. A coherent, energetic communications program to explain how the LTIP will henceforth measure the right things over the right periods of time, so as to create sustainable value, is an absolute necessity. While being forced to explain why a company is doing the right thing is annoying, in the end, everyone, from investors to Boards to CEOs, will benefit.

Don’t forget to send your nominations for our “Annual Proxy Disclosure Awards.” Here’s how that works. Deadline for nominations is Wednesday, July 1st…

– Broc Romanek, CompensationStandards.com

This Harvard Business Review piece entitled “The Factors That Lead to High CEO Pay” includes a graphic illustrating the pay ratio variance among 16 countries that is jarring. Here’s an excerpt:

The reasons why the disparities vary country-to-country are complex, according to a recently accepted paper for the Strategic Management Journal by LSU E.J. Ourso College of Business professor Thomas Greckhamer. A social scientist, Greckhamer attempts to identify combinations of factors on a country-by-country basis that either widen or narrow the pay gap between CEOs and workers. Using data from the IMD World Competitiveness Yearbook from 2001, 2005, and 2009 for 54 countries, he also configured a model featuring power structures he expected to influence compensation, based on prior research of determinants of executive pay.

His conclusions aren’t neat and tidy, but a few things stand out: A country’s level of development matters for workers’ compensation, but not so much for CEOs’. A country that has a high deference for power will probably have higher-paid executives. And the political strength of the labor movement matters. But you also can’t isolate a single one of these factors as the determinant of income inequality.

To better understand how he got these findings, it’s worth laying out the eight compensation-influencing factors used by Greckhamer in his analysis:

1) A country’s level of development. This is important for a variety of reasons he describes in-depth, though the basic point is that high development should result in less income inequality, with both CEOs and workers making more.

2) The development of equity markets. The more developed markets increase ownership “dispersion,” or the number of people who own shares in a company. Greater dispersion, writes Greckhamer, “implies reduced owner-control, which should increase CEOs’ power to allocate more compensation for themselves.”

3) The development of the banking sector. The more concentrated the sector is, the more that should “monitor and control firms and thus constrain CEO power and pay.”

4) Its dependence on foreign capital. When foreign investors have influence over a company’s stock, it can boost income inequality.

5) Its collective rights empowering labor. This is basically collective bargaining rights, which are “a vital determinant of worker compensation” according to Greckhamer, and can also potentially limit CEO pay.

6) The strength of its welfare institutions. Their job, of course, is to “intervene in social arrangements to partially equalize the distribution of economic welfare,” which generally means lowering CEO pay and increasing that of regular workers.
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7) Employment market forces. In other words, the supply and demand for executives’ and workers’ skills.

8) Social order and authority relations. Greckhamer describes this as “power distance,” which basically means “the extent to which society accepts inequality and hierarchical authority.” A high power distance tends to lead to high CEO pay and low worker pay.

Don’t forget to send your nominations for our “Annual Proxy Disclosure Awards.” Here’s how that works. Deadline for nominations is Wednesday, July 1st…