Litigation over airplane use disclosure is so rare that I thought it was worth blogging about this. As noted in this Bloomberg article from April, Nordstrom was accused of hiding the costs of flying the family founders planes – the allegations was the corporate use of the company’s planes was being mixed with flying the family around. That case has now been dismissed as noted by Paul Hastings’ Mark Poerio on his site:
A Washington district court has dismissed Burbrink v. Campbell, which alleged false and misleading proxy statements had undervalued the Nordstrom family’s use of private aircraft. The company succeeded in establishing that independent directors had overseen the arrangements, and submitted an expert report substantiating its valuations. Executive usage of corporate aircraft remains a sensitive, complex practice.
However, it appears that an appeal was filed a few weeks ago…
According to our report, a majority of S&P 1500 companies paid their CEOs below the median of the peer groups they disclosed in proxy statements. The median ranking for S&P 1500 companies in terms of CEO total compensation relative to their peers was at the 46th percentile. (In other words, if this company at the median disclosed 100 peers, its CEO made more in total compensation than 46 of those peers.) On the other hand, S&P 500 companies compensated their CEOs slightly higher than their peers, and the median ranking for large cap companies in terms of pay compared to disclosed peers was at the 52nd percentile.
As noted in this FEI article, the SEC recently has proposed to require companies to use XBRL for some parts of the proxy statement. Here’s the intro from the article:
Filers, take note: two recent developments demonstrate the SEC’s growing commitment to the use of XBRL in interactive filings. For the first time ever, the SEC is extending the requirement for XBRL tagging to proxy statements. Under proposed rules, proxy statements will disclose and tag in XBRL a company’s pay-for-performance and clawback arrangements.
The litigation against Facebook for their director compensation raised a question of first impression: whether a disinterested controlling stockholder can ratify a transaction approved by an interested board of directors by expressing assent informally, instead of using one of the prescribed methods under Delaware corporate law, and be able to shift the standard of review from entire fairness to the business judgment presumption.
The board’s decision to approve the compensation of outside directors in 2013 was governed by the entire fairness review as a self-dealing transaction. After the filing of the lawsuit, which we previously discussed here and here, Mark Zuckerberg, who controlled over 61% of the voting power, approved the compensation in a deposition and with an affidavit. The company argued that these actions were enough to ratify the compensation and thereby shift the standard of review to the business judgment presumption.
The Court of Chancery of the State of Delaware disagreed in this opinion. Stockholder ratification of a self-dealing transaction must be accomplished formally by a vote at a stockholder meeting or by written consent. In denying the company’s motion for summary judgment, the court concluded that even a single controlling shareholder cannot ratify an interested board’s decision without adhering to the corporate formalities spelled out in Delaware corporate law.
A decision by interested directors about their own compensation will be reviewed as a self-dealing transaction under the entire fairness standard, but can gain the protection of the business judgment rule if a fully informed disinterested majority of stockholders ratifies the transaction. Under Section 228 of the DGCL, unless the charter otherwise restricts, any action that may be taken at any annual or special meeting of stockholders may be taken by majority stockholder consent without a meeting, notice or a vote. However, notice of the written consent (the taking of the action) must be provided to non-consenting stockholders to ensure some level of transparency.
Due to the potential for abuse, Delaware courts have traditionally adhered strictly to the technical requirements that signify stockholder approval. This court noted that if affidavits are considered sufficient as ratification, that could eventually lead to “Liking” a Facebook post of a proposed corporate action as being enough to express approval.
As illustrated by this 5-minute video of conference snippets, we really did have some fun during last week’s “Proxy Disclosure Conference” in San Diego. The 5-minute PEP Talks were well-received as they gave everyone a break from the non-stop practical guidance delivered over 20 panels. Dave & Marty performed a “pay ratio” puppet show, Liz Stoudt delivered some serious poetry slam & Wendy Davis led us all in gleeful parody song. And “Family Feud” was hosted by yours truly:
Jones Day’s Wendy Davis: The Lyrics
Here are the lyrics for Wendy Davis’ remake of “Thrift Shop” by Macklemore (this video shows the original):
Hook:
I’m gonna comp some peers
Only got $20M in my budget
I – I – I’m hunting, looking for a clawback
This is gonna be awesome
Talk to Radford cause I gotta find a reason
ISS yelled about RSUs last season
Only time based; too damn many
Investors like “Darn, you should pay him just a penny”
Rolling in, hella deep, heading to a board meeting
Show my CEO the data I’ve been tally-sheeting
Armed with my slide deck, GC standing next to me
List out our peer group: Pfizer and Fidelity
Oooooppps … but I thought those made sense!
Narrative, imperative, ending single trigger
Every year the CD&A grows bigger and bigger
Board’s unhappy, better use best practice
Independent comp committee gonna watch our …
I’m a take Mark Borges’ style, I’m a take Mark Borges’ style,
No for real, ask him, can he read my proxy?
Exec summary and some anti-hedging
Melbinger blogging about stock pledging
He said realized pay, we used realized pay
We used plain English, we cut redundancy
Hello, hello, Broc, my mello
Ain’t got fringe benefits, oh hell no!
Take some charts, make them color, and use those
ISS will be like, “But where’s the pay ratio?”
– Hook –
What you know about exec pay audits
What you know about claw-backs from profits
I’m reading, I’m reading, I’m searching thru guidance
Barb Baksa’s got the answers at the booth with the experts
Dodd Frank – they created these rules
I’m at this conference trying to get some tools
Howard Dicker, Marty Dunn and Scott Spector
Give good advice, gonna make it all better
Finance, HR, stock plan, legal
Take their data and I make it readable
Build a table with the footnotes in them
I do the edits, and we’re good with them
I think Item 402 is so damn foxy
Alan Dye’s like yo, it’s only just a proxy.
Limited edition, let’s do some addition
50 hours on a proxy that goes right in the waste bin
I need to reach my retail investors
I need to daz-zle the rigor testers
Will they think my P4P is alright?
Til the vote’s in I can’t really sleep at night
The Journal views my proxy with a microscope
Trying to get votes with repricings, no you hella won’t
No you hella won’t
– Hook –
I found the median employee in my shop
I’ll run the ratio with Mike Kesner down the block
I found the median employee in my shop
I’ll run the ratio with Mike Kesner down the block
The quote in this blog’s title from this Fortune article certainly is jarring to the average person. $49.3 million buys a lot of retirements. The article is based on this study by the Center for Effective Government…
According to this NY Times article, there’s been a drastic shift in the type of compensation received by salaried employees. Since the economic crisis in 2008, annual pay raises have markedly decreased – while one-off bonuses & non-monetary rewards have soared. The big question is whether we will see another shift over time or is this the new “normal”? Here’s an excerpt:
According to Aon Hewitt’s annual survey on salaried employees’ compensation, the share of payroll budgets devoted to straight salary increases sank to a low of 1.8 percent in the depths of the recession. It dropped to 4.3 percent in 2001, from a high of 10 percent in 1981. It has rebounded modestly since the recession, but still only rose to 2.9 percent in 2014, the survey of 1,064 organizations found. (These figures are not adjusted for inflation.)
Aon Hewitt did not even start tracking short-term rewards and bonuses — known as variable compensation — until 1988, when they accounted for an average of 3.9 percent of payrolls. Ten years later, that share had more than doubled to 8 percent. Last year, it hit a record 12.7 percent.