– Broc Romanek, CompensationStandards.com

This Willis Towers Watson memo examines the trends for perquisites in the S&P 500…

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this ISS Shareholder Services press release (also see this Cooley blog):

The average annual compensation for chief executive officers of large U.S. corporations varies significantly depending on board leadership structure, according to a report released today by Institutional Shareholder Services. An ISS analysis of S&P500 companies finds compensation over a three year period was 42 percent higher on average for CEOs that had an insider chairman (excluding those in a combined role), than for CEOs of companies chaired by an independent outsider.

CEOs who also held the post of board chair were the next highest group, receiving 29 percent more in average annual compensation compared to CEOs of companies chaired by an independent outsider. Average CEO pay was also sensitive to company revenue, but regressions showed no significant association with other potential explanatory factors, such as indexed shareholder return performance or CEO tenure.

While the number of U.S. companies that combine the top two titles has declined in recent years, the dual role is still the most prevalent leadership structure among S&P 500 companies, according to ISS QuickScore data. For 2015, approximately 51 percent of S&P 500 companies combined the chair and CEO roles, down from approximately 54 percent in 2014.

The fact that, on average, a CEO’s pay is generally higher when that post is held in conjunction with the board chair role or when there is an insider chairman provides some support of views that insiders are not the best monitors of shareholder interests in the board room, at least as measured by CEO pay.

– Broc Romanek, CompensationStandards.com

In this study, Susanna Gallani of Harvard Business School proposes two reasons why CEO compensation packages often look so similar to one another:

– Interlocking directorates: many directors are board members at a number of public companies – and she found evidence that companies with directors in common have similar compensation packages.
– Compensation consultants: strong commonalities among pay programs at companies that shared compensation consultants – and whether compensation consultants should be held to similar accountability standards as auditors, noting that on many proxy statements the name of the consulting firm does not appear.

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this Financial Times article, which has some interesting charts:

The Corporate Jet Files, an analysis of 1,000 securities filings by the Financial Times, has found that a significant number of corporations are still footing the bill for their executives to take personal flights on corporate jets, sometimes accompanied by family and friends. Many of the companies contacted by the FT cited security concerns as a reason for demanding that executives use corporate jets even for personal travel.

The FT’s findings show that a small group of companies — roughly 10 per cent of the S&P 500 — account for about two-thirds of total spending on personal use of corporate aircraft. The league tables of the biggest spenders are dominated by groups where the founder or a family exerts significant control.

– Broc Romanek, CompensationStandards.com

Allan Sloane has written this Pro Publica piece entitled “The Executive Pay Cap That Backfired” that covers the well-worn topic of the unintended impact of Section 162(m). The following excerpt from this Cooley blog summarizes the piece:

To analyze the impact of Section 162(m), ProPublica and The Washington Post commissioned a study that looked at the history of executive compensation for the top 50 members of the S&P 500, excluding 10 companies (some of which were big, high-tech companies) that were not reporting in 1992 (the year prior to adoption of 162(m)). In 1992, only 35% of the covered executives were paid more than $1 million of income of the type subject to deductibility limits, compared with 95% in 2014. Given inflation, the article suggests, that’s not a big surprise.

What was a surprise was the following data from the study: “From 1992 to 2014, compensation per executive in the limited-deductibility categories rose more rapidly — by about 650 percent, to $8.2 million from $1.1 million — than compensation in categories such as stock options and incentive pay that aren’t subject to deductibility limits. The latter rose by about 350 percent, to $4.4 million from $970,000.” (Emphasis added.) That is, compensation that was subject to the tax limitation rose almost twice as fast as compensation excluded from the limitation.

I still believe my own explanation from 10 years ago – “An Open Letter to All Journalists” – does a better job of covering all the different factors that have led to skyrocketing pay. There are a myriad of factors, such as the 1992 change in the SEC’s rules that led to more fulsome disclosure – that in turn led to benchmarking databases and the slippery slope upward…

– Broc Romanek, CompensationStandards.com

Last month, I blogged about a Pay Governance memo that explored how buybacks impact executive pay. Now there is this Reuters article tying backbacks to CEO pay…

– Broc Romanek, CompensationStandards.com

Here’s the intro from this Cooley blog:

Most employers in North America don’t think so, according to CFO.com, reporting on a new survey by the compensation consulting firm, Willis Towers Watson. The survey, conducted in the last quarter of 2015, was directed at 150 large and midsize U.S. and Canadian employers. The survey reached a somewhat stunning conclusion — that only 20% of those employers surveyed “find merit pay to be effective at driving higher levels of individual performance at their organization and only 32% said their merit pay program is effective at differentiating pay based on individual performance.”

Wait, isn’t pay for performance the centerpiece, the focal point, the very heart and key goal of today’s compensation programs, especially executive compensation? Haven’t employers fully embraced pay-for-performance, often at the behest of proxy advisory firms and institutional investors? According to WTW’s global practice leader for rewards, notwithstanding all the time and money invested by employers “in their traditional pay-for-performance programs, primarily annual merit pay increases and annual incentives,…[u]nfortunately, these reward programs are falling short in the eyes of many employers. It appears that organizations are either trapped in a business-as-usual approach or suffer from a me-too mentality when it comes to their programs.” WTW also reports that “employers give their short-term annual incentive programs low marks. Only half say these programs are effective at boosting individual performance levels, and even fewer (47%) say annual incentives effectively differentiate pay based on how well employees perform.”

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this interesting article from Semler Brossy:

An alternative to this approach is something called a “Combination Price-Vested Equity” (CPVE) vehicle. This vehicle is a full-value share that acts like a stock option; however, it also directly incorporates operational goals by requiring a minimum threshold level of financial performance (e.g., return on capital, operating margin, earnings per share) to gain access to the share price accelerators. CPVEs enable compensation committees to appropriately balance three key factors in today’s executive compensation environment: i) performance orientation, ii) executive retention, and iii) sustainability, all within a single vehicle.

CPVEs are a grant of performance-based restricted stock which incorporate two performance requirements over a period of four years. The primary metric is a financial measure that requires the organization to meet a minimum level of performance over a four-year period. If the primary financial requirement is not met, then no shares are earned. However, once the hurdle is achieved, executives have the opportunity to benefit from share price appreciation.

– Broc Romanek, CompensationStandards.com

Here’s this study by Jim Reda of Arthur J. Gallagher & Co. that has been designed to reflect the changing landscape of executive compensation and its disclosure. In addition to benchmarks on individual elements of compensation packages and the evolving features of short-term and long-term incentive plans (STIs and LTIs), the report provides details on shareholder advisory votes on executive compensation (say-on-pay) and outlines the major practices on board oversight of compensation design.

– Broc Romanek, CompensationStandards.com

We’ve posted the transcript for the recent webcast: “How to Get Your Equity Plan Approved By Shareholders.”