– Broc Romanek

Tune in tomorrow for the webcast – “The Art of Working With Proxy Advisors” – to hear Strategic Governance Advisors’ Amy Bilbija, Davis Polk’s Ning Chiu, Teneo Governance’s Martha Carter and CamberView Partners’ Allie Rutherford analyze how to interact with proxy advisors to get the most out of your proxy season.

– Broc Romanek

Based on access to data supplied by Main Data Group, Steven Hall & Partners has a new study of incentive compensation programs, with highlights including:

1. Fixed vs. Variable Compensation
– CEO compensation is substantially incentive-based
– Target compensation is 86% variable and only 14% fixed

2. Short-Term Incentives
– Median annual incentive targets for CEOs are 104% of base salary, an increase of 3% compared to last year’s study
– Typical leverage provides the ability to earn half of the bonus at threshold performance levels and 200% for maximum achievement
– Earnings remains the predominant performance metric, utilized by 87% of the companies studied, with a median weighting equal to 50% of bonus opportunity
– While plans most commonly used three performance metrics, we note a significant increase (+15%) in companies using four or more metrics

3. Long-Term Incentives
– Annual grants of long-term incentive awards continue to be almost universal practice
– 96% of companies granted long-term incentive awards to the CEO
– Prevalence of performance-vested awards held steady as 67% of companies granted performance-vested awards
– Performance-vested awards comprised the largest portion of long-term compensation as measured by dollar value
– The most popular performance metrics continue to be earnings and stock price performance, typically measured using relative total shareholder return (TSR); TSR usage increased +5% in 2015
– 78% of companies utilize more than one vehicle in their long-term incentive program
– Restricted stock remains the most popular vehicle at 80% prevalence; usage increased +5% over last year
– Stock option/SAR usage (granted by 54% of companies) was flat

– Broc Romanek

I’ve been saying for years that the noise about out-sized influence by proxy advisors is overstated. This new study from ProxyInsight seems to back up my claim when it comes to say-on-pay results…

– Broc Romanek

We are excited to announce that we have just posted the registration information for our popular conferences – “Tackling Your 2018 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 14th Annual Executive Compensation Conference” – to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.

Early Bird Rates – Act by March 31st: 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 March 31st to take advantage of the 30% discount.

– Broc Romanek

Here’s an article from the “Financial Times”:

BlackRock has demanded an end to pay awards that outpace ordinary employees at the UK’s biggest companies ahead of a round of critical shareholder votes in 2017. The world’s largest asset manager is also pressing companies to curtail the generous pension packages that are commonly granted to top executives, calling for retirement contributions to be “in line with the rest of the workforce”. BlackRock’s tougher stance on executive pay is detailed in a letter, seen by the Financial Times, that was sent last week to the chairmen of all companies in the FTSE 350 index. The letter will provide fresh ammunition to campaigners calling for reform of executive pay.

Total pay for bosses of FTSE 100 companies has quadrupled over the past 18 years as repeated efforts by shareholders to control spiralling remuneration awards have failed. BlackRock initially indicated that its stance on executive pay had hardened during a parliamentary hearing in December, when it said it would vote against members of remuneration committees that agreed to excessive rewards. The asset manager’s letter goes further, arguing that pay increases for top executives should reflect those given to the broader workforce. “In the case of a significant pay increase that is out of line with the rest of the workforce, BlackRock expects the company to provide a strong supporting rationale,” said Amra Balic, head of BlackRock’s investment stewardship team in Europe.

The letter also states that board committees should consider and respond to voting results on remuneration awards at the previous year’s annual shareholder meeting. Companies historically have frequently used comparisons with pay awards made to executives at peer groups as a justification for agreeing more generous remuneration packages for executives. BlackRock is highly critical of this widespread practice, known as benchmarking. “Benchmarking should only be used as a frame of reference for what competitors are paying, rather than as a starting point for negotiations,” said Ms Balic.

Companies should also disclose more information about their use of remuneration consultants, including the names of those appointed and their fees, she said. Roughly half of the companies in the FTSE 350 index will face binding votes on pay in 2017. Binding votes give shareholders the final say on executive pay awards, instead of company directors. Anger among pension funds over the long-running failure of companies to curb excessive pay for top executives is threatening to spark a fresh round of shareholder revolts this year.

Theresa May, the prime minister, has promised to tackle the issue and the UK government published a consultation paper in November that outlined a range of possible reforms. The government wants the link restored between executive pay awards and company performance. Academics say the metrics used most widely to judge performance — earnings per share growth and total shareholder return — are easily manipulated and promote damaging short-term decision making by executives. “We are wary of companies using metrics such as earnings per share or total shareholder return [as performance measures],” said Ms Balic. BlackRock would instead “encourage” companies to use fundamental measures of the value created by a company such as comparisons of returns on invested capital, she added.

– Broc Romanek

As Yogi Berra might put it, “it’s like deja vu all over again.” Last week, the SEC tagged BlackRock for language in separation agreements that it believed created disincentives for whistleblowing. According to the SEC’s order, more than 1,000 departing BlackRock employees signed separation agreements containing violative language stating that they “waive any right to recovery of incentives for reporting of misconduct” in order to receive severance payments. This action is notable because BlackRock is one of the biggest institutional investors out there!

Last month, Broc blogged about the latest separation agreement case – the day after he blogged about another separation agreement case – and noted that more were on the way.

The SEC’s ongoing emphasis on separation agreements hammers home the need to modify agreements that may create impediments to whistleblowing. It’s also another excellent reason to tune into our upcoming webcast on TheCorporateCounsel.net – “Whistleblowers: What Companies Should Be Doing Now”…

– Broc Romanek

A few days ago, CamberView announced that Bob McCormick – Chief Policy Officer of Glass Lewis – will join their shop. Bob has been a regular speaker at our “Proxy Disclosure Conference” and is a great guy…

– Broc Romanek

Yesterday, the SEC sanctioned MDC Partners for violating Reg G & Item 10(e) of Reg S-K in connection with its use of non-GAAP financial measures. Some people are calling this the first non-GAAP enforcement case – but that’s not quite right. There aren’t many, but this isn’t the first non-GAAP case. In fact, this isn’t even the first non-GAAP case since the new CDIs!

Here’s an excerpt from the SEC’s order:

Despite agreeing to comply with non-GAAP financial measure disclosure rules in December 2012 correspondence with the Commission’s Division of Corporation Finance, MDCA continued to violate those rules for six quarters by failing to afford equal or greater prominence to GAAP measures in earnings release presentations containing non-GAAP financial measures. Furthermore, for seven quarters between mid-2012 and early-2014, MDCA did not reconcile “organic revenue growth,” which as calculated by MDCA was a non-GAAP financial measure, to GAAP revenue.

In addition, the SEC announced that the company agreed to pay a $1.5 million penalty to settle charges that it failed to disclose certain perks enjoyed by its then-CEO. In April 2015, the company disclosed that the SEC was investigating its CEO’s expenses & the company’s accounting practices.

The SEC’s order says that the company disclosed a $500k annual perk allowance for its CEO – but didn’t disclose millions of dollars in additional perks. These included private aircraft usage, club memberships, cosmetic surgery, yacht and sports car expenses, jewelry, charitable donations, pet care, & personal travel expenses. The CEO resigned in July 2015 and returned $11.3 million worth of perks, personal expense reimbursements, and other items of value improperly received over a 5-year period.

– Broc Romanek

We have posted the transcript for our popular webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”

– Broc Romanek

Here’s a note from Exequity’s Ed Hauder:

One important change in the 2017 ISS policy updates with respect to ISS’ Equity Plan Scorecard (EPSC) policy is with respect to dividend and dividend equivalent provisions. Until the 2017 policy updates, ISS policy had been to recommend against equity plans that permitted the current payment of dividends or dividend equivalents on performance-based awards prior to the vesting of such awards. The policy permitted companies to accrue such dividends and dividend equivalents and pay them out when the performance-based award vested.

Now under the 2017 ISS policies (effective for shareholder meetings occurring on or after February 1, 2017), ISS will include a new factor under the Plan Features portion of its EPSC policy that will look to see whether dividends or dividend equivalents can be paid on any award under the plan prior to the vesting of the underlying shares/award. Companies that do not prohibit the payment of dividend and dividend equivalents on all plan awards before the awards vest, will receive no points under this factor. Companies that prohibit the payment of dividends and dividend equivalents until the awards vest (and can allow for accrual of such dividends/dividend equivalents), will receive full points under this factor. Because the ISS policy permit for the accrual of dividends and payment when the award vests, many companies will view complying with this prohibition to gain the points under the EPSC policy will make sense, and may enable them to gain a few additional shares in their request everything else being equal.

ISS has not yet released its FAQs on the new EPSC policy, but I expect that the FAQs will indicate that the old dividend/dividend equivalent policy with respect to performance-based awards has been supplanted by the new EPSC factor and anything less than a complete prohibition of the payment of dividend/dividend equivalents on all unvested awards will not provide any points under the EPSC policy.