– Broc Romanek

Yet one more good article about the state of director pay, this time from Jim Reda & Kimberly Glass of Arthur J. Gallagher. Lots of these in our “Director Compensation” Practice Area.

Please take a moment to participate anonymously in our “Quick Survey on Director Pay.”

– Broc Romanek

Hat tip to Deloitte Consulting’s Mike Kesner for sharing this 1977 WSJ op-ed from Peter Drucker on the notion of pay ratios. Executive pay was considered excessive even back then!

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in today for the second in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The first webcast was on July 20th (transcript & audio archive available); the third webcast is September 27th.

The speakers for today’s webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray
– Scott Spector, Partner, Fenwick & West

Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure 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. Register today.

– Broc Romanek

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in tomorrow – 2 pm eastern (audio archive goes up when the program ends; transcript available in a week or so) – for the second in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The first webcast was on July 20th (transcript & audio archive available); the third webcast is September 27th.

The speakers for tomorrow’s webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray
– Scott Spector, Partner, Fenwick & West

Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure 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. Register today.

– Broc Romanek

Here’s an excerpt from this new study from the “Economic Policy Institute” about relative pay levels:

By this measure, in 2016 CEOs in America’s largest firms made an average of $15.6 million in compensation, or 271 times the annual average pay of the typical worker. While the 2016 CEO-to-worker compensation ratio of 271-to-1 is down from 299-to-1 in 2014 and 286-to-1 in 2015, it is still light years beyond the 20-to-1 ratio in 1965 and the 59-to-1 ratio in 1989. The average CEO in a large firm now earns 5.33 times the annual earnings of the average very-high-wage earner (earner in the top 0.1 percent).

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in next Tuesday, August 15th for the second in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The first webcast was on July 20th (transcript & audio archive available); the third webcast is September 27th.

The speakers for next Tuesday’s webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP

Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure 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. Register today.

– Broc Romanek

We have posted a new anonymous “Quick Survey about Pay Ratio Disclosure” to learn whether folks are intending to disclose the bare minimum about pay ratio – or whether they intend to provide explanations, alternate ratios, carve-outs, etc. This is different than our recent survey about pay ratio readiness. Please take 10 seconds to participate…and also complete this “Quick Survey on Director Compensation.”

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in next Tuesday, August 15th for the second in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The first webcast was on July 20th (transcript & audio archive available); the third webcast is September 27th.

The speakers for next Tuesday’s webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP

Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure 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. Register today.

– Broc Romanek

As Liz blogged recently, our own survey on pay ratio readiness shows that many companies seem to have been banking on a repeal of the rule. This short memo by Longnecker & Associates includes these stats:

In reviewing a number of early adopters of disclosures, we noted some trends in both the ratios and how they are disclosed:

– Ratios disclosed range from 6:1 to almost 80:1, initially indicating ratios much lower than some talking heads predicted early on.

– Ratios are being disclosed both within and outside of the CD&A. Some companies are including the
disclosure in the narrative to the Summary Compensation Table, while a minority of companies summarized
the ratio in the proxy summary.

– While supplemental disclosures are permitted, few early adopters have taken such steps. This trend may
shift as more companies disclose and market benchmarks potentially develop.

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in next Tuesday, August 15th for the second in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The first webcast was on July 20th (transcript & audio archive available); the third webcast is September 27th.

The speakers for next Tuesday’s webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP

Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure 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. Register today.

– Liz Dunshee

Over the years, we’ve blogged about the extent to which ISS influences voters at institutional investors (here’s an example). Different studies (or anecdotes) show different things – and the debate continues. This recent article from “Proxy Insight” (pg. 6) indicates that some investors that are considered “passive” may be more on auto-pilot than some would think. Here’s an excerpt from that article:

Looking at Proxy Insight’s ISS Vote Comparator table, for most of these investors this is not a right they often feel compelled to exercise. The majority of them vote 99-100 percent in accordance with ISS. Of course, this correlation makes the investors a reliable source for discerning ISS recommendations.

However, we thought it would be interesting to look at what issues would make auto-voters override the voting recommendations of ISS, providing some insight into the proposals that matter most to these investors. To do this we have taken the ten largest investors by assets under management who vote in accordance with ISS, and analyzed those proposal types where they override most frequently. These include say on pay, the re-/election of directors and auditor ratification.

Say on pay is not only one of the most frequently voted issues for auto-voters, but is also usually near the top (see Table 3) when it comes to the disparity between investor voting and ISS recommendations. This is unsurprising, given that say on pay is one of the most contentious proxy voting topics, which is seemingly never out of the news.

However, as Table 1 illustrates, even on contentious issues auto-voters receive a correlation with ISS that ranges in the high 90s. Moreover, the lower correlation on exclusively ISS against recommendations (Against recs (%)) indicates that the auto-voters are more passive than ISS, overriding the proxy adviser in order to vote with management. Other proposals near the top of the list include the approval of stock option plans and restricted stock plans.

Note that the meaning of “passive” depends on one’s perspective. To some, it’s voting with management. But others could say that breaking with ISS for the say-on-pay vote is the definition of “active” – given the time & effort required for an institutional investor to override a default voting policy.

– Liz Dunshee

Last week, ISS opened up its “Annual Policy Survey,” which is being undertaken in two parts this year:

1. Governance Principles Survey – Initial, high-level survey on high-profile topics including “one-share, one vote,” pay ratio disclosures, the use of virtual meetings, and board gender diversity. In this survey, ISS is asking companies (i) how they plan to analyze pay ratios and (ii) what is their view on how shareholders should use pay ratio disclosures. This survey closes on August 31st.

2. Policy Application Survey – More expansive portion that can be accessed at the end of the initial portion, allowing respondents to drill down into key issues by market and region as well as by topics such as responsible investment, takeover defenses and director compensation. This survey closes October 6th.

After analysis of the survey responses, ISS will open a comment period for all interested market participants on the final proposed changes to their policies as always…

Next Pay Ratio Webcast: Tune in on Tuesday, August 15th for the second of our monthly pre-conference webcasts on pay ratio: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The speakers for the August 15th webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP

For those registered for our comprehensive “Pay Ratio & Proxy Disclosure Conference“, we have posted the transcript for our July 20th webcast. The third webcast is on September 27th.

– Liz Dunshee

If you plan to attend in Washington DC (rather than by video webcast), be warned that the Conference Hotel for our “Pay Ratio & Proxy Disclosure Conference” on October 17-18th is nearly sold out. The Conference Hotel is the Washington Hilton, 1919 Connecticut Ave NW, Washington, DC 20009. Reserve your room online or call 202.483.3000 to make your reservations.

Be sure to mention the “Proxy Disclosure Conference” to get a discounted rate. If you have any difficulty securing a room, please contact us at info@compensationstandards.com or 925.685.9271.

Next Pay Ratio Webcast: Tune in on Tuesday, August 15th for the second of our monthly pre-conference webcasts on pay ratio: “Pay Ratio Workshop: What You (Really) Need to Do Now.” The speakers for the August 15th webcast are:

– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP

For those registered for our comprehensive “Pay Ratio & Proxy Disclosure Conference“, we have posted the transcript for our July 20th webcast. The third webcast is on September 27th.

– Liz Dunshee

A recent Delaware case – Williams v. Ji – held that the entire fairness standard applies to equity awards in a subsidiary that were granted to directors of the parent company. The directors of the parent company approved & benefited from the grants. Here’s the intro from Steve Quinlivan’s blog:

The Delaware Court of Chancery examined an alleged scheme in which the directors of Sorrento Therapeutics granted themselves options and warrants for the stock of five subsidiaries over which the company had voting control. Shortly before or after the options grants, the board transferred valuable assets and opportunities of the corporation to the subsidiaries. The subsidiary option plans and grants were not approved by the stockholders of Sorrento.

The court acknowledged that directors may be compensated for additional service in managing subsidiaries – but rejected the defendants’ characterization that these were typical compensation decisions subject to business judgment review. It noted that “self-interested compensation decisions made without independent protections are subject to the same entire fairness review as any other interested transaction.”