Here’s a big sleeper for you. The November-December issue of “The Corporate Executive” has a lead piece about how many companies are not disclosing all their non-deductible, non-complying 162(m) compensation. This is a big deal, particularly because it all will need to be disclosed under the coming tax reform legislation which – when you add up all the bonuses, RSUs, options & all other performance-based compensation – will be huge, embarrassing numbers. Like pay ratio, once companies appreciate the magnitude & sensitivity of this sleeper, they will all be concerned about how to address this sensitive disclosure.
On page 2 of that important lead article in “The Corporate Executive,” it’s mentioned that an excellent series of tables will be posted on CompensationStandards.com – these tables are now posted (courtesy of Deloitte Consulting’s Mike Kesner & Ed Sim). They provide examples of the possible cost to companies of 162(m) non-deductible compensation.
As you will see, the tables highlight the large numbers that many companies with 162(m) non-compliant compensation apparently are failing to disclose right now. You now have a “heads up” on the impact of what companies will no longer be able to deduct under new 162(m) — and what they will need to be disclosing going forward…
If you’re not a subscriber to “The Corporate Executive,” try a 2018 no-risk trial now & receive this November-December issue for free…
It can be tricky to build – and maintain – a solid executive pay peer group (or groups). ISS looks at industry profile, size & market cap – but that doesn’t always yield a representative group. This recent Equilar memo gets into the details of current trends and offers some ideas for comp committees. Here’s a teaser:
Companies most often disclosed similar industry classifications as criteria for peer group inclusion, with 442 companies in the Equilar 500—an index of the 500 largest U.S. public companies by revenue—naming this as a deciding factor in peer assessment. Revenue followed as the second-most popular peer group criteria, with talent being another common factor.
“Over the past few years, we have seen peer group development often include an increased focus on operating characteristics of a company, such as profit margin or percent foreign revenue, in addition to standard size screens such as revenue or market capitalization,” said Margaret Engel and Matt Vnuk of Compensation Advisory Partners.
Coming back to the polling results, it is not clear what a fair or just CEO:Median Worker Pay ratio actually is, or what people think it should be. Ordinary workers are more concerned with putting food on the table for their families and being treated fairly relative to their coworkers. When it comes to CEO pay, however, we think the real moral of the story is not only that the numbers be disclosed, but that we consider them in the context of fair treatment and shared value.
High CEO pay may be perfectly fine in situations where companies are doing well financially and all workers are sharing in that. Or where workers themselves feel fairly compensated and make more than a living wage. Where the red flags exist are where too many people do not make a living wage, where CEOs are taking too much of the pie at the expense of workers, or where there is some other obvious injustice or imbalance. Boards of Directors setting executive compensation packages would do well to keep this in mind. Going forward, we’ll continue to track CEO pay ratios, and hope that companies will disclose these numbers, providing transparency on the issues Americans care most about, whether they’re required to or not.
The tax reform bill passed early Saturday morning by the Senate contain a number of last-minute amendments which continue to leave key equity compensation rules in flux. Representatives from both chambers of Congress are now reconciling differences between the Senate & House bills. The memos at the top of this list show where things stand on the Alternative Minimum Tax (AMT) and Section 162(m) transition rules…
The November-December issue of “The Corporate Executive” has just been sent to the printers – and it focuses on the Section 162(m) disclosure issues facing companies now…
Here’s the intro from this article by Semler Brossy’s Seymour Burchman and Barry Sullivan:
Despite conflicting messages about climate change from U.S. government leaders, sustainability is getting more and more attention at American companies. Shareholders are ratcheting up their demands on environmental and social issues. Consumers are registering their concerns about how companies make their products. And talented Millennial employees are voting with their feet by leaving laggard companies behind. Meanwhile, new technologies are making it easier for sustainability investments to pay off in the middle to long term.
A similar phenomenon happened in the 1980s, when quality became a significant issue for manufacturers. Many of them responded by including quality metrics in their compensation incentives. These moves helped to focus executive attention and ensure that quality initiatives actually got carried out. Over the next decade, quality levels improved substantially. It’s time for companies to start doing the same thing for sustainability.
As any compensation consultant will tell you, comp plans can address only so many metrics. Most plans have fewer than six: one or two financial metrics, such as sales growth or earnings per share, and two or three nonfinancial metrics, in areas such as quality or innovation. Having any more than that risks diluting executive focus. So for a compensation committee to justify a new metric, it needs to have a strong business case.
Tune in tomorrow for the webcast — “Your Upcoming Pay Ratio Disclosures” – to hear Compensia’s Mark Borges, Gibson Dunn’s Ron Mueller, Wilson Sonsini’s Dave Thomas and Cooley’s Amy Wood discuss all the latest about how to comply with the new pay ratio rule.
Here’s the intro from this blog by Cooley’s Cydney Posner:
Not really, according to this study by academics from the University of Pennsylvania Law, Rutgers Business and Berkeley Law Schools to be published in the Harvard Business Law Review. Say-on-pay was initiated under a Dodd-Frank mandate adopted against the backdrop of the 2008 financial crisis, largely in reaction to the public’s railing against the levels of compensation paid to some corporate executives despite poor performance by their companies, especially where those firms were viewed as contributors to the crisis itself.
Say-on-pay was expected to help rein in excessive levels of compensation and, even though the vote was advisory only, ascribe some level of accountability to boards and compensation committees that set executive compensation levels. So far, however, say-on-pay votes have served largely as confirmations of board decisions regarding executive compensation and not, in most cases, as the kind of rock-throwing exercises that many companies had feared and some governance activists had hoped. The study reported that, since 2011, the average annual percentage of say-on-pay votes in favor has exceeded 90%, while “the percentage of issuers with a failed say-on-pay vote has never exceeded 3% and, in 2016, that number dropped to just 1.7%.” The study examined what the few failed (or low) votes really meant.
Tune in next Tuesday, December 5th for the webcast — “Your Upcoming Pay Ratio Disclosures” – to hear Compensia’s Mark Borges, Gibson Dunn’s Ron Mueller, Wilson Sonsini’s Dave Thomas and Cooley’s Amy Wood discuss all the latest about how to comply with the new pay ratio rule.