– Liz Dunshee

This article from Semler Brossy’s Blair Jones outlines four ways in which the compensation committee can foster strategic diversity initiatives (also see Calvert’s 32-page “Diversity Report”):

1. Monitor company-wide diversity & inclusion initiatives – and mentor high-potential individuals

2. Succession planning – including CEO direct reports and the long-term talent pipeline

3. Oversee annual compensation actions – this blog describes how some companies are now linking pay to diversity goals

4. Lead the company’s process to address gender pay equity – shareholders and employees are very interested in this topic, and you don’t want to be caught flat-footed

– Liz Dunshee

Beginning in 2019, ISS will recommend a vote against members of the board committee responsible for setting non-employee director pay if the pay has been “excessive” for two or more years and there’s not a “compelling rationale” or other mitigating factors for that arrangement. This Exequity memo charts director pay stats for the S&P 500 and the Russell 3000 so that you can know what amount of compensation will be problematic.

The memo notes that if you come within 10% of the 95th percentile, you should be cautious about director pay increases and your director pay disclosures. It might make sense to clearly explain in the proxy statement why the pay levels are appropriate. I’ve also blogged about factors & program features that could lead to unexpected outcomes in the ISS evaluation…

– Liz Dunshee

I blogged last month about whether you can use the same “median employee” for your second year of pay ratio disclosure. This Pearl Meyer blog lists some other things to think about for Year 2 – but the main takeaway is to keep it simple. Here’s an excerpt:

Should you change your disclosure? After reading those nearly 4,000 other proxies, you may find yourself with a case of pay ratio disclosure envy and want to change the way your disclosure reads or is presented. Again, absent a compelling reason to do so (see our next two considerations), we would recommend retaining the same format and flow from 2018. With the SEC issuing zero comment letters on this disclosure requirement last year, it appears that every registrant has so far made a good faith attempt to comply and did (at least in the eyes of the SEC). Even proxy advisors and institutional investors didn’t complain about the disclosures, and if anything, said there was too much information. Why open yourself up to scrutiny by changing what has already worked?

– Liz Dunshee

We might be seeing the end of the TSR heyday. More and more investors are focused on long-term value creation and the alleged evils of earnings forecasts – and there’s buzz around the idea that return on invested capital is the primary driver of value creation. So it’s no surprise that ROIC is becoming a preferred metric for performance plans.

This Forbes blog (from an ROIC-focused research firm) says that almost a third of companies are now using this performance metric. It provides some case studies – and explains the trend:

ROIC has become a more common word in corporate America over the past three years. In 2016, The Wall Street Journal declared ROIC “The Hottest Metric in Finance.” Proxy advisor Institutional Shareholder Services recently bought EVA Dimensions so that it could offer more than just unscrubbed accounting metrics. JPMorgan Chase (JPM) CEO Jamie Dimon called out ROIC as a key driver of value in his 2018 letter to shareholders. From 2014 to 2016, the percentage of companies that tied executive pay to capital allocation measures rose from 21% to 30%. And a 2016 Rivel Research survey of buy-side investors found that ROIC was their favorite metric to link management pay to company performance.

Companies that focus on hitting quarterly earnings targets instead of driving long-term improvements in shareholder value should not be surprised to find themselves targeted by activist shareholders – like the ones that forced General Motors to adopt ROIC as a key performance metric in 2014.

Despite these improvements, there’s still a large disconnect between CEOs and investors regarding the importance of ROIC. 77% of buy-side investors favor ROIC as a performance metric while only 30% approve of EPS. Meanwhile, 63% of companies link long-term executive compensation to earnings while only 30% link compensation to ROIC.

– Broc Romanek

Recently, Liz blogged about Glass Lewis issuing its 2019 voting policies. Glass Lewis also has issued this 32-page set of shareholder initiatives…