I’ve blogged that activist shareholders have no intention of dialing back their “gender pay gap” efforts, and that shareholder support might be increasing. In addition, as I blogged a few months back, it appears that companies will be required to file pay data with the EEOC at the end of this month – and As You Sow says they’ll use that to push for more proxy disclosure. This Orrick blog discusses the evolution of these types of proposals – and reiterates that companies should expect to receive these proposals in years to come. It offers this advice for preparing:
Organizations should consult with counsel in evaluating whether disclosure of pay gap information is right for the company, and on what terms. Employers may also consider performing a pay-equity analysis — if they are not doing so already — to evaluate employee jobs and compare pay among competitors. Typically, this involves retaining legal counsel, and possibly a labor economist to work at counsel’s direction and conduct a privileged assessment. Given the near-certainty that many large companies will be on the receiving end of a pay gap disclosure proposal at some point in the future, preparedness is key in addressing and disclosing internal pay gap information.
We’ll be discussing gender pay gap reporting & shareholder expectations – and many other timely topics – at our popular conferences – “Proxy Disclosure Conference” & “16th Annual Executive Compensation Conference” – this upcoming Monday & Tuesday, September 16-17th in New Orleans and via Live Nationwide Video Webcast. You can still register for online attendance (if you want to attend in person in New Orleans, you will need to register on-site with a credit card or check). Here are the agendas – nearly 20 panels over two days.
Yesterday, ISS published the results of its annual policy survey, which is one of its steps in formulating next year’s voting policies. The background on the main comp-related topic is that ISS is planning to incorporate “Economic Value Added” metrics into the “Financial Performance Assessment” component of its quantitative pay-for-performance model starting next year, as an attempted response to client feedback asking the proxy advisor to use financial metrics beyond TSR. But people have been criticizing EVA – some take issue with the fact that it’s non-GAAP and others point out that it would need to be customized on a company-by-company basis to be a sound gauge of investment value.
So in its survey, ISS asked whether investors & others still also want to see the previously used GAAP metrics alongside the new-fangled numbers – and the answer was a resounding “yes.” Here’s an excerpt (also see Broc’s blog on TheCorporateCounsel.net about other results from the survey):
In this year’s survey, when asked for the respondent’s viewpoint regarding the display of the prior-used GAAP-based metrics, a significant majority of both investors and non-investors (84 percent and 71 percent respectively) responded that prior-used GAAP-based metrics should be displayed below the Financial Performance Assessment screen in the ISS report as a point of comparison. Thirteen percent of investors and nine percent of non-investors responded that display of the prior-used GAAP-based metrics was unnecessary.
The smaller percentages of other responses and comments, from three percent of investors and 20 percent of non-investor respondents, were varied, mainly indicating some concerns with the use of EVA metrics in the FPA (one investor and 12 non-investor respondents) and some suggestions for using other metrics beyond GAAP and EVA as part of the financial performance assessment.
This Toppan Merrill memo summarizes interviews with 25 corporate counsel, corporate secretaries & IR heads – 84% of whom reported increased shareholder pressure on executive pay topics during the last three years. Nearly two-thirds also said that disclosure enhancements in the proxy statement have improved their say-on-pay results somewhat or significantly – with consistent emphasis on the need for transparency and ongoing communications. Here are some other takeaways:
– Annual bonuses & benefits draw the most scrutiny from shareholders(including how executive benefits differ from those available to rank-and-file employees), despite public focus on overall pay levels
– Pay-for-performance remains a key concern
– Most of the pressure is coming from proxy advisors and activist investors, but some companies also believe that these various sources (including institutional investors) are interrelated
– Some companies are experiencing more pressure & scrutiny than they expected from pay ratio disclosures
Five Days Away: Get the info you need to improve your results! You can still register for our popular conferences – “Proxy Disclosure Conference” & “16th Annual Executive Compensation Conference” – to be held next Monday & Tuesday, September 16-17th, in New Orleans and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days. Register now to get practical advice on how to establish & disclose executive pay in a way that protects your board and improves say-on-pay results.
Two investor giants just released their annual stewardship reports, which give some trend insights on their pay-related votes & engagements. According to Vanguard’s report, they voted against 585 compensation committee members last year for failing to act in response to shareholder feedback. That feedback comes in large part from prior-year votes – but Vanguard also says it’s still discussing compensation in 45% of its engagements. See page 25 of the report for a few case studies that show what that engagement looks like.
Executive pay is continuing to get attention at BlackRock too – its report makes a big deal of the fact that say-on-pay support has jumped significantly at companies where it’s engaged on the topic of executive compensation.
But as they say in “South Park,” it’s not all “sunshine & sparkles” – page 15 says that BlackRock voted against 24% of small cap equity plans (compared to 7% of Russell 3000 plans). Companies that fared poorly had evergreen & repricing provisions, unreasonable dilution, excessive one-off grants or lacked thorough disclosure about performance metrics. According to BlackRock, small companies need to step up their game on both governance & compensation policies to meet market best practices.
Lazard recently hosted a director forum – which also featured SEC Commissioner Rob Jackson and representatives from Whitegate Partners, Wellington and CalSTRS – to discuss the complex pressures that boards are facing right now. According to this blog, here’s what the speakers had to say about executive pay:
Executive compensation has the potential to further escalate as a “lightning rod” issue for shareholders
– Shareholders expect directors to devise a tailored compensation program that clearly incentivizes the achievement of well-defined strategic priorities
– Investors view a board’s decisions about executive compensation as a window into directors’ thinking on important issues of strategy, culture, succession planning and talent retention
– As the complexity of compensation programs and disclosure has increased, shareholders have become more prone to opposing say-on-pay, particularly when the absolute quantum of compensation appears excessive
– The historical practice of deferring to outside compensation consultants may cease to pass muster as an appropriate way to design a compensation program
One Week Away: You can still register for our popular conferences – “Proxy Disclosure Conference” & “16th Annual Executive Compensation Conference” – to be held next Monday & Tuesday, September 16-17th, in New Orleans and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days. Register now to get practical advice on how to establish & disclose executive pay in a way that protects your board.
For the many of you that have registered for our Conferences coming up next Monday, September 16th, we have posted the “Course Materials” (attendees received a special ID/PW earlier this week via email that will enable you to access them; note that copies will be available in New Orleans). The Course Materials are better than ever before – with numerous sets of talking points. We don’t serve typical conference fare (ie. regurgitated memos and rule releases); our conference materials consist of originally crafted practical bullets & examples. Our expert speakers certainly have gone the extra mile this year!
Here’s some other info:
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take a few hours to post the video archives after the panels are shown live). A prominent link called “Enter the Conference Here” – which will be visible on the home pages of those sites – will take you directly to the Conference (and on the top of that Conference page, you will select a link matching the video player on your computer: HTML5, Windows Media or Flash Player).
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the conference agendas; times are Central.
– How to Earn CLE Online: Please read these “FAQs about Earning CLE” carefully to see if it’s possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few – but hours for each state vary; see our “CLE Credit By State” list.
– Register Now to Watch Online: There is still time to register for our upcoming pair of executive pay conferences – which starts on Monday, September 16th – to hear Keith Higgins, Meredith Cross, etc. If you can’t make it to New Orleans to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now to watch it online.
– Register to Watch In-Person in New Orleans: Starting next Thursday, you will no longer be able to register online to attend in New Orleans – but you can still register to attend when you arrive in New Orleans! You just need to bring payment with you to the conference and register in-person. Through the end of next Thursday, you can still register online to attend in-person in New Orleans. And you can always register online to watch the conference online…
This memo from Exequity explores the use of EVA by ISS – and whether ISS’s contention that EVA is a superior gauge of “investment value” to EBITDA passes muster (ie. whether it is “economic voodoo”)…
In this podcast, Winston & Strawn’s Mike Melbinger and Steve Flores talk about drafting improvements for executive employment and compensation agreements that are intended to help reduce employers’ risk of getting sued.