Join us tomorrow, Wednesday April 13th at 2pm Eastern Time, for the first of PracticalESG.com’s 3-part DEI workshop series – “Collecting Diversity, Equity & Inclusion Data: What to Measure & Why” – to hear DiversityIQ’s Cheryl Cole, Fossil Group’s Sheri Crosby Wheeler, Aon’s Aria Glasgow, Pipeline Equity’s Katica Roy, Fortune’s Ruth Umoh, and NextRoll & PracticalESG.com’s Ngozi Okeh discuss, among other things:
– What data points are useful in driving DEI strategy & progress;
– How to measure diversity, equity & inclusion;
– How to account for intersectionality;
– Data traps to avoid; and
– How to use data to develop a unique business case for your corporate DEI initiative.
If you’ve not yet registered, you can still sign up here.
This PracticalESG.com workshop is free, courtesy of our wonderful sponsors, Morrison & Foerster and Holmes Murphy. A replay will be available to PracticalESG.com members – along with many other useful resources! If you’re working on ESG matters and haven’t already signed up for a PracticalESG.com membership, now is the time to get filtered & organized access to rapidly evolving ESG developments! You can become a member online or by emailing sales@ccrcorp.com.
A group of 60 PE firms, banks, pension funds and others have signed on to Ownership Works – a non-profit with the goal of creating $20 billion in wealth for lower income & diverse employees over the next decade. This WSJ article says that the organization is the brainchild of Pete Stavros of KKR – and counts Apollo, KKR, Warburg Pincus, CalPERS and the Washington State Investment Board among its members.
NYSE-listed Harley Davidson is listed as a case study. The company announced last year as part of its earnings & strategic plan that it would grant stock to all 4500 employees worldwide, which is also called out in the company’s recent proxy statement. Where are the shares coming from? In Harley’s case, they’re coming from the equity incentive plan, and are part of the reason the company is seeking an increase to the authorized number of shares this year. Ownership Works has a FAQ for that too, which suggests they aren’t pushing for a particular format of plan:
Many companies already share ownership with senior leaders in the form of a management equity plan. Achieving broad-based ownership may require allocating additional equity to an all-employee equity plan and/or a shift in the amount allocated to more senior executives. When well implemented, shared ownership programs should, over time, pay for themselves by maximizing shared wealth creation.
With the PE firms in this coalition committing to institute employee ownership at a minimum of 3 portfolio companies and the pension fund participants pledging to “encourage asset managers to consider it when appropriate,” there may be more “asks” coming for enhanced employee ownership. That’s on top of the interplay between stock ownership & pay equity attracting more attention. If you don’t already have a broad-based employee stock plan, it’s worth perusing the Ownership Works resources and keeping your compensation committee up to speed about the alternatives.
The last two years were rocky in the executive compensation world as compensation committees tried to design the right incentives during a pandemic. And in 2021, ISS put out its updated FAQ for pandemic-related pay adjustments, and suggested that pay programs should go “back to normal.” With the pandemic (slowly) fading out, Pay Governance looked at how it has changed the compensation world. Below is an excerpt of the 2021 compensation practices that they expect will have persisted from 2020:
– Wider performance curves. Many companies widened their performance curves to minimize the chance of a zero or maximum payout given the uncertainty in setting performance targets. This uncertainty persisted at the beginning of 2021, and a widening of the performance curve allowed companies to retain the basic structure of existing plans but with far less pay/performance leverage.
– Semi-annual short-term incentive performance periods. Companies in industries facing the greatest level of uncertainty continued or adopted a “1st half/2nd half short-term incentive plan whereby 6-month goals are set at the beginning and the middle of the performance year to allow for a “resetting” of targets at mid-year based on more current financial outlook.
– Inclusion of qualitative metrics. After unprecedented levels of discretionary adjustments applied in 2020, some companies added or increased the weighting of qualitative metrics to allow the Compensation Committee to exercise discretion within predefined guardrails (e.g., +/- 20%).
– Above target annual incentive plan payouts. Given the limited visibility at the beginning of 2021 amid the continued impact of COVID-19 (e.g., supply chain pressures, “The Great Resignation,” etc.) and 2020 annual incentive plan payouts, the majority of which were below target or zero, many companies may have established relatively conservative financial targets for their 2021 annual incentive plans. Early indications are that above target (or maximum) annual incentive payouts are being reported by companies that were more resilient than forecasted and capitalized on better-than-expected market opportunities in 2021.
With CEO pay bouncing back in 2021, what’s director compensation looking like? We’ve previously blogged about director pay at S&P500 companies and how equity compensation seems to comprise the biggest bulk of total compensation.
Pearl Meyer recently held a webcast with NACD and surveyed the 148 director attendees. 67% of respondents don’t expect to reduce the board equity grant value because of declining stock prices. In addition, for new board members, 49% provide pro-rated equity grants based on the new director’s start date and the annual granting date. Pearl Meyer ends with an interesting idea – if executives get inducement equity grants in a competitive market, why not directors?
To complement Semler Brossy’s memo on early say-on-pay results yesterday, here’s a memo from Equilar on the Harvard Law School Forum on Corporate Governance regarding early trends in executive compensation. Below are some highlights on how executive compensation is shaking out:
– CEO pay is back on the rise – there’s a change in median total direct compensation from $12 million in 2020 to $14.3 million in 2021.
– With CEO pay on the rise, you’ve also got the pay ratio number rising. The CEO pay ratio so far is 245:1 (vs. 192:1 in 2020). Liz previously blogged about how the pay ratio is directly affecting the say-on-pay votes at Kroger – we’ll have to see if failure rates also start climbing compared to what we’re seeing early on.
– Gender pay gap persists even at the highest levels. Median pay for women CEOs in the Equilar 500 was $11.8 million in 2021, vs. $14.5 million for men. I’ve previously blogged about how female executives may ironically be paid less because of benchmarking, and it looks like 2021 continues that trend.
With proxy season in full swing, here are some observations from the latest Semler Brossy memo tracking say-on-pay results for this season, published as of March 31:
– The current failure rate for the Russell 3000 is at 2.2% (with 3 companies failing), much lower than the failure rate at this time last year (4.9%). The three are Arrowhead Pharmaceuticals, D.R. Horton & Griffon Corporation – and notably, D.R. Horton’s CEO is on As You Sow’s Most Overpaid CEOs list.
– Breaking it down by sector, it looks like the consumer, industrials, IT & healthcare industries are where you see support dipping below 70%.
– 8.9% of Russell 3000 companies have received an “Against” recommendation from ISS thus far, which is 240 basis points lower than 2021 year-end.
It’s still early days and there’s lots more to come on this topic, since only 32 S&P500 companies have held a say-on-pay vote thus far. We’ll keep posting these stats in our “Say-on-Pay” Practice Area to keep you informed.