July 8, 2015
Executive Pay: A Trigger for Hedge Fund Activism?
– Broc Romanek, CompensationStandards.com
Here’s the intro from this Cooley blog:
Is executive pay becoming a hot button issue for activist hedge funds? While executive pay has long been under scrutiny from standard-issue corporate governance activists, such as union pension funds, the interest of some hedge fund activists in executive compensation issues has the potential to introduce a more disquieting note to the compensation conversation.
This article by Jeremy Goldstein from the HLS Forum on Corporate Governance and Financial Regulation argues that “activists will not hesitate to use pay as a wedge issue, even if there is nothing wrong with a company’s pay program.” But when pay issues have been identified, compensation can assume greater prominence, and, in some cases, can appear to be the principal concern. The article identifies some considerations regarding executive compensation for companies intent on deterring hedge fund activists as well as for those hoping to avoid unintended consequences in the event of an activist strike.
The author first observes that low levels of support for a company’s say-on-pay proposal could signal that shareholders have identified performance issues at the company and make the company particularly vulnerable to an activist attack “because a failed vote can result in tension between managements and boards.”