I’ve blogged before about starting the conversation of tying ESG metrics to executive comp – as it’s not necessarily easy. Wells Fargo appears to be taking a step in that direction as news outlets reported that the bank will be tying progress on diversity to executive pay. This American Banker article says that members of the lender’s operating committee will be evaluated annually on progress made in terms of representation and inclusion of diverse employees in areas they oversee and it will impact operating committee members’ year-end pay.
Other goals include doubling black leaders at Wells Fargo within the next five years and creating a new diversity and inclusion executive that will report directly to the CEO. An article from The Charlotte Observer describes the moves by Wells Fargo as being some of the most aggressive on Wall Street – time will tell if other financial services firms follow Wells’ lead…
Tune in today for the CompensationStandards.com webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.
Earlier this year, I blogged about a report analyzing use of ESG metrics in S&P 500 company incentive programs – it showed 50% of those companies include ESG metrics in annual incentive programs. Here’s another report – this one from Semler Brossy – that looks at use of ESG metrics in Fortune 200 company incentive programs. Semler Brossy reports that over half of the Fortune 200 also use ESG in their incentive plans but distribution is inconsistent across industries. The report attributes the variation to differences in external pressures and the level of strategic/competitive importance of ESG within sectors and then shows the breakdown of ESG metric prevalence by industry.
Last year, Liz blogged about how ISS would analyze “outliers” for its voting policy on director pay. Under the policy, if ISS identified a company as having high director pay for two or more consecutive years without a compelling rationale, ISS would recommend shareholders vote against directors responsible for setting director comp. According to a NY Times article, it sounds like Tesla is one company where ISS has applied it’s new non-employee director pay policy as it’s recommending shareholders vote against Tesla’s Chairwoman, Rhonda Denholm.
The article also cites an increase in shares pledged by Tesla’s directors and executives as a concern – it says over 10% of shares outstanding are pledged. Tesla’s annual shareholder meeting is scheduled for July 7, but Elon Musk tweeted Friday evening that it would be delayed due to social distancing concerns. Musk tweeted again Sunday evening saying the meeting has been tentatively set for September 15.
The news of ISS recommending against Denholm probably won’t garner as much attention as recent news about Elon Musk’s big payday. Just a couple of weeks ago, Musk received a tranche of options to purchase Tesla shares when certain operational goals were met – his potential gain has been pegged at around $770 million.
A recent DealBook article and FT analysis found that about 50 companies gave their CEOs 50% more options than last year – and although the grant size was due to formulas and the timing was consistent with past practices, execs are profiting off of market upswings and it’s not playing well right now. But thanks to market volatility, there are plenty of companies facing the opposite problem – option grants that are now underwater and doing little to motivate execs.
Lynn blogged recently about what to consider if you’re modifying performance awards or granting supplemental awards due to pandemic-related underperformance. This 7-page Aon memo gives even more detail on alternatives – including repricings, which have been rare in recent years but may be an option of last resort for companies whose stock prices haven’t recovered. Here’s an excerpt (and as Gunster’s Bob Lamm discusses in this blog, don’t lose sight of the optics of pay changes):
A repricing or an exchange is more complex than additional grants, but it may be an attractive program to return value to employees and address retention concerns. We recommend a balanced approach to any stock option exchange by looking at the impact to dilution, potentially putting shares back in the pool (if allowed by your plan and shareholders), and not creating significant incremental expense. In order to balance these priorities, companies should consider exchange ratios above 1-for-1, which offsets some incremental expense and helps to address dilution.
For most companies, repricings or exchanges require shareholder approval, which poses significant obstacles to the design and implementation of the program. If taking this action does not require shareholder approval, it is still important to understand the institutional shareholder perspective, to have a business justification for your actions and to be prepared to respond to the shareholder criticism that will come—which may include negative say-on-pay votes and/or votes against the election of board members.
We’ve wrapped up the May-June issue of The Corporate Executive – and will be mailing it soon! It’s available now electronically to members of TheCorporateCounsel.net who also subscribe to the print newsletter at each of their locations (try a no-risk trial). This issue includes pieces on:
– The Impact of COVID-19 on Executive Compensation
– ISS and Glass Lewis Voting Policy Changes Due to COVID-19
– New Proposed Regulations under Internal Revenue Code Section 162(m)
With furloughs, layoffs and changes to executive & workforce pay, many companies’ 2020 pay ratio calculations are going to require some extra thought. This memo from Willis Towers Watson suggests strategies to anticipate these issues and minimize pay ratio effort. Here’s an excerpt:
Given all the changes that have occurred and may occur during 2020, companies should develop a dynamic model now, to avoid competing against other HR priorities that will fall in Q4. Changes in compensation programs that could take place during Q4 could include bringing back furloughed employees or taking further actions to reduce pay or headcount before year-end.
If a company is performing a recalculation in 2020, this analysis may influence the Determination Date it selects. For those companies still hoping to use the three-year rule using the median employee identified in 2018 or 2019, these changes during 2020 could mean they must start anew to determine a median employee for 2020.
Assuming companies intend to use the 2020 median employee in ensuing years, global pay demographic changes as a result of companies restoring stability will present complications in the Year 2 and Year 3 calculations. While companies may aspire to use the three-year rule, for many 2020 may simply not be an appropriate baseline going forward as demographics continue to change from 2020 to 2021.
We’ve just added Bill Hinman – Director of the SEC’s Division of Corporation Finance – as another top-notch speaker at our popular conferences – the “Proxy Disclosure Conference” & “17th Annual Executive Compensation Conference” – which will now be held entirely virtually, September 21-23rd. We’ve offered a Live Nationwide Video Webcast for our conferences for years – one of the only events to do so – and we’re excited to build on that platform and make your digital experience better than ever. Act now to get an “early bird” discount – here’s the registration information. Here are the agendas – 18 panels over three days.
Among the panels are:
– Bill Hinman Speaks: The Latest from the SEC
– The SEC All-Stars: A Frank Pay Disclosure Conversation
– The SEC All-Stars: Q&A
– Pay-for-Performance: What Matters Now
– Pay-for-Performance: Q&A
– Directors in the Crosshairs: Pay, Diversity & More
– Dave & Marty: True or False?
– Pay Ratio: Latest Developments
– 162(m): Where Things Stand
– Clawbacks: What to Do Now
– Dealing with the Complexities of Perks
– How to Handle Negative Proxy Advisor Recommendations
– Human Capital: The Compensation Committee’s Role
For a simple look at say-on-pay voting results, here’s a say-on-pay tracker from Farient Advisors – it allows searches by year, stock index, industry group and specific companies. The say-on-pay tracker also sorts data based on voting result – showing, so far this proxy season, a limited number of companies have received less than 80% support. The firm also has a CEO pay ratio tracker that aggregates data for S&P 1500 and Russell 3000 companies and provides summary data by sector including the median ratio, median employee and CEO pay.
A recent memo from Aon reviews director pay and compares private company director pay with public company director pay. It’s not a surprise that public company directors earn higher compensation, because as the memo notes, public company boards generally hold more meetings, are exposed to potentially higher liability and public and regulatory scrutiny. The report gives a quick review of Aon’s data and it found that private company boards generally earn 36% less than their public company counterparts – primarily in the form of lower amounts of long-term equity that are granted to public company directors.