Interim CEOs — the folks who step up to lead a company when it loses its CEO without an immediate successor — have a hard job. And this is a group of folks I don’t often see a lot of compensation data about. It’s always seemed like compensation packages for interim CEOs ran the gamut. But this WTW article breaks down the patterns of interim CEO compensation. Not surprisingly, the pay package for the role depends greatly on the background of the folks taking it on. The article separately analyzes pay for interim CEOs that come from the company’s executive officers and pay for interim CEOs who were previously non-executive directors.
When a company finds itself without a CEO, 55% select a named executive officer (NEO). Prior to being named interim CEO, more than one-third of these NEOs held the position of CFO. … Compared with pay of the former CEO, 77% of named interim CEOs earned at median:
53% of the total direct compensation
82% of salary
37% of long-term incentives (LTIs)
The other 23% did not receive additional compensation for their temporary service; however, 80% served in the interim CEO role for 3 months or fewer.
When executive candidates are unavailable or not ready to take the helm even temporarily, it is common to appoint an interim CEO from the company’s board of directors. … Of directors who were appointed interim CEO, 38% were the non-executive board chair.
Moving from the board to an interim executive position includes a new title and new compensation. Pay for a non-employee director serving as interim CEO switches from typical board pay – generally comprising cash and equity retainers – to compensation that more closely mirrors that of the executive team.
Among directors serving as interim CEO, 88% received compensation in recognition for their service. At the median, directors serving as interim CEO received $1.3 million cash compensation (cash plus bonus).
In several cases, director interim CEOs received higher fixed pay compared with the outgoing CEO’s pay, to offset limited participation in incentive programs (e.g., just 29% of directors participated in the company’s annual incentive plan). However, 22% received a special bonus; these were provided for either signing-on to serve as interim CEO or for the successful completion of the interim service. The median value for this special bonus was $500,000.
In addition to cash compensation, directors received $1.5 million in stock-based compensation at the median. Ninety-one percent of stock compensation received was in the form of restricted stock/restricted stock units (RSUs), most commonly cliff-vesting after one year. While restricted stock/RSUs were the most prevalent vehicle, 20% of interim CEOs were granted stock options and another 14% were granted performance-based LTIs.
Companies may also recruit from outside to fill the role of interim CEO, but the article doesn’t analyze pay for this group since they are typically selected because the company may be experiencing a shock event or turnaround situation.
In the latest 25-minute episode of the Pay & Proxy Podcast, Meredith interviewed WTW’s Heather Marshall and Peter Kimball about say-on-pay learnings from the latest proxy season. Topics include:
1. 2024 Say-on-Pay support and failure rates among Russell 3000 companies
2. First-time Say-on-Pay failures and the practices that contributed to them
3. The most common drivers of negative recommendations from ISS
4. Why an ISS negative recommendation “isn’t game over; it’s game on!”
5. The four-step formula for Say-on-Pay success
6. What “responsiveness” means and the forms it can take
7. How companies facing 2023 failures turned things around
8. Why even support levels just under 90% may be concerning
9. Shoring up your disclosure and telling your story
For more on this topic, make sure to mark your calendars for our upcoming webcast on Tuesday, October 29th, “Surviving Say-On-Pay: A Roadmap for Winning the Vote in Challenging Situations.” Even though say-on-pay support was generally high this year, most companies face an uphill battle at one point or another – some even face legal challenges on compensation arrangements. Hear tips on working through scenarios that companies frequently encounter – from D.F. King’s Zally Ahmadi, Compensia and CompensationStandards.com’s Mark Borges, Orrick’s JT Ho, Foot Locker’s Jenn Kraft, and Tesla’s Derek Windham.
As John noted earlier this week on TheCorporateCounsel.net, ISS has released the results of its benchmark policy survey, which will inform updates to the proxy advisor’s voting policies for the 2025 proxy season. Those updates are typically proposed and open for comment sometime in November/December and finalized towards the end of the year.
I blogged about the compensation-related issues from this year’s survey back in August when it was published. Here are the key takeaways on those questions (also see this Compensation Advisory Partners memo):
– Time-Based Equity Awards with Lengthy Vesting Period: The Survey asked respondents to identify whether ISS should consider the use of time-based equity awards with extended vesting terms as a positive mitigating factor in its pay-for-performance assessment, similar to performance-based awards. The Survey also asks whether ISS should consider equity awards with a meaningful post-vesting holding period as a positive mitigating factor in the context of a pay-for-performance misalignment.
– 43% of investors chose the option to “continue with the current approach” (31% were in favor of a change and 26% fell in the “other response” category)
– 70% of non-investors were in favor of a revised policy where time-based equity awards with extended vesting periods would be considered a positive mitigating factor, similar to performance awards.
– Of those who wanted to revise the current approach, 66% of investors and 58% of non-investors supported a vesting period of “at least five years”
– When asked whether a meaningful post-vesting holding period should be present to consider such awards a positive mitigating factor, 68% of investor respondents said “yes” but 73% of non-investors said “no, a post-vesting holding period requirement is not necessary.”
– Discretionary Annual Incentive Programs: The Survey asked respondents to identify whether largely discretionary annual incentive programs, such as those adopted by some large financial sector companies, are problematic, even if the program structure is consistent with industry and/or peer practice.
– 52% of investors said “yes”
– 38% of non-investors said “no, discretionary programs are not problematic…”
– 31% of non-investors said “sometimes, discretionary programs are only problematic if pay is not aligned with company performance”
– Shareholder Proposals on Workforce Diversity: Currently, ISS will evaluate, on a case-by-case basis, shareholder proposals requesting that a company report on: (i) pay data by gender, race or ethnicity, or (ii) policies and goals to reduce any gender, race or ethnical pay gap taking into account certain factors. The Survey asked respondents to identify whether certain human capital management metrics or disclosures should be considered by investors in evaluating a shareholder proposal on workforce diversity (e.g., EEO-1 data, promotion velocity data, retention rates, hiring rates, adjusted gender pay gap disclosure, unadjusted gender pay gap disclosure, board oversight, etc.).
– For a majority of investors, the “top 3” most relevant metrics/disclosure for the analysis of human capital management shareholder proposals were: (i) Racial/Ethnic Diversity and Gender Representation Data (such as EEO-1 data in the U.S.) (22%); (ii) Board oversight of the human capital management issue raised in the respective shareholder proposal (19%); and (iii) Adjusted (accounting for factors such as job role, education, and experience) Gender Pay Gap Disclosure (14%).
– Non-investors’ “top 3” were: (i) Management oversight of the human capital management issue raised in the respective shareholder proposal (25%); (ii) Racial/Ethnic Diversity in Gender Representation Data (20%); and (iii) Board oversight of the human capital management issue raised in the respective shareholder proposal (20%).
Based on the survey results, it is probably too early to write off the preference for performance-based awards. But the results do also suggest that post-vesting holding periods could be a way to mitigate investor concerns if there is a lack of performance criteria. As always, it’s a good idea to talk with your investors, and if you’re able to get them on board and disclose that support, that may also work in your favor with ISS. We’ll stay tuned for the proposed changes to the benchmark voting policies (if any)!
You can register to attend today’s conference online and receive access to the archive of yesterday’s program by visiting our online store or by calling us at 800-737-1271. Our conferences are bundled together into a single two-day event for registration and pricing, so your purchase will cover both events.
– How to Attend Online: Our conferences are hosted online through the RingCentral Events platform. When you register for the conferences, you’ll receive a registration confirmation email that will contain your personalized “Magic Link.” Just click on that link to be instantly directed to the event. The Magic Link acts as an “access pass” into the event. It is unique to you and cannot be shared with others. It bypasses the need for registered users to sign into RingCentral Events and brings you directly into your RingCentral Events account and into the event.
Once in the event, click the “Stage” button from the menu on the left of the webpage. In order to view the session currently playing on stage, you will need to press the play button on the video. If you need technical assistance, members of our team will be available via email at info@ccrcorp.com to assist you throughout the conferences.
– Access to Archives & On-Demand CLE: Your registration includes access to the conference archives, which will be available until October 15, 2025 – but you’ll need your confirmation email to access them so be sure to retain it! One big reason to make sure you do that is that if you can’t attend the conferences live, you may earn on-demand CLE credit by viewing the archives. See these “CLE FAQs for Archived Conference Sessions (ON DEMAND)” for more information.
– Thanks to Our Sponsors! A huge “thank you” to our sponsors who have helped make these events possible. Our platinum sponsor for this year’s conferences is Goodwin, our gold sponsors are Fredrikson and Kirkland & Ellis, our silver sponsors are Alliance Advisors, Cooley, Fintool, King & Spalding, Latham & Watkins, Morrison & Foerster, The Nuvo Group, and Wilson Sonsini. Our digital partner is Aon. Our media partner is Newsfile, and those of you who are attending in-person should be sure to check out our exhibitor, DragonGC. We are extremely grateful for the support of our sponsors!
Our Conferences have finally arrived. We’re kicking things off today in San Francisco with our “Proxy Disclosure Conference” – and we’ll follow that up tomorrow with our “21st Annual Executive Compensation Conference.” The agendas for our conferences include 15 substantive panels over 2 days – as well as an interview with Erik Gerding, the Director of the SEC’s Division of Corporation Finance. Here’s what’s on tap for today.
We’re very excited to be back in-person for the first time since the pandemic, but if you can’t be here in person, you can still register to attend today’s program and tomorrow’s “21st Annual Executive Compensation Disclosure Conference” online by visiting our online store or by calling us at 800-737-1271. Our conferences are bundled together into a single two-day event for registration and pricing, so your purchase will cover both events.
– How to Attend Online: Our conferences are hosted online through the RingCentral Events platform. When you register for the conferences, you’ll receive a registration confirmation email that will contain your personalized “Magic Link.” Just click on that link to be instantly directed to the event. The Magic Link acts as an “access pass” into the event. It is unique to you and cannot be shared with others. It bypasses the need for registered users to sign into RingCentral Events and brings you directly into your RingCentral Events account and into the event.
Once in the event, click the “Stage” button from the menu on the left of the webpage. In order to view the session currently playing on stage, you will need to press the play button on the video. If you need technical assistance, members of our team will be available within the platform and via email at info@ccrcorp.com to assist you throughout the conferences. If you need technical assistance, members of our team will be available within the platform and via email at info@ccrcorp.com to assist you throughout the conferences.
– Access to Archives & On-Demand CLE: Your registration includes access to the conference archives, which will be available until October 15, 2025 – but you’ll need your confirmation email to access them so be sure to retain it! One big reason to make sure you do that is that if you can’t attend the conferences live, you may earn on-demand CLE credit by viewing the archives. See these “CLE FAQs for Archived Conference Sessions (ON DEMAND)” for more information.
– Thanks to Our Sponsors! A huge “thank you” to our sponsors who have helped make these events possible. Our platinum sponsor for this year’s conferences is Goodwin, our gold sponsors are Fredrikson and Kirkland & Ellis, our silver sponsors are Alliance Advisors, Cooley, Fintool, King & Spalding, Latham & Watkins, Morrison & Foerster, The Nuvo Group, and Wilson Sonsini. Our digital partner is Aon. Our media partner is Newsfile, and those of you who are attending in-person should be sure to check out our exhibitor, DragonGC. We are extremely grateful for the support of our sponsors!
Teneo’s analysis of recent S&P 500 proxy filings found that more companies have added DE&I metrics (16 companies) to compensation plans than removed them (10 companies) in 2023. But Teneo’s data suggests that many companies are saying less about their use of DEI metrics in their public disclosures (a sort of DEI-hushing?). Here are some specific data points from the summary of Teneo’s analysis in the HLS blog:
The majority of companies maintained the status quo with respect to DE&I pay metrics. Of those that disclosed DE&I pay metrics in 2022, 55% provided the same level of detail and did not indicate significant changes in 2023.
However, a third of companies scaled back the disclosure of DE&I pay metrics, or de-emphasized DE&I, while still maintaining it as a pay factor. Those that maintained DE&I pay metrics, but reduced disclosure, often did so by removing mention of the specific metrics and / or goals used. Other means of de-emphasizing DE&I as a metric include using related terms other than diversity (e.g., inclusion, belonging, etc.) or broadening the metrics used (e.g., from a diversity component to a talent component). …
Representation goals, often targeted by “reverse discrimination” cases, declined by six percentage points, but nevertheless remained the most commonly disclosed DE&I pay metric, cited by 33% of companies in 2023. Meanwhile, metrics for diverse talent development and broad DE&I strategies, such as establishing DE&I goals or action plans, each increased from 6% to 8% from 2022 to 2023.
In 2023, 42% of companies formalized the impact of DE&I performance on pay as a separate weighted component or modifier, up from 38% in 2022. Most often, DE&I metrics determined between 5% and 10% of incentive payouts.
We’ve previously noted that the impact of the Students for Fair Admissions cases was not fully reflected in the 2024 proxy season, given the timing of the opinion (released after most 2023 compensation decisions). Debevoise recently reported that companies have since revisited DEI metrics — meaning that we may see more movement in the 2025 proxy season — but are unlikely to walk away from DEI goals altogether given their importance to workforce strategies and long-term performance.
NFP’s latest Executive Benefits Trend Report focuses on nonqualified deferred compensation plans. It says NQDCPs are often a vital part of successful pay packages but may not be well understood with “significant untapped opportunities for executive benefits optimization” and “a notable gap between the benefits offered and their perceived impact.”
The data reveals a growing trend of executives becoming more discerning about their benefits: 44% of companies report that executives are increasingly demanding of the benefits they receive
This heightened interest is also reflected in NQDCP participation intentions, with some participants planning to increase their involvement: 21% aim to get ahead of future tax rates; 13% seek to combat inflation
These statistics highlight the strategic thinking of executives who view their benefits packages not just as compensation but as tools for long-term financial planning and wealth preservation.
Despite the demand among executives, two-thirds of executives feel like they don’t fully understand their benefits. The alert recommends improving participant understanding to ensure executives make full use of the benefits offered to them, especially given the increasing demands for NQDCPs. Improving your internal communications about NQDCPs doesn’t just help the executives; it “also maximizes the return on investment in these valuable retention and motivation tools.”
Check out the report for tips on:
– Tailoring NQDCPs to company objectives
– The importance of plan communication and knowledge-sharing
– Evolving retirement behaviors of executives
– Balancing executive benefits with financial concerns in an uncertain economic climate
– Leveraging executive retention as a hedge against uncertainty
Our “Proxy Disclosure & 21st Annual Executive Compensation Conferences” are right around the corner — next week Monday, October 14, and Tuesday, October 15 – bundled together as one great event that you can attend with us in person in San Francisco or virtually!
On October 14th, we’ll take a deep dive into the upcoming proxy season with the “2024 Proxy Disclosure Conference” – with panels on shareholder activism, governance & disclosure of AI, cyber-related disclosure trends, shareholder proposal trends, climate disclosure updates, and more. Plus, you don’t want to miss our first-ever “All-Star Feud,” during which our intrepid “SEC All-Stars” will face off gameshow-style over burning questions on proxy disclosure and executive compensation.
On October 15th, we turn our attention to critical executive compensation matters at the “21st Annual Executive Compensation Conference” – including key updates on proxy advisors, clawback practices, compensation trends, and perks.
In addition to live and on-demand access to these fast-paced sessions, Conference attendees get exclusive access to our Course Materials – which include unique & practical bullet points and examples from our experienced speakers on each topic we’ll be covering. Our speakers go the extra mile to provide usable takeaways. The Course Materials are an invaluable resource to refer back to as proxy season approaches!
For those seeking CLE credit, here’s a list of states in which credit is available – and CLE FAQs about live and on-demand credit.
Act Now: The Conferences begin next Monday, October 14th. With 17 sessions over 2 days, you’ll walk away with action items to help support director elections and say-on-pay, leverage your executive compensation, and avoid costly mistakes. You can still register. Sign up online or by calling 1-800-737-1271.
If you’ve already registered, remember that your unique access link and attendance instructions will be emailed to you from no-reply@events.ringcentral.com. Here’s more detail on what to watch for.
We knew from Corp Fin Staff statements earlier this year that the disclosure review team might take a more detailed approach to reviewing year two PvP disclosures. So we were all warned that 2024 comments may delve into disclosure details and require you to respond with an analysis. We’re now starting to see that play out with new PvP comment letters recently becoming public. Here are some high-level thoughts about the comments and correspondence we’ve seen so far:
– Consistent with recent Staff comments, the comment letters clarify that stating that no relationship exists (even if a particular measure is not used in setting compensation) isn’t compliant with Item 402(v)(5)(ii) — especially where a relationship may exist. The Staff has stated that graphical depictions are useful. That seems particularly true when a registrant is struggling to provide narrative disclosure.
– The Staff is comparing PvP table disclosures with the Tabular List and comparing PvP table components with numbers in the audited financial statements.
Multiple comment letters take issue with companies using the phrase “year-over-year” when describing the adjustment for the fair value of equity awards that vested during the year. In one case, the company was calculating CAP correctly and committed to providing more precise/descriptive headings in the reconciliation tables in footnotes to the PvP table in the future.
In another case, the Staff commented on a company’s failure to present CAP calculations in a footnote. The Staff could nonetheless tell from the Summary Compensation Table that the company was subtracting “All Other Compensation” from the SCT Total to calculate CAP and reminded the company of the specific adjustments required by the rule (relating to defined benefit and actuarial pension plan and stock and option award amounts).
– The Staff is comparing the company’s stock performance graph. They are also reminding registrants of the need to list all the companies comprising the peer group if the company doesn’t use a published industry or line-of-business index.
– In one comment, the Staff took the position that companies shouldn’t be taking advantage of Regulation S-K CDI 128D.03 and limiting footnote reconciliation disclosures to the most recent fiscal year if CAP values reported for prior years were revised in the latest proxy statement to correct errors.
Clearly the Staff is indeed taking a detailed look at disclosures and diving into the calculations of CAP to confirm adjustments were made appropriately. In some cases, the calculation issues were actually related to transcription or calculation errors — pulling the wrong numbers from the SCT, failing to provide an average or improperly rounding. While Corp Fin didn’t hold up annual meetings and companies have generally committed to changes in future proxy statements (for a notable example, see this cursory response by Berkshire Hathaway), a clear takeaway here is to have your PvP numbers checked and rechecked by folks who know what values the table should be reporting.
I blogged last month about Compensation Advisory Partners’ annual study of director compensation trends at the 100 largest US public companies. In the latest 22-minute episode of “The Pay & Proxy Podcast,” Meredith discussed more details and observations from the study with CAP’s Daniel Laddin and Matt Vnuk – as well as why & how companies outside of the “top 100” can use these trends. They covered:
1. Median board compensation in fiscal 2023 and expectations going forward
2. Trends in non-employee director pay program design, including pay structure and equity vehicles
3. Compensating board members for committee service and leadership roles
4. Shareholder-approved director compensation limits
5. Suggestions for those who advise on, set, or disclose director pay