We just wrapped up Lynn, Borges & Romanek’s “2018 Executive Compensation Disclosure Treatise” — and it’s been printed. This edition has a major update to the key chapter on the new SEC’s pay ratio rules (now 120 pages long!) & more – this includes the latest pay ratio guidance from the SEC in September. All of the chapters have been posted in our “Treatise Portal.”
How to Order a Hard-Copy: Remember that a hard copy of the 2018 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately. Act now to ensure delivery of this 1650-page comprehensive Treatise soon. Here’s the “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. Order Now.
Here’s an excerpt from this Compensia memo about the “newish” pay-for-performance methodology from ISS:
For 2017, ISS discloses the current rankings of each of the seven enumerated financial metrics, but not their weighting. For 2017, ISS ranks the performance measures for technology and life sciences companies as reflected in the table at the bottom of this page.
Several of these rankings are at odds with the financial metrics that many technology and life sciences companies use in their incentive programs. For example, numerous small, mid, and large-cap companies, use top-line metrics such as revenue, bookings, and TSR in their incentive plans consistent with their growth profiles and business strategy. These metrics are currently ranked at the bottom of the list for technology and life sciences companies. Conversely, in our experience, ISS’ favored metrics (ROIC, ROE, and ROA) are not commonly used by technology companies. In a recent Compensia review of the performance share award practices of approximately 130 public technology companies, only one of these companies used one of these return metrics, 36% disclosed the use of revenue, and 55% used relative or absolute stock price goals (either as the sole metric or in combination with other metrics).
While ISS may change these rankings in 2018, it is important to note that, in any given year, ISS’ view on the relative importance of these metrics may not match a Board of Directors’ long-term objectives for its executive team, creating obvious potential for a disconnect.
Yesterday, ISS released this 23-page summary from its 2017-2018 policy survey. This year, survey topics were split into two parts, with an initial, high-level survey covering a small number of fundamental and high-profile topics. Here’s two of the pay-related findings for the US:
– Director Pay – Survey respondents were asked which factors should be considered in determining whether a director pay program presents a governance concern with respect to high pay magnitude. Tops for investors was measuring director pay relative to a four-digit GICS peer group, followed by stock market index peers, and, third, measuring a director pay program relative to all companies. Corporate respondents, meanwhile, deemed the measurement of pay relative to a stock market index most appropriate, followed next by pay measurements relative to a four-digit GICS industry peer group. When asked which factors should be considered in determining whether a pay program presents a governance concern with respect to problematic pay structure, both groups agreed that excessive perquisites was most problematic.
– Gender Pay Gap – Over the past two years, shareholders have filed proposals asking for a report on gender pay equity at numerous U.S. companies. ISS’ survey asked whether companies should be disclosing their gender pay gap information, with 60 percent of investor respondents answering affirmatively, compared with 17 percent for corporates. Of the just over one-quarter (27 percent) of investor respondents suggesting the need for such disclosures would “depend” on certain considerations, most indicated they would deem it favorable if the practice became an industry norm and/or the company was lagging its peers.
In this note, Glass Lewis has joined the many who have written about the SEC’s new guidance on pay ratio (we’re posting memos about that in our “Pay Ratio” Practice Area). In addition to summarizing the SEC’s guidance, Glass Lewis indicates what approach it will take for pay ratio in this excerpt:
Glass Lewis intends to display the pay ratio as a data point in our Proxy Paper in 2018. At this time, however, we do not intend to incorporate the pay ratio into our assessment and analysis of Say-on-Pay proposals. We recognize that this data point might provide valuable additional information to shareholders on a company’s pay practices; however, we do not believe that this information is material for our analyses of the structures by which, and the disclosures of how, companies pay their NEOs.
By the way, for those registered for our “Pay Ratio & Proxy Disclosure Conference,” the video archives for yesterday’s panels are now posted…
– 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 about a day to post the video archives after it’s shown live). A prominent link called “Enter Wednesday’s Pay Ratio Conference Here” – on the home pages of those sites – will take you directly to today’s 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). Here are the “Course Materials,” filled with 182 pages of annotated model pay ratio disclosures, 156 pay ratio nuggets, talking points, etc.
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 is today’s conference agenda; times are Eastern.
– How to Earn CLE Online: Please read these “FAQs about Earning CLE” carefully to see if that is 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 this “List: CLE Credit By State.”
Today is the “Pay Ratio & Proxy Disclosure Conference”; tomorrow is the “Say-on-Pay Workshop: 14th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our staff. Both Conferences are paired together; two Conferences for the price of one.
– 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 about a day to post the video archives after it’s shown live). A prominent link called “Enter Pay Ratio Conference Here” – on the home pages of those sites – will take you directly to today’s 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). Here are the “Course Materials,” filled with 182 pages of annotated model pay ratio disclosures, 156 pay ratio nuggets, talking points, etc.
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 is today’s conference agenda; times are Eastern.
– How to Earn CLE Online: Please read these “FAQs about Earning CLE” carefully to see if that is 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 this “List: CLE Credit By State.”
Banking and financial firms that have estimated theirs responded with the lowest ratios in the survey, at mostly 200:1 or less. The highest estimated ratios in the survey, at mostly 400:1 or more, came from retailers and wholesalers of consumer goods, who tend to employ more part-time workers with low wages.
Here’s another interesting excerpt:
About three-fourths of companies surveyed by Mercer haven’t started thinking about communications yet. Of those that have, employees and other internal audiences are their top priorities, more so than investors, the media, or labor unions.
Here’s the intro from this interesting blog by Davis Polk’s Ning Chiu:
Although the failure rate for 2017 say-on pay results achieved an all-time low of just 1.3%, the number belies the fact that more than 2,000 say-on pay proposals have either received negative recommendations from ISS or less than 70% support, or both, since say-on-pay resolutions started in 2011.
Approximately 12% to 14% of companies run into problems every year. As companies have become more proactive with shareholder engagement, the number of companies that received “against” recommendations from ISS and still achieved more than 70% support has increased in the last three years, while the number of companies with those negative recommendations that received less than 70% favorable votes have fallen.
What may be most surprising to companies, however, is that about 10 to 15 companies each year received positive endorsement from ISS and still obtained less than 70% support.
Over on “TheCorporateCounsel.net Blog,” I blogged at length about the Treasury Department’s new 232-page report, as mandated by the Administration’s Executive Order that sets forth core principles for the markets. This is one of 4 reports coming out of Treasury dealing with various types of reform.
In this Treasury Report, there’s a bunch of recommendations that impact our area of law – and most of them can be accomplished at the agency level, not needing action by Congress. But there are some recommendations that do require legislative action by Congress. One of them is repealing Section 953(b) of Dodd-Frank – the pay ratio provision.
In the absence of legislative action, Treasury recommended that the SEC should consider exempting smaller reporting companies and emerging growth companies from some of the requirements – but that wouldn’t impact pay ratio because those categories of companies are already exempt. Read my blog for more details…
