This recent report from Compensation Advisory Partners examines trends in director pay levels & practices. Here are six key findings:
1. Total Fees: continued to increase in low single digits.
2. Meeting Fees: paid by only 11% of companies – most companies have moved to a retainer pay structure. Some use a “hybrid approach” where directors are paid if the number of meetings far exceeds the norm.
3. Pay Mix: typically a combo of cash & equity. Full-value awards are most common.
4. Fees for Committee Members & Chairs: some companies pay fees to committee members – but most rely on board-level pay. Over 90% of companies provide additional pay to committee chairs via an additional retainer. These chair retainers increased incrementally from the prior year.
5. Independent Chair Fees: all companies provided additional pay to independent chairs, and nearly all pay extra fees to lead directors.
6. Pay Limits: 47% of the largest 100 companies now have pay limits in equity plans – and the majority of companies submitting new plans have incorporated this feature. Here’s one of our prior blogs – explaining why these limits are useful and how to draft them.
Also check out this Korn Ferry blog which also notes these trends.
Last chance to register at a reduced rate for our comprehensive “Pay Ratio & Proxy Disclosure Conference.” The discount expires this Friday, July 28th. New Corp Fin Deputy Director Rob Evans will open the event.
It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or by video archive at your convenience. And in addition to the October Conference, you gain access to three pre-conference webcasts. And a set of “Model Pay Ratio Disclosures” in both PDF & Word format.
The first webcast was last week & that 75-minute audio archive is available now – a transcript of that program is coming soon. The second webcast is on August 15th; the third webcast is September 27th.
Register Now – Discount Ends This Friday: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
Normally – as Broc has blogged many times (here’s one) – the SEC’s Reg Flex Agendas tend to be “aspirational.” But perhaps this time is different.
As part of a federal agency-wide reveal of the new Administration’s plans for rulemaking, the SEC posted the latest version of its Reg Flex Agenda last week. This agency coordination is the Administration’s “unified agency regulatory agenda.”
This Reg Flex Agenda is notable for what it omits – get a load of what’s not on the list:
– Pay-for-performance
– Clawbacks
– Hedging
– Universal proxy
– Clawbacks of incentive compensation at financial institutions
Does this mean that the SEC doesn’t intend to ever proceed with adopting any of the outstanding Dodd-Frank rules that are still in the proposal stage? We don’t know. As this Cooley blog notes, the Preamble indicates that it reflects “only the priorities of the Acting Chairman [Michael Piwowar], and [does] not necessarily reflect the view and priorities of any individual Commissioner.” Since the information in the Reg Flex Agenda was accurate as of March 29th – and SEC Chair Jay Clayton wasn’t confirmed until May – it’s unknown how Chair Clayton feels about all this.
But it might be a sign – because as noted in this article from “The Hill”: “OMB said agencies for the first time will post a list of “inactive” rules to notify the public of regulations that are still being reviewed or considered.”
This all doesn’t impact the implementation of the pay ratio rule – because that rule was already adopted a few years ago. It just had a delayed effectiveness date. So it would never show up on a Reg Flex Agenda unless there was rulemaking to delay or repeal it…which there is not…
Pay Ratio Conference: Discounted Rate Ends This Friday
Last chance to register at a reduced rate for our comprehensive “Pay Ratio & Proxy Disclosure Conference.” The discount expires this Friday, July 28th. New Corp Fin Deputy Director Rob Evans will open the event.
It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or by video archive at your convenience. And in addition to the October Conference, you gain access to three pre-conference webcasts. And a set of “Model Pay Ratio Disclosures” in both PDF & Word format.
The first webcast was last week & that 75-minute audio archive is available now – a transcript of that program is coming soon. The second webcast is on August 15th; the third webcast is September 27th.
Register Now – Discount Ends This Friday: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in today – at noon eastern (audio archive goes up when the program ends; transcript available in a week or so) – for the first in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You Need to Do Now.” That landing page is where you go to access the three types of “webcast links” to listen to the webcast.
Our “Annotated Model Pay Ratio Disclosures”: Now Posted
Register Now – Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
– Mark Borges, Principal, Compensia
– Mike Kesner, Principal-in-Charge, Human Capital Advisory Services, Deloitte Consulting LLP
– Dave Lynn, Editor, CompensationStandards.com and Partner, Jenner & Block LLP
– Maia Gez, Of Counsel, Gibson Dunn & Crutcher LLP
Register Now – Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
Our “Annotated Model Pay Ratio Disclosures”: Now Posted
Oodles of Pay Ratio Panels: Comprehensive Coverage
It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or by video archive at your convenience. We’ve clarified that in the box at the top of our Conference FAQs.
Among the panels for the October 17-18th Conference are:
1. Corp Fin Speaks (speaker from the Staff to be announced)
2. The SEC All-Stars: A Frank Pay Ratio Conversation
3. Parsing Pay Ratio Disclosures: US-Only Workforces
4. Parsing Pay Ratio Disclosures: Global Workforces
5. Pay Ratio: Sampling & Other Data Issues
6. Pay Ratio: The In-House Perspective
7. Pay Ratio: How to Handle PR & Employee Fallout
8. The SEC All-Stars: The Bleeding Edge
9. The Investors Speak
10. Navigating ISS & Glass Lewis
11. Keynote: A Conversation with Nell Minow
12. Proxy Access: Tackling the Challenges
13. Clawbacks: What to Do Now
14. Dealing with the Complexities of Perks
15. The Big Kahuna: Your Burning Questions Answered
16. Hot Topics: 50 Practical Nuggets in 60 Minutes
Register Now – Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register by July 28th to take advantage of the 10% discount.
This is why it may be wise to question the value of a study before you put much stock on it. Read the thing before you comment. This CFO.com article highlights a new “American Accounting Association” study that claims – even when controlling for the portion of pay linked to stock performance – the relationship between a CEO pay ratio & stock price remains strong.
The study isn’t out yet, so we can’t really analyze how this conclusion was reached. But given that pay ratios aren’t yet publicly disclosed (and even when they are, it ain’t gonna be apples & apples), I am dubious. Not to mention that I hate seeing the first attempt to externally benchmark what is supposed to be an internal look! The proper benchmarking of pay ratios is that companies should be watching to see how their own ratios fare over time – not comparing their ratios to other companies…
As part of the mad rush to register for our comprehensive “Pay Ratio & Proxy Disclosure Conference”, we’ve fielded questions from a number of members who want to attend this Thursday’s webcast – but who can’t make it to Washington DC for the October 17-18th Conference. It doesn’t matter whether you can make it to DC – because the October 17-18th Conference is available to watch online by video webcast, live on those specific days or at your convenience by video archive. We’ve clarified that in the box at the top of our Conference FAQs.
A controversial new metric on executive pay is on Congress’s chopping block. Shareholders should want it to survive, even if it only provides a sliver of insight into the companies they own. Beginning next spring, possible repeal notwithstanding, companies will be required to publish a Bigwig vs. Regular Joe pay ratio, or the total earnings of the chief executive compared with those of the median employee.
Supporters of the rule, part of the post-financial crisis Dodd-Frank Act, hope disclosure at an individual-company level might focus more attention on inequality and sky-high CEO pay. The ratio has ballooned since the 1970s: The bosses of America’s 350 largest companies made on average 276 times the money of their rank-and-file subordinates in 2015, up from 30 times in 1978, according to the left-leaning Economic Policy Institute. Republicans want to repeal the requirement, along with other controversial bits of Dodd-Frank, as a way to trim compliance costs for companies. Some also argue the ratio isn’t instructive: Wal-Mart will have a higher one than Goldman Sachs , but that only indicates that Wal-Mart employs more unskilled workers than Goldman Sachs. Comparisons within the same sector are likely to get bogged down in discussions of how one company’s business model or geographic scope is different from another’s. The rollback made it through a House of Representatives bill in June. Whether it can clear the Senate in time for next spring’s proxy-statement season is anyone’s guess.
If the ratio survives, however, shareholders might find it a modestly useful addition to their analytical toolbox. The key insights will come from seeing how it evolves for a specific company over time. A widening ratio could be a warning flag that a management team is getting greedy. Executive pay ballooned in the financial sector before the 2008 banking crisis. Those companies that went bankrupt were particularly guilty of deteriorating pay practices, according to an analysis of governance ratings by analysts at Bank of America Merrill Lynch. Pay ratios could have made this more obvious at the time—and may help bring subsequent lapses to wider attention.
Knowing what the median employee at a company makes would also fill gaps in investors’ understanding, such as how the wage bill compares with other costs. Admittedly, the SEC only requires companies to update the calculation once every three years, so useful insights into how the median wage changes relative to profit, say, would take years to emerge.
That said, investors shouldn’t assume more thriftily paid bosses offer value for money. Simplistic studies can show an association between lower pay and higher returns, but this is partly because larger companies pay better while small-caps usually outperform large-caps. Adjusting for size, using actual realized rather than the estimated target pay disclosed in proxy filings, and factoring in the performance of previously awarded shares, PricewaterhouseCoopers found a strongly positive correlation between executive pay and three-year total returns for big U.K. companies. This is logical, given how much executive pay is triggered by return thresholds these days.
Investors should welcome any move toward greater transparency, but wield their new analytical tool with caution.
Although we have never urged disclosure of pay ratios, we have long advocated that boards use internal pay equity (essentially the same thing as pay ratios) as an alternative – and much more reliable – benchmarking tool to help set executive pay levels. For example, here’s an excerpt from a blog that I wrote five years ago:
Shouldn’t boards demand to see those ratios to protect themselves from liability given the known bad data in the peer group surveys they get year after year? Of course, advisors should be willingly recommending the use of this alternative since it’s their job to protect the board. Sadly, most advisors blindly adhere to the status quo as too often happens.
I just can’t see what is wrong with putting together internal pay numbers for a board to consider. Where is the evil here? I suppose the downside is it likely will reveal how badly the board has been doing its job setting CEO pay levels over the past 20 years when historical numbers are crunched. But it’s better to make a fix now than perpetuate the problem. Note that I am not saying boards need to demand the ratios as called for by Section 952(b) as simpler ratios are easy to generate. We have sample spreadsheets posted in the “Internal Pay Equity” Practice Area on CompensationStandards.com.
By the way, I also don’t see any problem with using peer group benchmarks either. It’s just that the data in those surveys now are useless due to “pay in the top quartile” craze. There needs to be a reset before that type of data can be relied upon again. This reset will be hard to do, but it’s necessary and certainly doable, particularly if CEO pay levels are brought down to Earth on a widespread basis. The longer boards wait, the harder the medicine will be to take.
Sadly, I don’t think much has changed during the five years that I wrote that blog. Here’s what a member who works with a lot of boards recently told me:
I have been surprised by the lack of board curiosity of the likely pay ratio. I thought they would be pressing management for an estimate. Instead, they seem to be unconcerned and the ratio will “be what it will be.” I think that is a Doris Day song from an Alfred Hitchcock movie.
For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in on July 20th for the first in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You Need to Do Now.” When you go to the webcast page on July 20th, you will be able to download a set of “Annotated Model Pay Ratio Disclosures” in both PDF & Word format. The second webcast is on August 15th.
The speakers for the July 20th webcast are:
– Mark Borges, Principal, Compensia
– Mike Kesner, Principal-in-Charge, Human Capital Advisory Services, Deloitte Consulting LLP
– Dave Lynn, Editor, CompensationStandards.com and Partner, Jenner & Block LLP
– Maia Gez, Of Counsel, Gibson Dunn & Crutcher LLP
The speakers for the August 15th webcast are:
– Mark Borges, Principal, Compensia
– Keith Higgins, Partner, Ropes & Gray LLP
– Scott Spector, Partner, Fenwick & West LLP
Register Now – 10% Discount Ends July 28th: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.
Among the panels are:
1. Corp Fin Speaks (speaker from the Staff to be announced)
2. The SEC All-Stars: A Frank Pay Ratio Conversation
3. Parsing Pay Ratio Disclosures: US-Only Workforces
4. Parsing Pay Ratio Disclosures: Global Workforces
5. Pay Ratio: Sampling & Other Data Issues
6. Pay Ratio: The In-House Perspective
7. Pay Ratio: How to Handle PR & Employee Fallout
8. The SEC All-Stars: The Bleeding Edge
9. The Investors Speak
10. Navigating ISS & Glass Lewis
11. Keynote: A Conversation with Nell Minow
12. Proxy Access: Tackling the Challenges
13. Clawbacks: What to Do Now
14. Dealing with the Complexities of Perks
15. The Big Kahuna: Your Burning Questions Answered
16. Hot Topics: 50 Practical Nuggets in 60 Minutes
Discounted Rates – Act by July 28th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by July 28th to take advantage of the 10% discount.