June 5, 2017
– Broc Romanek
As noted in this article, four institutional investors have banded together for Mylan’s annual meeting to “vote no” on a group of director nominees (with an average tenure of 12 years) – as well as the company’s say-on-pay – because the investors believe that the directors have sat on the board too long. This letter is signed by NYC Comptroller; New York State Comptroller; CalSTRS and PGGM…
June 2, 2017
– Liz Dunshee
LTIPs are usually the biggest element of pay – and have grown in complexity over the years. This “Proxy Insights” article (pg. 7) highlights mounting opposition to LTIP structures. Here’s an excerpt:
Growing shareholder unrest over LTIPs is reflected in the data with average support for their approval falling from 92.6% in 2014 to 89.7% in 2016. Of course, this still indicates a very high level of support. Even among the ten investors who vote against LTIPs most often, the majority still support LTIPs over 50% of the time.
Many critics point out that the three-year duration of LTIPs is not enough to truly focus executives on a company’s long-term interest. The real ramifications of any short-term investment in equipment or human resources may not be seen until long after executives have received their payouts. This discourages investments that create long-term value for the company, as it could reduce LTIP payouts over the three-year performance period.
Critics also claim that LTIPs railroad executives towards single outcomes set by targets, rather than the complex patterns of behavior required to run a company. Indeed, many question whether executives are even responsible for reaching their targets, or whether external factors are the real drivers of company performance. Executives often seem to receive their payouts regardless of the actual reasons for company success or failure.
How can LTIPs be more effective? Private equity backers – whose influence is growing – tend to prefer infrequent & meaningful option grants that vest based on the PE firm’s absolute or internal rate of return over their 3-5 year investment period. In their view, annual restricted stock awards are just a favor to executives. Meanwhile, corporate governance advocates are speaking out against short-termism & suggesting LTIP structures that promote a true long-term view.
It’s important to understand these conflicting views so that you can tailor your LTIP to the company’s specific strategy – and clearly communicate to your executives & shareholders.
Our upcoming “Proxy Disclosure/Say-on-Pay Conferences” will tackle proxy advisor views on incentives, perks & other hot topics – with 20 panels spread over two days. Act by June 9th for a 20% early bird rate. You can attend in-person in Washington DC – or watch by video online.
June 1, 2017
– Liz Dunshee
Last chance to take advantage of the 20% discounted “early bird” rate for our popular conferences – “Tackling Your 2018 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 14th Annual Executive Compensation 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. The SEC All-Stars: A Frank Conversation
2. The SEC All-Stars: The Bleeding Edge
3. The Investors Speak
4. Navigating ISS & Glass Lewis
5. Parsing Pay Ratio Disclosures: US-Only Workforces
6. Parsing Pay Ratio Disclosures: Global Workforces
7. Pay Ratio: Sampling & Other Data Issues
8. Pay Ratio: The In-House Perspective
9. Pay Ratio: How to Handle PR & Employee Fallout
10. Keynote: A Conversation with Nell Minow
11. Proxy Access: Tackling the Challenges
12. Clawbacks: What to Do Now
13. Dealing with the Complexities of Perks
14. The Big Kahuna: Your Burning Questions Answered
15. Hot Topics: 50 Practical Nuggets in 60 Minutes
Early Bird Rates – Act by June 9th: 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 special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by June 9th to take advantage of the 20% discount.
May 31, 2017
– Liz Dunshee
This Pay Governance memo examines the relationship between “problematic” pay practices – as identified by ISS (pg. 22) and Glass Lewis (pg. 26) – and three-year performance. Key takeaways include:
– Companies that maintain pay practices viewed as “problematic” by proxy advisory firms (e.g. excise tax gross-ups, lower target annual incentive goals without a corresponding reduction in target pay, and target payout for median TSR performance) tend to underperform companies that do not maintain these “problematic” pay practices.
– Companies that maintain legacy excise tax gross‐up protections for NEOs, a common irritant for many investors, do not appear to underperform those companies that have eliminated excise tax gross-ups.
– Companies that have lowered annual incentive goals year-over‐year without a corresponding reduction in target incentive opportunity tend to underperform on three-year TSR compared to companies with flat or increased incentive goals year-over-year. Because the lower TSR performance negatively affects pay, we continued to see pay-for-performance alignment in these companies.
– Companies that set rigorous relative TSR goals (i.e., above‐median performance required for target payout) tend to outperform companies that maintain traditional relative TSR performance-payout structures (target payout provided for median performance) based on three‐year TSR results.
May 30, 2017
– Liz Dunshee
The FASB’s new revenue recognition standard – which applies starting in 2018 – is mainly getting attention for its impact on disclosure & internal controls (see my blog last week on TheCorporateCounsel.net). But if your pay metrics are keyed to revenue, you should also be discussing how the change will affect multi-year & future plans – and how to handle it. Check out this excerpt from Cydney Posner’s blog:
How to address that problem? Two approaches have surfaced so far: “One approach is to keep two sets of books, one under the new standard and another for purposes of the compensation plan or bonus arrangement…..The second approach is to change the comp plan or bonus arrangement.
Neither approach is an ‘obvious’ solution and comes with challenges and complications. ‘Can you do that unilaterally—there’s probably some legal implications—can you just say this was the bogey we had set up and we’re going to change that because we changed the way we’re keeping score for revenue we’re going to change the plan—not obvious how you just go ahead and do that….I’ve come across this with a number of companies and it’s presented some real issues in terms of how do we deal with this.’”
Delay in dealing with the issue, and in involving others outside of accounting, will just make it more complex.
May 25, 2017
– Liz Dunshee
These days there’s a lot of uncertainty around executive compensation laws, particularly given recent events in DC. Recently, Equilar collected views from a group of folks about what to do. Here’s some themes:
– Given its administrative complications, continue preparing for compliance with the pay ratio rule
– Monitor efforts to repeal or revise Dodd-Frank mandates – and redirect internal & external resources as matters evolve
– Continue to focus on shareholder engagement & proxy messaging – legislative changes won’t eliminate public critique of excessive executive pay
– Comply with current requirements for comp plans – e.g. 409A – until any rule changes are actually made
– Don’t get distracted from long-term goals
May 24, 2017
– Liz Dunshee
In this Pearl Meyer survey, 60% of companies said that ESG issues were a top concern. Not only is there a global regulatory trend to require disclosure on things like environmental & employment policies – but investment dollars are flowing to companies with demonstrably strong ESG metrics & shareholders are demanding that boards & comp committees proactively drive “sustainability” performance.
It can be an intense process to link pay to appropriate ESG measures for your company – but this memo suggests some whys & hows:
– Identify long-standing activities already taking place in your company that fall into the ESG category. Existing HR goals like hiring diversity or environmental, health & safety measures can easily be reported as ESG-related actions. Supply chain practices, energy usage & resource conservation efforts may also apply.
– Consider whether the identified actions are already indirectly represented as a component of some executives’ performance-based pay – particularly health & safety. If present at all, the metrics are most likely indirect & folded into larger measurement components – you may be able to create an explicit link.
– Catalogue the benefits of directly tracking these activities. For one, they can be packaged as a corporate social responsibility report – to meet regulatory requirements or serve as a positive corporate communication tool.
Check out Alcoa and also Exelon for examples of directly linking pay to sustainability goals & other operational metrics.
May 23, 2017
– Liz Dunshee
Recently, a member asked in our “Q&A Forum” (#1180) whether there were any quarter-by-quarter checklists for compensation committees. In response, we posted some new resources in our “Compensation Committees” Practice Area – including this detailed chart in Word from Mike Melbinger – and this high-level governance calendar for the board & all key committees.
May 22, 2017
– Liz Dunshee
As a follow-up to my recent blog, here’s an update from Steve Quinlivan:
The shareholder has now dismissed the case with prejudice. From the docket, you can’t rule out Intel from having entered into some sort of settlement agreement. If they did, let’s hope it was less than modest, so that we can thank Intel for holding the line and not encouraging this behavior.
May 19, 2017
– Broc Romanek
I worry that some companies might be relying on Congress to step in and delay the implementation of the pay ratio rule. That’s looking less likely by the day. So the time that you have to prepare is narrowing.
It’s also far from clear whether the SEC would take action to delay implementation of a rule required by Dodd-Frank. Then-Acting SEC Chair Piwowar’s re-opening of comments earlier this year did not result in an outpouring of complaints from companies. Beyond 13,000 form letters in favor of pay ratio disclosures, the SEC received about 180 comment letters – of which only about 15% were against the rule. In this blog a few months ago, I linked to some of the comment letters from specific companies. And Ning Chiu blogged yesterday about a specific comment letter.
Our upcoming “Proxy Disclosure/Say-on-Pay Conferences” will comprehensively cover what you need to be doing now to implement pay ratio – with 20 panels spread over two days. Many of the panels will be drilling down into pay ratio issues. Act by June 9th for a 20% early bird rate. You can attend in-person in Washington DC – or watch by video online.