– Broc Romanek
Here’s the intro from this article in the “Harvard Business Review” (hat tip to Board Advisory’s Paul McConnell for pointing this out):
For much of the 20th century, workers at big companies were paid better than workers at small ones. An employee of a company with more than 500 employees historically earned 30%–50% more than someone doing the same job at a firm with fewer than 25 employees, for instance. But the pay gap between large and small companies has narrowed in recent years, and that decline is one reason for rising inequality in America.
It’s also a reminder that inequality is deeply intertwined with the day-to-day decisions companies make, say, about outsourcing manufacturing, or contracting with a caterer, or aiming for vertical integration, or focusing on the core. Big firms began doing countless things differently over the last few decades, for just as many reasons. But one major difference in big companies today compared to 40 years ago is that today’s giants pay less generously than the giants of the past, especially when it comes to their lowest-paid employees.
There are multiple reasons why big firms historically paid better than smaller ones. Part of it was related to the people who worked there. Bigger companies could attract qualified, sought-after employees who could demand higher wages. And big companies tended to be more efficient than smaller firms, which meant their workers were more productive and therefore better paid.
Bigger firms also seemed to resist too much inequality developing between pay at the top and bottom. That may have been because of unions, social norms, or the belief that equal pay would make employees work harder or stay longer. Whatever the reason, firms couldn’t get away with paying their top employees less — or else they’d leave — so they ended up paying their less-well-paid employees more. That meant the primary beneficiaries of higher pay at big companies were the lowest-paid people who worked there.
– Broc Romanek
As a follow-up to this recent blog by Choate’s Art Meyers, here’s the intro from this article:
The proliferation of state pay ratio proposals continued this week as legislators in the deep blue states of Massachusetts and Illinois introduced new pay ratio measures, with Massachusetts becoming the first state to eschew use of the SEC’s pay ratio calculation in favor of a pay ratio which focuses on comparing a company’s highest paid employee to median U.S. employee pay. The addition of the Illinois and Massachusetts legislation brings the number of states which have introduced or passed pay ratio legislation to five, not including the cities of San Francisco and Portland, Oregon. Interestingly, the two new pay ratio legislative efforts do not follow the templates used previously, which primarily imposed surtax penalties on companies based on the pay ratio:
See this Choate memo about the Massachusetts legislation…
– Broc Romanek
Here’s the intro to this Willis Towers Watson memo:
Companies with a significant presence in the U.K. face a new disclosure requirement taking effect in several months. In December, the U.K. government published the final version of its Gender Pay Gap Reporting Regulations. These rules will come into effect on April 5 of this year and will apply to all employers with more than 250 “relevant” employees in Great Britain (i.e., excluding Northern Ireland).
The requirement applies to any legal entity with operations in Great Britain, regardless of the parent company’s country of origin or structure (i.e., public or private). While the future of the CEO pay ratio requirement in the U.S. remains unclear, this new U.K. rule adds to the data-gathering and analytical burden many companies may be facing.
– Broc Romanek
Recently, ISS posted 11 new & updated FAQs about its US proxy voting policies. There’s now a total of 88 FAQs. None of them directly relate to executive pay – but you still might care. Some new & interesting ones about director attendance disclosures…
– Broc Romanek
Here’s the intro to this Reuters article:
Volkswagen is shaking up its executive pay with a cap on earnings, it said on Friday, as it looks to quell widespread anger over bonuses paid even as the carmaker suffered record losses in the aftermath of the emissions scandal in 2015. Under new rules approved by the supervisory board on Friday, Volkswagen (VW) will cap total pay for its chief executive at 10 million euros ($10.6 million) and other top managers at 5.5 million euros.
VW became the target of fierce criticism from the German public and shareholders after its managers only reluctantly accepted a cut to bonus payments of about 30 percent. Bonuses were based partly on VW’s performance over the previous two years.
– Broc Romanek
Tune in tomorrow for the webcast – “Pay Ratio: The Top Compensation Consultants Speak” – to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance “tell it like it is. . . and like it should be” about the upcoming implementation of the pay ratio rules…
– Broc Romanek
Here’s the teaser for this memo by Pay Governance’s John England:
To qualify for the performance-based compensation exception under Section 162(m), payment of the compensation must meet several requirements, including that performance goals must be set by the corporation’s “compensation committee.” The Code defines “compensation committee” as the committee of independent directors that has the authority to establish and administer the applicable performance goals, and certify that the performance goals are met.
Since the name for the subset of the independent members of the board with responsibility for executive compensation doesn’t matter for deductibility, we wondered whether the compensation committee name implies anything about duties and responsibilities, and whether there are any corporate governance implications regarding the board’s oversight of broader human resources issues beyond executive compensation?
– Broc Romanek
Over on my video website – “CorporateAffairs.tv” – I occasionally post videos relating to executive pay. Here’s a few examples:
– Trends in Clawbacks & Director Compensation
– Short-Termism: Is Compensation Design to Blame?
– Audit Committees: Auditor Appointment, Compensation & Oversight
– Compensation Alignment for Long-Term Growth
– Broc Romanek
Check out this memo about “Assessing Risk in Incentive Compensation Plans” from Deloitte…
– Broc Romanek
Here’s the intro from this blog by Exequity’s Ed Hauder:
As companies begin to get their equity plan proposals ready for the 2017 proxy season, it is an appropriate time to review those equity plan proposals to see if they contain or permit the transfer of equity awards to third parties for value, e.g., the ability of participants to sell stock options to an unrelated investor, such as was done at Microsoft in 2003. If companies review ISS’s Equity Plan Scorecard Policy, there is not a specific mention of any concern over transferable stock awards. Instead, companies need to review the ISS policy on Transferable Stock Option (TSO) Programs. Under that policy, ISS indicates that it will recommend against equity plan proposals if the details of an ongoing TSO program are not provided to shareholders.
This is significant because the specific criteria that ISS expects companies to detail are not those ordinarily include in a typical equity plan proposal seeking shareholder approval of a new or amended equity plan, and include, but are not limited to, the following:
– Eligibility
– Vesting
– Bid-price
– Term of options
– Cost of the program and impact of the TSOs on a company’s total option expense, and
– Option repricing policy.
If a company’s equity plan provides for the transferability of equity awards to third parties, and the above TSO disclosure are not made (which ISS will then evaluate on a case-by-case basis), then the company can expect a negative ISS vote recommendation on their equity plan proposal even if they have run the ISS Equity Plan Scorecard model and believe the plan will pass muster.
Also check out this memo from Ed about the new FAQs from ISS…