– Broc Romanek
In case anyone out there is worried that we have seen the last of greedy executives, check out this recent US District Court-SDNY opinion by Judge Jed Rakoff. You cannot read this first paragraph of the case without taking an interest!
Why would the executives (and former principals) of a paddle-board division of a sports and recreation company cause the company to make a one-time $60,500 purchase of one million stickers that the executives themselves immediately attempted to repurchase from the company for approximately $4 million?
The answer is that they thereby hoped to stick the company with a $10 million “earnout” payment to the executives, thus netting themselves a cool $6 million. Thanks, however, to the age-old doctrine of good faith and fair dealing, and similar legal protections, in the end it is these executives who are stuck.
– 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…