The Advisors' Blog

– Broc Romanek, CompensationStandards.com

I haven’t seen any law firm memos yet – but here are two more blogs about the Yahoo! case that I blogged about last week:

– Francis Pileggi’s “Chancery Determines that Electronically Stored Information and Personal Emails of Directors Must Be Provided to Stockholders”

– Keith Bishop’s “Delaware Inspection Ruling May Cause Yahoo! Inc. To Regret Not Incorporating In Nevada”

– Broc Romanek, CompensationStandards.com

Here’s the teaser for this new set of survey results from Stanford:

Recently, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,202 individuals — representative by gender, race, age, political affiliation, household income, and state residence — to understand public perception of CEO pay levels among the 500 largest publicly traded corporations. Key takeaways are:

– CEOs are vastly overpaid, according to most Americans
– Most support drastic reductions
– The public is divided on government intervention

74 percent of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe that they are. While responses vary across demographic groups (e.g., political affiliation and household income), overall sentiment regarding CEO pay remains highly negative.

This part doesn’t surprise me – but it’s still pretty amazing:

Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is ten times what the average American believes those CEOs earn. The typical American believes a CEO earns $1.0 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million).2

Responses vary based on the household income of the respondent, but all groups underestimate actual compensation. Lower income respondents (below $20,000) believe CEOs earn $500,000 ($9.7 million average), while higher income respondents ($150,000 or more) believe CEOs earn $5,000,000 ($14.9 million average).

– Broc Romanek, CompensationStandards.com

A few weeks ago, Nasdaq proposed a rule change that would require listed companies to disclose “golden leash” arrangements. As noted in this Dorsey memo, the proposed rule would require listed companies to disclose on their website or in their proxy all agreements between any director or nominee any person or entity (other than the company) that provide for compensation or other payment in connection that the person’s candidacy or service as a director. The proposed rule is meant to be interpreted broadly – so it would apply to payments for items such as health insurance premiums. However, disclosure of arrangements that relate only to reimbursement of expenses incurred in connection with a nominee’s candidacy for director, or that existed before the nominee’s candidacy would not need to be disclosed.

– Broc Romanek, CompensationStandards.com

Tune in tomorrow for the webcast – “How to Get Your Equity Plan Approved By Shareholders” – to hear Towers Watson’s Jim Kroll and Brian Myers, Fenwick & West’s Shawn Lampron and Alliance Advisors’ Reid Pearson explain how to navigate the NYSE & Nasdaq rules – as well as the proxy advisor and institutional investor policies – to obtain shareholder approval for your equity compensation plans.

– Broc Romanek, CompensationStandards.com

Normally, I don’t blog about rulemaking petitions because they don’t go anywhere (the SEC is not required to act on them; see my blog about how a lawsuit was recently dismissed that sought to force the SEC to act on a political contribution disclosure petition). But I thought I would note this new petition from PAX Ellevate Management that seeks to require companies to disclose gender pay ratios on an annual basis, or in the alternative, to provide guidance to companies regarding voluntary reporting on gender pay equity to investors…

– Broc Romanek, CompensationStandards.com

Here’s a blog by Stinson Leonard Street’s Steve Quinlivan: The Delaware Court of Chancery has issued an opinion on a Section 220 demand made against Yahoo! No complaint has yet been filed, and although Vice Chancellor Laster speculates on some inferences that can be drawn, no one has proven anyone has done anything wrong.

The allegations in the case have eerie parallels to the Disney compensation litigation. The Vice Chancellor notes:

Mark Twain is often credited (perhaps erroneously) with observing that history may not repeat itself, but it often rhymes. The credible basis for concern about wrongdoing at Yahoo evokes the Disney case, with the details updated for a twenty-first century, New Economy company. Like the current scenario, Disney involved a CEO hiring a number-two executive for munificent compensation, poor performance by the number-two executive, and a no-fault termination after approximately a year on the job that conferred dynastic wealth on the executive under circumstances where a for-cause termination could have been justified. Certainly there are factual distinctions, but the assonance is there.

While noting the decision does not hold the Yahoo directors breached their fiduciary duties, the Vice Chancellor observed:

Based on the current record, the Yahoo directors were more involved in the hiring than the Disney directors were, but the facts still bear a close resemblance to the allegations in Disney III. The directors‘ involvement appears to have been tangential and episodic, and they seem to have accepted Mayer‘s statements uncritically. A board cannot mindlessly swallow information, particularly in the area of executive compensation: ―While there may be instances in which a board may act with deference to corporate officers‘ judgments, executive compensation is not one of those instances. The board must exercise its own business judgment in approving an executive compensation transaction.‖ Haywood v. Ambase Corp., 2005 WL 2130614, at *6 (Del. Ch. Aug. 22, 2005). Directors who choose not to ask questions take the risk that they may have to provide explanations later, or at least produce explanatory books and records as part of a Section 220 investigation.

– Broc Romanek, CompensationStandards.com

We have posted the transcript for the recent webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this Manifest blog about this UK study:

The authors believe that CEO reward practice has reached a ‘crisis point’ and the data they present shows that CEO pay is more influenced by FTSE rankings and size than financial performance. The report recommends a new approach to CEO pay suggesting that its analysis ‘shows that current executive reward practice is based on misplaced assumptions about the motivating force of money. CEO reward practice also, therefore, fails to address some of the root causes of why current rewards might not have the desired effects. Organisations need to become more diverse, more embracing of shared and accountable leadership, more transparent in their reporting and more concerned with stakeholder rather than simply shareholder value’.

– Broc Romanek, CompensationStandards.com

Here’s a teaser from this article by Semler Brossy’s John Borneman:

We recently attended a Nasdaq compensation committee forum attended by board members, top HR executives and representatives from a number of institutional investors where the major topic of discussion was about the growing prevalence of TSR and relative TSR (rTSR) metrics in executive compensation. There was broad and general agreement that linking compensation to TSR does not make a very good “incentive” plan. Executives cannot control TSR directly, and it generally makes more sense to link pay to the strategic priorities of the business that executives can control, like revenue growth, innovation, margin management and returns on investments. This idea of strategic alignment has been the core principle for designing effective incentive plans for more than 30 years, and it continues to be relevant today.

– Broc Romanek, CompensationStandards.com

Here is Equilar’s new 10-page report, which examines the popularity and value of plane, car and professional services perks for both CEOs and NEOs in the S&P 500. The report includes commentary from Kristine Bhalla of ClearBridge Compensation Group LLC and Jim Kroll of Willis Towers Watson, also takes a deeper dive on eligibility for a wider variety of perks in the Fortune 100 for the current year including tax gross-ups, security and club dues.