The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s this interview with Paula Todd & Don Delves of Towers Watson:

Late last month, as part of the 23d annual conference of the National Association of Stock Plan Professionals (NASPP), we participated in a panel discussion reflecting on the tenth anniversary of FAS 123(R) (now ASC 718), the accounting rule change that requires companies to expense stock options. The following article was originally published as a “Meet the Speaker” interview in NASPP Advisor and is republished here with NASPP’s permission.

In the period leading up to the adoption of FAS 123(R), there were a lot of predictions of dire consequences. Do you think any of those predictions were accurate?

Don Delves: One of the predictions was that companies would stop granting options to all or substantially all employees in the organization. This has largely taken place and it happened very quickly at the vast majority of companies. While some smaller firms and technology firms still grant options to all or most employees, most others grant equity only down to the director or manager level. Prior to the adoption of FAS 123(R), a substantial number of both technology and other companies granted options to a significant slice of the employee population.

Other predictions about FAS 123(R)’s impact for the most part did not come to pass, including:

– Executive pay did not decrease, although it did level off and slow its ascent.
– Company stock values did not drop dramatically because of the added (noncash) expense.
– The United States did not lose its edge in technology, nor did U.S. companies lose their ability to attract talent.
– Start-ups did not evaporate, nor lose their ability to attract investors.
– California neither slid off into the Pacific, nor seceded from the union. (Yes, this one is a canard. The others were actual predictions brandished by FAS 123(R)’s opponents.)

Has there been a silver lining to FAS 123(R)?

Don Delves: Yes, absolutely. There are three significant positive results of FAS123(R):

– First, boards now carefully weigh the cost versus benefits of various long term-incentive (LTI) vehicles and designs and choose the mix, vehicles, performance measures and goals that are right for their company. Prior to FAS 123(R), well over 90% of all LTI grants by all companies were in the form of stock options. Hard to believe, but very true. Given the choice of plan types and vehicles, the vast majority of boards chose to grant “free” stock options. LTI programs are now highly tailored to each company’s situation, and LTI alternatives are carefully weighed against each other, using a reasonably consistent estimate of their potential costs and benefits to shareholders.

– Second, executive pay now tracks much better with both absolute financial performance and relative stock performance. Long-term performance plans tie pay to long-term financial results. Relative total shareholder return (TSR) plans reward stock performance relative to the market or peers. Options, while still part of the LTI package, reward increases in the stock price, but are now part of a much more balanced package that rewards both financial performance and relative stock performance. The inclusion of either time-based or performance-based restricted stock in most LTI programs also rewards and encourages the payment of dividends, which options do not. These are all significant improvements in overall incentive design.

– Third and perhaps most important, FAS 123(R) helped slow the dramatic increase in CEO and executive pay that had been fueled by “free” stock options. It was true that CEO pay was “spiraling out of control,” with no real governor on the system, in the late 1990s and early years of the new millennium. That is no longer the case and has not been the case for over 10 years. The accounting expense did what it was supposed to do. It added accountability and rationality to a system that needed it. While it certainly hurt rank-and-file employees, it also improved corporate governance and pay-for-performance alignment for executives.

What are some of the areas of compliance with the standard that are still a challenge for companies today?

Paula Todd: During the past 10 years, most companies have adapted pretty well to the compliance aspect of the standard. Further, the Financial Accounting Standards Board’s proposed amendments contained in its June 2015 Exposure Draft, if adopted, would address many of the most bothersome aspects of the requirements, such as allowing a broader range of tax-withholding rates (beyond just the minimum withholding rate) as well as providing relief for certain private (nonpublic) companies.

Interestingly, the biggest push-back in comment letters on the proposed amendments relates to the accounting treatment for the income tax effects from equity plans. Even though the proposal would do away with an administratively complicated requirement (related to the APIC pool), most of the companies submitting comments said they’d prefer the current administrative complexity to the potential earnings volatility that could result from the proposed change. It will be interesting to see how this issue gets resolved in final rules.

To my mind, the bigger ongoing challenge with ASC 718 comes from the disconnect in accounting treatment between plans with market and performance conditions. In order to achieve more predictable earnings, many companies won’t consider using equity plans that have nonmarket performance conditions even where such plans could make good sense from an incentive design perspective. As valuation techniques improve, it would seem the bright line between market and performance conditions might be softened so that more plans could receive grant-date valuation.

What do you think the next 10 years will bring in terms of stock plan accounting? Are we going to be talking about IFRS 2 at the 2025 NASPP Conference?

Paula Todd: I certainly wouldn’t expect to see the same degree of change related to stock plan accounting in the next 10 years as we’ve seen in the past 10 to 20 years. To the extent there are any changes, they likely would come from program changes that are the direct outgrowth of congressional action (along the lines of Dodd-Frank or major tax reform) or investor mandates. For example, if Institutional Shareholder Services or some other shareholder group would push companies to adopt a particular plan feature that didn’t exist or wasn’t common when the current accounting guidance was adopted, then fine-tuning in the current accounting guidance might be needed to accommodate the new design element or practice. But, I certainly wouldn’t expect the need for significant further changes to the accounting treatment of equity plans.

Of course, the issues raised by the international convergence of accounting standards are part of a broader discussion about U.S. versus international GAAP. With regard to this aspect of corporate accounting, however, any issues with convergence would tend to be fairly minimal considering that the two standards were debated and adopted in concert.

– Broc Romanek, CompensationStandards.com

Dig this updated “2015 Compensation Committee Handbook” from Skadden Arps. Written in a style that is easily understood and 108 pages long…also see Skadden’s proxy season planning checklist (and you can register for an archive of a proxy season webcast that Skadden just held)…

As always, we are posting proxy season memos in our “Proxy Season Developments” Practice Area. Also see our own list of checklists…

– Broc Romanek, CompensationStandards.com

This memo from Compensation Advisory Partners includes these perk trends:

– Perquisites represent only a small portion of the total pay program for a CEO or CFO. However, perquisite based pay is – and we expect will continue to be – highly scrutinized

– In 2014 83% of companies provided perquisites to their CEO, and 81% of companies provided perquisites to their CFO

– The four most common CEO/CFO perquisites in 2014 were: personal use of corporate aircraft, auto allowance, personal security and financial planning

– The median value of total perquisites provided to CEOs increased by approximately 15% to $143,000 in 2014, and was flat at approximately $25,000 for CFOs

– Broc Romanek, CompensationStandards.com

For a load of interesting governance stats, check out this “2015 Corporate Governance Study” by Frederic W. Cook & Co…

– Broc Romanek, CompensationStandards.com

Here’s some of the highlights from this new EY report:

– Investors overwhelmingly support SOP proposals: The vast majority of SOP proposals – about 12,000 in total –have averaged more than 90% support. Each year, less than 10% of all proposals receive low support and only about 2% fail.
– When are compensation committee members vulnerable: This year, votes against compensation committees at companies with low SOP votes averaged 9%—an “opposition penalty” of 3 times the average 3% vote against other directors of these companies.
– How compensation committees respond to low SOP support: Of the S&P 500 companies with low SOP support in 2014, nearly all (88%) modified their pay practices and/or disclosures following outreach efforts. These engagement-driven changes appear to have paid off, with the average SOP vote increasing nearly 30 percentage points from 57% to 85%.
– Prepare for future pay-related requirements, including CEO pay-ratio, now: Forward looking boards of all companies can anticipate that the changes ushered in by SOP – such as enhanced company-investor dialogue – will become more widespread over time.

– Jurgita Ashley, Thompson Hine LLP

At times companies face challenges of needing to grant equity awards that fall outside of their equity plan limits, particularly when new talent is coming onboard. Based on the premise that a company and new employees have an arm’s length relationship, NYSE, NYSE MKT and NASDAQ provide an exemption from shareholder approval requirements for inducement grants of equity awards to new hires.

Although most exchange-listed companies have shareholder approved equity incentive plans, the exemption comes in handy when insufficient shares for planned awards remain available under those plans or when grants are large enough to exceed the plan’s individual participant limits.

Resale Restrictions & Registration Considerations

Inducement grants are made outside of the plan and are not covered by the company’s existing registration statement on Form S-8 for the plan. A company may choose to file another Form S-8 for inducement grants or, as occurs more frequently, may be able to rely on an exemption from registration under Section 4(a)(2) of the Securities Act or Regulation D promulgated under that act. If a registration statement is not put into place, the awarded securities are “restricted” and are subject to a six-month holding period before they can be freely tradable. In the case of employee stock options, the holding period commences when the options are exercised and paid for at the time of the exercise.

Whether or not a registration statement is available, if the award recipient is hired as an executive officer or is otherwise an affiliate of the company, the recipient will be deemed to hold “control” securities and will have to comply with the other restrictions of Rule 144, including volume and broker transaction restrictions, before being able to dispose of the securities but the holding period only applies when shares are unregistered.

When its use is advantageous, a Form S-8 registration statement is simple, can be prepared quickly and inexpensively as long as the company is current in its filings with the Securities and Exchange Commission for the last twelve months, and can be filed at any time before stock is granted or inducement options are exercised, without regard to when the options were granted or became exercisable. The terms of the inducement grant are generally set forth in an award agreement or an employment agreement with all applicable change of control, termination and other provisions, which, in the case of the grants under the plan, are frequently incorporated from the plan. If a registration statement is filed, the new employee should also receive a short prospectus describing the terms of the award, tax consequences and any resale restrictions.

Public Announcement

Somewhat as a deterrent, stock exchanges require inducement grants to be publicly announced by promptly issuing a press release. The release has to name the recipient and the recipient’s title, list the number of shares subject to the award, and describe the material terms of the grant. It also usually states that the company is relying on an exemption for inducement grants from shareholder approval requirements.

When inducement grants are made to non-executive-level employees and are not specifically negotiated or approved, but instead are made pursuant to the company’s pre-existing program of routinely granting equity to new hires without individual negotiation, then in press releases, companies are permitted to aggregate information about grants to new hires made over two weeks and provide that information in a summary form listing the number of employees hired over those two weeks and the equity granted to them during that period, without identifying the specific employees. However, inducement grants to executive officers must be immediately announced in a press release, identifying the recipients. A Form 8-K, which may have to be filed with the SEC for certain officer appointments, is insufficient to replace the press release required by stock exchanges.

In addition, in connection with submitting an additional listing application to the exchange, exchanges require a company’s representation that the grant is an inducement material to the new hire entering into employment with the company. Although stock exchanges generally request an additional listing application two weeks prior to stock issuances, exchanges work with companies on applications for inducement grants within more realistic timeframes. For example, NASDAQ specifically provides that an additional listing application for an inducement grant should be submitted no later than five calendar days after entering into the agreement to issue the securities or the date of the press release announcing the grant, whichever occurs earlier. NASDAQ considers a press release for the inducement grant to be timely and “prompt” as long as it is issued within four business days of the grant.

Limitations

The exemption for inducement grants is of limited nature. It applies only to employees and does not extend to new consultants, newly appointed non-employee directors, or directors entering into employment arrangements with the company. It is also limited to grants made in connection with an offer of employment and does not extend to grants otherwise made shortly after an individual is hired. As another potential limitation, performance-based compensation that is not approved by shareholders does not qualify for an exemption from the Section 162(m) deduction limit. Section 162(m) of the Internal Revenue Code imposes a million dollar deduction limit on the compensation paid in a taxable year to each of the public corporation’s covered employees, which generally include all named executive officers included in the corporation’s proxy statement, with the exception of the chief financial officer for larger corporations. Section 162(m) includes an exemption from the deduction limit for performance-based compensation if, among other requirements, the terms, including the performance goals, are approved by shareholders. Since that is not the case for inducement grants, the company is not entitled to exclude these grants from the Section 162(m) deduction limit.

Disclosure Considerations

Other reporting and disclosure requirements for inducement grants are similar to the requirements applicable to equity grants made pursuant to shareholder approved plans. Inducement grants have to be approved by a compensation committee consisting of independent directors or a majority of the company’s independent directors. These grants may trigger a Form 8-K for the company for the new compensation-based material agreement that is not made pursuant to a previously disclosed plan or for the unregistered issuance of securities if no Form S-8 is filed to cover the grants. For higher-level employees, the awards may also trigger the requirement for the recipient to report the receipt of equity securities on a Form 4. As with other compensation, the company must report these awards in its proxy statement for the annual meeting of shareholders.

In the company’s proxy tables, inducement grants should appear as the plans that are not approved by shareholders. Any material amendments to inducement awards following their issuance would require shareholder approval under the stock exchange rules despite the fact that the initial grants were made pursuant to an exemption from shareholder approval requirements.

The use of inducement grants is a limited, but at times very effective tool. While granting equity under shareholder approved plans presents less limitations and is advisable when possible, inducement grants can be effectively utilized to attract necessary talent to the company.

– Broc Romanek, CompensationStandards.com

Over the year, I’ve collected these pieces on growing income inequality and its relation to CEO pay:

– Slate’s “Americans Have No Idea How Bad Inequality Really Is”

– NY Times’ “Pay Disparities Today”

– Harvard Business’ “CEOs Get Paid Too Much, According to Pretty Much Everyone in the World”

– The Atlantic’s “Why Do CEOs Make So Much Money?”

– The Atlantic’s “What’s Behind the Huge (and Growing) CEO-Worker Pay Gap?”

– Huffington Post’s “The Curious Case Of Soaring CEO Pay” panel

– Bloomberg’s “CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law”

– Corp Watch’s “Daily CEO Pay Now Exceeds U.S. Workers Annual Salary”

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this Towers Watson memo:

Looking back a year, companies that expected to submit an equity plan for shareholder approval in early 2015 were wondering if Institutional Shareholder Services’ (ISS’s) new Equity Plan Scorecard (EPSC) methodology would make their votes (and vote preparations) more challenging. With the 2015 proxy season in the rear view mirror, shareholders have spoken (and voted) and the results we’ve seen at S&P 1500 companies as of mid-August reveal that a few key indicators of success have trended higher:

– Average shareholder support in equity plan votes increased slightly, from 87% in 2014 to 90% in 2015.

– Only one company failed to receive majority support for an equity plan, for a failure rate of 0.03% this year compared to 0.9% (three companies) in 2014.

This modest increase in favorable outcomes is notable in a year in which ISS updated its methodology, the first major revamp in nearly a decade, and even more so when we consider that the level of negative ISS vote recommendations on equity plans stayed consistent with 2014, at 12%. The 2015 voting outcomes suggest that the EPSC methodology gave companies greater flexibility to structure key equity plan provisions and appropriately size their share requests.

With this added flexibility, however, came greater accountability as companies in our experience devoted much more preparation and analysis time for this year’s equity plan proposals, including more outreach to shareholders to understand individual voting policies and decision points. Additionally and equally as important, many companies took the opportunity to enhance their proxy disclosures to tell a more complete story around the share request. In short, the equity plan proposal enhancements we saw this year somewhat mirror the evolution of the Compensation Discussion and Analysis in recent years as a result of say-on-pay votes.

– Broc Romanek, CompensationStandards.com

As noted in this WilmerHale memo, the IRS recently informally revised its guidance over which officers must be considered when determining the Section 162(m) deduction…also see this Stinson Leonard Street blog…

– Broc Romanek, CompensationStandards.com

This story ran in the Boston Globe yesterday – front page above the fold – entitled “Few hours, soaring pay for corporate board members”:

Michael Heffernan earned $1 million from Ocata Therapeutics Inc. in Marlborough last year, including stock and stock options. William D. Young received $1.7 million in compensation from Vertex Pharmaceuticals Inc. of Boston. And Phillip A. Sharp hauled in $1.9 million from Cambridge-based Alnylam Pharmaceuticals Inc. But the men are not chief executives or vice presidents. They’re not even full-time employees. They’re corporate board members, receiving premium paychecks in exchange for, typically, attending a meeting every few weeks. The Boston Globe calculated the men earned more per board meeting than the average Major League Baseball player received per game.

Like pay for chief executives, compensation has skyrocketed for board members at publicly traded companies across Massachusetts and the United States over the past 15 years, even as wages have stalled for most American workers. Board pay has nearly doubled at the 200 largest US public companies since 2000 to a median of $258,000 last year, according to a Globe analysis of data from the National Association of Corporate Directors. And the pay — which is typically set by the board members themselves — has risen at an even faster clip at smaller and midsize companies. By contrast, weekly wages for full-time US workers overall rose just 37 percent during the same span, according to the Bureau of Labor Statistics. Million-dollar pay packages for board members are “very, very troubling,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It’s tough to justify.”

Directors play a pivotal role in corporate America, with responsibility for overseeing management, hiring and firing CEOs, ratifying key decisions, and helping set long-term strategy. But in a series of stories that begins today, the Globe shows that escalating compensation could create a disincentive for directors to challenge executives and that the boardroom remains the preserve of white men.

And service remains a part-time gig. On average, board members report that they generally work fewer than five hours per week per board. Many directors also hold full-time jobs. “The idea that a director would receive half a million dollars or more from service on one board speaks to growing inequality in our society,” said Brandon Rees, deputy director of the AFL-CIO’s Office of Investment, which studies corporate governance. Corporate watchdogs are worried about more than basic fairness. Some say the director pay at some companies has become so lucrative that it could discourage directors from questioning excessive perks for chief executives for fear of upsetting the rest of the board and losing their coveted positions. Elson said that some directors’ compensation packages have become “so large that it incents you to act in a way that keeps your fee, as opposed to in a way that furthers the company’s interest.”

A 2006 study in the Journal of Corporate Finance found a strong correlation between excessive pay for directors and chief executives and noted that the companies paying their directors the most also underperformed their peers financially. A study last year in the International Journal of Business and Finance Research concluded that high chief executive and board pay go hand-in-hand due to “mutual back-scratching.” It’s easy to find examples in which high-paid directors were accused of not doing enough to oversee the companies and senior executives:

Enron, the Texas energy-trading giant, had one of the highest-paid boards in the country in 2001, the same year it collapsed amid allegations of accounting fraud and excessive executive pay. The company paid out $55 million in bonuses to employees just days before filing for bankruptcy. Chesapeake Energy, which was rocked by a scandal of its own in 2012, paid directors far more than its peers and allowed its board members to use its corporate jet for personal travel. Investors later accused directors of failing to monitor the chief executive’s spending and potential conflicts of interest, including taking personal stakes in thousands of the company’s oil wells. And Boston-based Vertex this year came under fire for approving a $37 million pay package — among the highest in the country — for its chief executive, even though the company has made an annual profit only once in its 26-year history. Financial filings show Vertex directors awarded themselves a median of $788,000 in total compensation last year, double the median for companies Vertex identified as its peers.

But many people in corporate America defend rising director pay, arguing that board work has become more rigorous and time-consuming because of new regulations and laws, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank financial overhaul measure of 2010. “Fifteen years ago, most people who were on boards were members of the country club, they were friends of the CEO, and they didn’t do a heck of a lot of work for the money,” said Martin M. Coyne 2d, a former executive vice president at Eastman Kodak Co. who has served on a number of boards. “Now it’s a much harder job. You have to do your homework, work at it, stay current on things, and you have a tremendous amount of personal exposure if things go wrong.”

Nationally, directors estimated they spent an average of 248 hours per year on each board they served on last year — just under 5 hours a week per board — up from 156 hours in 2003, according to surveys by the National Association of Corporate Directors. That includes attending committee and board meetings, as well as travel and preparation for those gatherings. Directors can spend more time if a company becomes the target of a hostile takeover or faces a financial crisis, forcing directors to hold emergency meetings. But they often spend only a few hours a week on each board.

JoAnn A. Reed, a health care consultant who serves on the boards of three publicly traded companies, estimated she spends more than three hours a week on average on each board she serves on, although that time is often clustered in full days of travel, preparation, and discussions. Last year, for instance, she earned more than $900,000 serving on the boards of Waters Corp. in Milford, Mass., Boston-based American Tower Corp., and Mallinckrodt Pharmaceuticals PLC of Ireland.

Phillip A. Sharp received in $1.9 million in 2014 for serving on the board of Cambridge-based Alnylam Pharmaceuticals Inc. Reed argued the national growth in director pay is justified, noting that firms are competing to recruit experienced executives, especially chief executives and chief financial officers. Reed herself served as a chief financial officer for a major pharmacy benefits company for a dozen years. And Alnylam director Sharp has a Nobel Prize under his belt.

“I think the caliber of individuals [on boards] has improved since the early 2000s,” Reed said. “You have more people who are specialized.” Reed also argued the increased pay was justified because many companies have become larger and more valuable over time. For example, median pay for directors at Waters Corp. has more than doubled over the past eight years to $336,360, but so has the value of Waters’ stock, benefiting shareholders. “Your stock price is increasing, therefore the compensation numbers are increasing,” Reed said. That is not the case everywhere, however. Overall, the S&P 500 stock index has climbed 43 percent since 2000, even as director pay more than doubled during the same period. And it is hard to measure how the quality of directors has changed over time. Many older directors on boards now were also on boards 15 years ago.

Meanwhile, pay continues to march upward. In Massachusetts, director pay has risen almost 60 percent over the past seven years, according to a Globe review of financial filings at more than 100 publicly traded companies. At Massachusetts firms alone, the Globe found dozens of directors earning more than $500,000, including at least a half-dozen who topped the $1 million mark in total compensation last year.

Some directors even earn as much as chief executives for serving on a single board. For instance, former Merck & Co. chief executive Dr. P. Roy Vagelos, 86, earned $20.5 million last year, mostly in stock options, for serving as chairman of the board of Regeneron Pharmaceuticals Inc. of Tarrytown, N.Y. That’s double the amount the average chief executive earned at an S&P 500 company, according to the most recent report by Equilar, which tracks executive compensation.

A Regeneron spokeswoman, Alexandra Bowie, argued Vagelos was “technically an employee” because he was given an employment agreement in 1998 that requires him to work 30 to 50 hours a month, or an average of nine hours a week. The pay works out to nearly $43,000 per hour. Regeneron also had one of the highest-paid chief executives in the country: Dr. Leonard S. Schleifer earned nearly $42 million last year, mostly in stock options. Still, Regeneron and other companies pointed out that much of the board compensation came in the form of restricted stock and stock options, which can take years to vest and fluctuate in value.

Stock options in particular are tricky to value. Companies typically report an estimate of what the options would be worth on the day they were granted, assuming they could be sold on the open market. But the actual amount of cash directors reap could ultimately be much higher or lower, depending on how the stock performs and when directors exercise the options. Vertex spokeswoman Dawn Kalmar said its director pay is almost “100 percent performance-based” because so much is in the form of stock options. She said the structure gives directors an incentive to boost the company’s stock price, which has more than tripled in the past three years. “Those options have no value if the share price does not go up,” Kalmar said. She said the bulk of Young’s $1.7 million compensation last year was based on a one-time additional package of stock options he received upon joining the board. Yet Young was also immediately put on the compensation committee that awarded the chief executive’s controversial pay package. The pay was so high that a majority of investors voted against the pay in a nonbinding shareholder vote earlier this year. Vertex, however, said it plans to reduce the amount of compensation it pays directors and change the mix to give directors more in cash and less in stock options. Kalmar said the change would align Vertex with the pay structures of similar life sciences companies.

Similarly, Alnylam noted the bulk of its director compensation is based on stock options. In fact, Alnylam gave out such large packages that four of its directors earned more than $1.2 million in total compensation last year. Sharp, who earned $1.9 million, was the highest-paid director. However, Alnylam spokeswoman Christine Lindenboom said the company recently decided to reduce the number of options its board members receive by 25 percent to reflect its substantial increase in share price. As a result of that change, Alnylam’s board pay will better match its peers. And Ocata spokesman Christopher R. Hippolyte said Heffernan’s $1 million compensation package included a “one-off stock option grant” that was valued at nearly $800,000. He noted the options could be worthless if the stock does not go up.

The argument rings hollow to David Zweig, coauthor of the 2010 book “Money for Nothing: How CEOs and Boards Are Bankrupting America.” Most restricted stock and options, he noted, do wind up being worth real money — even if that amount differs from their estimated value in financial filings. Most stocks do rise over time, even if the company has average performance. And companies typically give out a raft of new options every year. So even if a company’s stock price plummets, directors typically get a new round of options at that lower price. Indeed, options can often be worth millions just based on normal fluctuations in a firm’s stock price. “It’s like buying a lottery ticket you have a pretty good chance of winning,” Zweig said. “That’s not skin in game; that’s getting a skin graft from someone else.”

Overall, total pay packages have soared so high that some watchdogs worry it has gotten out of hand. “You have to pay them, obviously, for their effort, time, and potential liability,” said Elson, the University of Delaware professor. “But when you start looking at director compensation that looks like managerial compensation, that’s where you run into problems.”