March 21, 2014
– Broc Romanek, CompensationStandards.com
Recently, the Bank of England proposed rules that would require virtually every financial firm to include in their employment contracts provisions allowing the firm to claw back up to six years of vested bonus awards.
March 20, 2014
– Broc Romanek, CompensationStandards.com
On Tuesday morning, I got this press release announcing that ISS had been sold by MSCI to Vestar Capital Partners to the tune of $364 million. Drats! Fooled again by a rumor in the mass media as I had blogged last week about another likely purchaser due to a WSJ article.
The transaction is expected to close in the second quarter. ISS will operate independently and the current ISS executive team will remain in place. Here’s a Reuters’ article…
March 19, 2014
– Broc Romanek, CompensationStandards.com
When I saw these two headlines recently, I assumed they were talking about the same study:
1. PBS’s “A new study: How overpaid CEOs tank their firms”
2. Forbes’ “Big Company CEOs Just Aren’t Worth What We Pay Them”
But I was wrong, they were respectively related to these two new studies:
1. “Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance” with an abstract of:
We find evidence that CEO pay is negatively related to future stock returns for periods up to three years after sorting on pay. For example, firms that pay their CEOs in the top ten percent of excess pay earn negative abnormal returns over the next three years of approximately -8%. The effect is stronger for CEOs who receive higher incentive pay relative to their peers. Our results appear to be driven by high-pay induced CEO overconfidence that leads to shareholder wealth losses from activities such as overinvestment and value-destroying mergers and acquisitions.
2. “Are Top Executives Paid Enough? An Evidence-Based Review” with an abstract of:
Our review of the evidence found that the notion that higher pay leads to the selection of better executives is undermined by the prevalence of poor recruiting methods. Moreover, higher pay fails to promote better performance. Instead, it undermines the intrinsic motivation of executives, inhibits their learning, leads them to ignore other stakeholders, and discourages them from considering the long-term effects of their decisions on stakeholders. Relating incentive payments to executives’ actions in an effective manner is not possible. Incentives also encourage unethical behaviour. Organizations would benefit from using validated methods to hire top executives, reducing compensation, eliminating incentive plans, and strengthening stockholder governance related to the hiring and compensation of executives.
March 18, 2014
– Broc Romanek, CompensationStandards.com
Recently, Corp Fin Director Keith Higgins provided a status update on the Four Horsemen rulemakings from Dodd-Frank during a February PLI panel on governance. I wasn’t there but I understand that this was the gist:
– As noted in the SEC’s reg flex agenda posted in December, the SEC intends to adopt a pay ratio rule & propose the other mandated rules in 2014. Whether that really happens depends on the Commissioner’s own workload, but the Corp Fin Staff will be ready to make this happen if they want.
– On the pay ratio proposal, there were 127,000 comment letters, of which 900 were “unique” letters (not “form” letters). Some of the comments were general, such as stating that data privacy would be an issue without specific information. The bulk of detailed comments dealt with non-US employees.
– The clawback & hedging/pledging proposals probably will be easier than the pay-for-performance proposal. The biggest challenge for the clawback proposal will be the no-fault aspect. The pay-for-performance proposal is a challenge because the statute mandates disclosure of compensation “actually paid” without describing what that is. The Corp Fin Staff has been looking at voluntary disclosure of “realized” and “realizable” pay – but does not think those are good models because they are all over the map (and are sometimes criticized for leaving out important components of pay).
March 17, 2014
– Broc Romanek, CompensationStandards.com
As noted in its Form 8-K, Hologic is the 2nd company holding its annual meeting in 2014 to fail to gain majority support for its say-on-pay with only 34% voting in favor (down from 65% last year). Hat tip to Karla Bos for pointing this out!
Poll: How Many Companies Will Receive a “Failed” Say-on-Pay Vote in ’14?
With 74 say-on-pay failures in ’13 – more than most folks predicted in last year’s poll – what will this year bring? Please take part in this anonymous poll:
March 13, 2014
– Broc Romanek, CompensationStandards.com
As noted in this WSJ article: “Investor adviser Institutional Shareholder Services Inc. is set to change hands for the third time in seven years, according to people familiar with the matter, amid debate about the firm’s sway over governance in corporate America.
Insight Venture Partners, a New York private-equity and venture-capital firm that was an early investor in Twitter Inc., is the likely winner of an auction of ISS run by current owner MSCI Inc., people familiar with the matter said Monday. Terms of the potential deal and its timing couldn’t be learned. People close to the sales process had said earlier that ISS could fetch around $300 million, which would be considerably less than it has sold for in the past.”
And here is a Fortune article about how the new owner would manage ISS’ conflicts…
March 12, 2014
– Broc Romanek, CompensationStandards.com
This memo from Aon Hewitt relates to this teaser: “For those who thought the movement to rein in executive pay may be losing steam, the recently released tax reform discussion draft provides a reality check. Among the hundreds of various tax breaks that would be reduced or repealed to help pay for recommended tax rate cuts, are several proposals related to executive compensation that could (if enacted) serve as a catalyst to reduce executive pay levels at for-profit and tax-exempt organizations.” Here are other memos that I have posted on the bill…
March 11, 2014
– Broc Romanek, CompensationStandards.com
Pretty excited to announce my new site – CorporateAffairs.tv – which is a free site featuring short videos that are either educational, news or entertainment-oriented. This 20-second video entitled “Cap’n Cashbags: Wanna Ride My Corporate Jet?” is an example of the fun ones:
March 10, 2014
– Broc Romanek, CompensationStandards.com
Tune in tomorrow for the webcast – “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.”
March 7, 2014
– Broc Romanek, CompensationStandards.com
The early bird discount expires next Friday, March 14th, for our popular conferences – “Tackling Your 2015 Compensation Disclosures: The Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 11th Annual Executive Compensation Conference” – to be held September 29-30th in Las Vegas and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.
Early Bird Rates – Act by March 14th: 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 March 14th to take advantage of the 33% discount.
Here is a 45-second video to remind you of the special nature of our conferences…