With the SEC’s proxy advisor roundtable coming up in a few days on December 5th, the SEC just announced the agenda & panelists – and the debate over the role of those firms is reaching a fever pitch. In this podcast, Sarah Wilson, CEO of the UK’s Manifest, weighs in on the debate over proxy advisor regulation, including:
– What is Manifest? What is the proxy advisor market like in Europe?
– How are proxy advisors regulated right now in Europe?
– What is the proposed global set of best practices for proxy advisors?
– What do you think of the criticism of proxy advisors in the US?
Yesterday, as noted in this NY Times article, 66% of Swiss voters Sunday opposed the 1:12 Initiative for Fair Pay. The Initiative was named for the organizers’ belief no one in a Swiss company should earn more in a month than someone else makes in a year. Switzerland’s system of democracy allows citizens to call nationwide votes on issues that concern them.
ISS also launched a consultation on longer term changes on some core issues including auditor rotation, equity plans, and independent chairs. Here is a blog by Davis Polk’s Ning Chiu. Once I start getting them, I’ll be posting memos in our “ISS Policies” Practice Area.
Meanwhile, ISS has enhanced its voting platform for its investor clients – the new “ProxyExchange 2.0.” And the SEC has officially calendared its proxy advisors roundtable for December 5th – it’s only 4 hours long (but no agenda nor speakers announced yet).
As Mike Melbinger blogged yesterday, it’s that time of the year. Here’s a note from Georgeson:
The major proxy advisory firm vote recommendations on “say-on-pay” and other executive compensation proposals are highly influenced by those advisory firms’ selection of the peer groups used to analyze a company’s pay-for-performance relative to its peers. Often the advisory firm-selected peer groups overlap with the peer group that appears in the company’s proxy statement, but there can be substantial differences that may lead to unexpected vote recommendations.
ISS and Glass Lewis consider input from companies as to what companies should appropriately be considered peers for compensation. While many issues influence the advisory firms’ recommendations on say-on-pay votes, the focal point of the analysis is pay-for-performance and peer-group selection plays an integral part in the vote analysis and recommendations. Therefore, Georgeson recommends companies take the opportunity to update these advisory firms on any changes in their selected peer groups.
Glass Lewis
Glass Lewis partners with compensation data provider, Equilar, which generates Equilar Market Peers that are subsequently used to prepare Glass Lewis’ pay-for-performance quantitative analysis. Companies in the Russell 3000 Index can submit their peer groups on Equilar’s website, and here is background on their process. To be included in Equilar’s January calculations, the deadline for updating your peer group is December 31, 2013. The next updates will not be calculated until July 2014.
ISS
The timeframe for Russell 3000 companies with meetings in spring and early summer of 2014 updates began today, November 20, and will end at 5:00 p.m. ET on December 9, 2013. Here is where you can provide peer group feedback.
If a company does not inform ISS of any such changes, ISS will typically use the peer group information as disclosed in the prior year’s proxy statement (i.e., for meetings in 2014, ISS will typically use peers disclosed in 2013). If a company has not made any changes to its peer group since its last proxy statement, no action is necessary.
As you consider submitting information on your peer group changes, please note the following:
– ISS Research will use the information as an input to its peer group formulation for purposes of its pay for performance analysis in the proxy research report, and will not share it with any third party within or outside of ISS prior to the publication of its report.
– The list of peer group companies submitted to ISS should match the list as disclosed in the 2014 proxy statement. Otherwise, ISS may apply additional scrutiny to the variance in the peer groups, as part of its pay for performance analysis.
– The peer group indicated should be the peer group used for benchmarking CEO pay for FY2013. If a company does not use peer group in setting pay for its CEO, it may still be useful for the company to provide ISS with a list of representative peers, provided the list will be disclosed in the 2014 proxy statement. If a company uses a market index or broad survey, then it can indicate to ISS the index or survey used, but ISS will not directly use such information in its peer selection.
Last year, I blogged about Professor Charles Elson’s study on peer group benchmarking. In the wake of the SEC’s pay ratio proposal, the importance of that study grows. This recent blog by Karen Kane takes notes about a recent meeting with Prof. Elson and his co-author Craig Ferrere & others with a group of independent directors. Here is one outgrowth of that meeting:
One suggestion is to look at the executives other than the CEO, whose pay is benchmarked as well and see how that has affected levels and ratios. Elson and Ferrere said they would like make it a follow-up to their current study.
And here’s a video of a debate over the study – and here’s a blog from The Conference Board with key take-aways. And here are some other reactions to the study:
Last week, DFC Global became the 66th company to fail its say-on-pay in ’13 with just 26% support – see the Form !0-Q. DFC Global has failed two years in a row (last year with 25% support). And these four companies became first-time failures: Gigoptix with 39% support (Form 8-K); Corinthian Colleges with 48% support (Form 8-K); CytoDyn with 43% support (Form 8-K); and SWS Group with 48% support (Form 8-K). Thanks to Karla Bos for these as always!
Here are poll results in which readers predicted the number of say-on-pay votes that fail to garner majority support this year (here are results of 2012’s predictions):
Check out this blog by Davis Polk’s Ning Chiu about how say-on-pay fared – Ning notes that of the 995 equity incentive plans voted on, ISS supported 73%, but ultimately only 8 plans did not pass.
Recently, Soladi’s Cristina Ungureanu brought my attention to the fact that India had beaten the US to the punch in adopting a pay ratio disclosure law, as noted in this article. This is in India’s just released new Companies’ Act which includes many other governance-related rules. Here is the new law:
“(12) Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.” (p. 121)
The Act has been approved by the Parliament, published in the official gazette and India’s Government has initiated the process to implement it in consultation with concerned regulatory Authorities and other stakeholders. In this regard, I understand draft rules needed to be placed for public comments within the implementation phase with the Indian Ministry of Corporate Affairs (MCA). I believe the matter was actually supported by the Indian regulators (SEBI in particular) and the public, given that CEO – employee pay levels have been considered uneven (think of India’s population which is average or below).
The comments to the new Law have not been published yet, so if – and when – they are, we can see the reaction from institutions. Bear in mind that corporate governance in India is only now emerging, taking more of a rules approach rather than a principles-based one.
Here’s an interesting blog from Blank Rome’s Yelena Barychev about whether pay ratio information should be deemed “furnished” and not “filed” for purposes of the Securities Act of 1933 and Securities Exchange Act of 1934…
Come participate in today’s spreecast: “Crafting SEC Rulemaking Comment Letters.” During it, Hunton & Williams’ Scott Kimpel and Bass Berry’s Jay Knight will describe how to best craft a persuasive comment letter on a SEC rulemaking. This will certainly be handy for those of you writing in on the SEC’s pay ratio proposal. To access the spreecast, go here at 1 pm eastern. [Note last month’s “Latest Corp Fin Comment Letter Trends” spreecast has had over 500 views.]
Here are FAQs about how spreecasts work – but the upshot is you have to register for Spreecast first (although it’s possible to watch without registering if you close a prompt). Simply sign up by using an email address by clicking the “Or sign up via email” link in the upper right hand side of the site (it’s in small print under the “Connect with Facebook” logo).