The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here is a blog by the team at Katten Muchin who worked at getting a say-on-pay case that was filed against AAR Corp. in Northern Illinois dismissed last week. In this blog, Jim Barrall parses the decision – and here is Wachtell Lipton’s analysis.

– Broc Romanek, CompensationStandards.com

As noted in its Form 8-K, Biglari Holdings is the 6th company holding an annual meeting in 2013 to fail to gain majority support for its say-on-pay (33% support since abstentions count as “against”). Hat tip to Karla Bos of ING Funds for pointing this out!

And here’s a teaser for Towers Watson’s upcoming webcast. Based on the disclosures so far, Towers Watson found that more companies than ever included a pay-for-performance summary: 26% in their 2013 proxies, compared to 17% for 2012 and 9% for 2011. Tune in for more…

Here’s a chart from Steven Hall & Partners of the say-on-pay stats so far this proxy season – and here’s a press release from them showing CEO pay levels are up 7% so far this season…

– Broc Romanek, CompensationStandards.com

In this podcast, Sylvia Groves of Governance Studio describes the efforts by a hedge fund to reward directors on a dissident slate by paying them a share of future returns in addition to traditional director compensation – and these directors would be paid more than the other directors! (here’s a note that Sylvia wrote about this) – including:

– What is happening at Jana Partners?
– Why do you think it’s problematic?
– What is the fix?

– Broc Romanek, CompensationStandards.com

Ed Hauder of Exequity has posted his 2013 ISS Burn Rate Calculator…

– Broc Romanek, CompensationStandards.com

As noted in its Form 8-K, Vermillion is the 5th company holding its annual meeting in 2013 to fail to gain majority support for its say-on-pay (44% support) – although the company’s recent annual meeting was for 2012. Hat tip to Karla Bos of ING Funds for pointing this out!

– Broc Romanek, CompensationStandards.com

It’s that time of year when proxies are filed and the mass media gets to have a field day. Here is this NY Times article about director compensation at the major banks from the front page today…

– Broc Romanek, CompensationStandards.com

In the US, the corporate world is worried about disclosing pay ratios. In Switzerland, they are looking to cap CEO pay compared to the lowest paid employee at no more than 12:1. Here’s news from this excerpt of a WSJ article:

Switzerland is expected to vote later this year on a proposal to place further limits on executive pay, the latest effort to govern corporate compensation in a country that recently approved some of the world’s strictest say-on-pay rules. The Young Socialists, the youth wing of the left-leaning Social Democratic Party of Switzerland, have collected more than 100,000 signatures–the threshold needed to call a vote–in support of a referendum to limit executive salaries to 12 times those of a company’s lowest-paid employee. The campaign, dubbed the 1:12 Initiative for Fair Pay, is named for the organizers’ belief that no one in a company should earn more in one month than the lowest-paid employee makes in a year.

On Thursday, the Council of States, Switzerland’s upper house, will debate what recommendation it should give on the initiative, which voters are expected to consider in September or November. Two other government bodies have already recommended a rejection of the pay proposal.

The referendum will be the second time Swiss voters have been asked to weigh in on the country’s corporate-pay structure this year. This month they overwhelmingly approved the Minder Initiative, named for its creator, businessman and politician Thomas Minder, and also known as the “Rip-Off Initiative.” The plan allows the government to draft sweeping controls on compensation, such as requiring a binding shareholder vote on pay, as well as fines and jail time for violations.

And, as noted in this Reuters article, the Germans have started on work on their own set of new rules to rein in excessive pay…

– Broc Romanek, CompensationStandards.com

Here’s news from Wachtell Lipton’s David Katz, Warren Stern & Kim Goldberg culled from this memo:

Reaffirming that the advisory “say-on-pay” vote required by the Dodd-Frank Act cannot be used to attack directors’ executive compensation decisions, the United States District Court for the District of Delaware recently dismissed a derivative complaint brought after a negative say-on-pay vote. The court, applying Delaware law, found that the plaintiff had not pleaded facts sufficient to show that demand would have been futile, or to state a claim upon which relief could be granted. Raul v. Rynd, C.A. No. 11-560-LPS (D. Del. March 14, 2013).

The complaint was filed in 2011, and was one of a number of similar lawsuits filed after Dodd-Frank’s requirement for advisory votes on compensation came into effect. The plaintiff challenged the board’s compensation decisions, alleging that increased compensation in a year when the company posted a net operating loss and negative shareholder return violated the company’s pay-for-performance philosophy and rendered the company’s compensation disclosures in its proxy statement misleading. The plaintiff asserted that the negative shareholder advisory vote rebutted the presumption of business judgment surrounding the board’s compensation decisions.

In dismissing the complaint, the court found that the plaintiff “misconstrue[d] the effect of the shareholder vote” and “mischaracterize[d]” the compensation plan, holding that the plaintiff’s allegations based on the advisory vote “fail to recognize the[] realities of Dodd-Frank” — namely, that the Act “explicitly prohibits construing the shareholder vote as ‘overruling’ the Board’s compensation decision” or altering directors’ fiduciary duties. The court further noted that the plaintiff’s “selective” characterization of the company’s compensation philosophy as “pay for performance” excluded the other goals discussed in the company’s proxy statement.

The Raul decision reinforces the Dodd-Frank Act’s bar on attempts to use the advisory shareholder vote to overrule directors’ business judgment on matters of executive compensation. The decision recognizes that directors should be permitted to determine appropriate compensation for executives in accordance with their company’s overall compensation philosophy — including such motivations as attracting, retaining, and incentivizing executives — without fear that they will be subject to liability should shareholders express disagreement with those judgments through an advisory say-on-pay vote.

– Broc Romanek, CompensationStandards.com

As noted by Towers Watson’s Katharine Turner in this blog:

On March 8, the U.K. Department for Business, Innovation and Skills (BIS) published an updated draft of the new reporting regulations for executive remuneration. While the framework for the new disclosures remains largely unchanged, the revised draft includes some welcome clarifications and refinements, as well as some provisions that will raise the disclosure bar even further, including:

– New requirements for the disclosure of bonus performance targets
– Updated proposals to require two separate charts, one showing total shareholder return (TSR) and one showing CEO pay for five years initially, increasing to 10 years over time
– A requirement that companies disclose their recruitment policies, including a maximum salary amount (expressed as a percentage of pay for the highest paid executive).

BIS has asked for comments on the revised draft regulations by March 25, with final versions of both the updated Companies Act provisions and the reporting regulations expected in May. The new reporting regime will be effective as of October 1, 2013.

Our recent U.K. Executive Compensation Market Watch provides a detailed summary of the changes, along with an overview of the new reporting regime, a sample structure for a new form of remuneration report, next steps and summary tables on all the disclosure requirements.

– Broc Romanek, CompensationStandards.com

One of the plaintiff’s lawyers most active in bringing say-on-pay lawsuits allegedly has forced himself on a subordinate and more as noted in these:

– Forbes’ “Faruqi & Faruqi’s Clouded Reputation Takes Another Hit With Sex Suit”
– Above the Law’s “A Super-Salacious Suit Against A ‘Legend’ of the Bar“