Here is news from this Bloomberg article entitled “EU to Boost Investor Power Over Executive Pay in Governance Plan”:
The European Commission will seek to give shareholders more power to control executive pay as part of measures to boost investors’ involvement in corporate governance. Michel Barnier, the European Union’s financial services chief, will call next week for mandatory votes on compensation by shareholders at listed companies on pay policies, according to a document obtained by Bloomberg News. The commission will also seek to make institutional investors give more information on their voting records. “Not all member states give shareholders the right to vote on remuneration policy,” according to the document. Also, pay information “disclosed by companies in different member states is not easily comparable.” The commission will present a draft law in 2013, according to the document.
Barnier’s push for more shareholder power over pay packages adds an additional front to an EU debate over curbs that should be placed on banker bonuses. Talks on a draft law to overhaul the 27-nation bloc’s bank capital rules have bogged down over demands from European Parliament legislators for a ban on bonuses that are larger than fixed pay. Barnier has said that increasing investor responsibilities could form part of a compromise deal. Barnier’s pay proposals, to be unveiled on Dec. 12, form part of a broader plan to update the bloc’s corporate governance rules. Stefaan De Rynck, a spokesman for Barnier, declined to comment.
The commission is seeking to boost information listed companies must publish on their major shareholders, including data on business deals firms conduct with directors or controlling shareholders, according to the document. The EU will also weigh a simplification of rules for cross- border mergers. The plans will “modernize” EU law, the commission said today in a statement on its website. The measures “are fundamental to putting in place up to date legislation for sustainable and competitive companies.”
Meanwhile, Towers Watson reports that “the Association of British Insurers (ABI) recently released its annual voting report to guide its member companies in casting their 2013 votes at U.K. companies. While not a major revision, the ABI’s 2012 remuneration principles include some noteworthy changes.”
Recently, Sodali conducted a survey of global institutional investors on whether they endorse say-on-pay and believe that it protects their rights and strengthens the accountability of corporate boards. Here are some of the findings:
– 80% of respondents rated the value of the SOP vote either 4 or 5 on a scale of 1 (lowest) to 5 (highest).
– Strong preference for the SOP vote to be held annually (77% of respondents) and for the vote to be advisory rather than binding (66% of respondents)
– 54% of respondents said they want to vote on general compensation policies rather than on specific elements of compensation.
– Respondents showed a clear preference for voting factors relating to companies’ financial performance. The top score (4.48 on a scale of 1 to 5) went to “performance criteria for short/medium/long term incentives.” The second choice, rated 4.21, was “company financial performance.” Third, rated 4.03, was “imbalance between long-term/short-term incentives.” Fourth, rated 3.97, was “total compensation,” and fifth, rated 3.90, was the “quality of the justification for the remuneration policy.” It is noteworthy that respondents gave by far the lowest rating — only 2.43 out of 5 — to “proxy advisors’ recommendations” as a factor in their SOP vote decisions.
– As for who to dialogue with, the top choices were: “Board chair or lead independent director” (rated 4.37) and “Remuneration committee chair” (4.14), followed by “Board secretary” (3.17) and Investor Relations/Human Resources executive (3.17).
– Only 5.7% of respondents said they “fully trust the analysis and judgment” of proxy advisors. 57% of respondents said that proxy advisors were “helpful but they would also review the company’s information and establish dialogue when appropriate.” 37% said proxy advisors’ views were “informative only but would trust their analysis when strong misalignments with market practices are highlighted.”
– Respondents indicated that following a significant negative SOP vote companies should either “commence outreach and dialogue with shareholders” (77%) or “revise the remuneration policy” (74%) rather than simply writing a letter of explanation (42%).
As I was speaking to my co-blogger Mark Borges at our recent Conference, it dawned on me that not many people really understand what Mark brings to the table. So I taped this podcast with Mark to discuss his day job, including:
– Can you describe your varied background?
– What type of consultant are you?
– What types of engagements are clients asking for more frequently these days?
Here is a blog from Fred Whittlesey of Compensation Venture Group about how an increasing number of companies are rushing to declare and pay a “special dividend” prior to the end of 2012 to hedge shareholders against the prospect of a large increase in tax rates in 2013.
Ning Chiu of Davis Polk provides this news from her blog:
ISS has released a detailed set of FAQs on how it will select a company’s peer group for purposes of conducting its pay-for-performance analysis. ISS uses this peer group to measure a company’s total shareholder return and CEO pay in deciding how to recommend for the say-on-pay vote.
The FAQs provide information on how ISS will select 14-24 peers from the company’s own GICS code, as well as the GICS code of the peers named in the subject company’s proxy statement. Subject to size constraints based on revenues or assets and market value, ISS describes the order in which peers will be selected from the potential universe of companies that will come up based on those GICS codes. Other questions address the use of size parameters, which are clearly key to the selection process, the GICS industry groups (financial services) where assets will be used instead of revenue, and what happens if a company discloses using more than one peer group.
In addition, by December 21st a company can inform ISS of any changes to its peer group since the 2012 disclosures, as a source of input into the ISS peer group selection.
While more information is always useful, this is unlikely to mean that companies will be able to proactively figure out the ISS peer group themselves given the complexity of GICS, the number of potential companies that ISS can choose from under this method and the use of what they term “manual judgment” in the selection process. It appears that again companies will not know who they are being measured against until they receive the ISS report.
For those companies that may have faced a say-on-pay issue last year because of perceived faulty peer groups used by ISS, note that in back-testing this new method against their analysis applied in 2012, ISS indicates that more than 95% of companies would have received the same pay-for-performance analysis.
Recently, I posted a blog from ISS about 3 failed say-on-golden-parachutes – Advance America, Ariba and Interline Brands. The blog also mentioned the European failure of Xstrata, as detailed in this WSJ article. Rajeev Kumar of Georgeson was kind enough to point out two other recent failures: Cooper Industries and Coventry Health Care. I am maintaining a list of say-on-parachute failures in our “Say-on-Parachute” Practice Area.
In this podcast, Mark Brockway of ISS Corporate Services discusses the latest developments related to ISS’ executive compensation analytic services, ExecComp Analytics, including:
– What is ExecComp Analytics?
– What was your goal in creating it?
– Any surprises so far since it went live?
Yesterday, the SEC delayed approving the NYSE’s and Nasdaq’s listing standards relating to compensation committees and advisors. Action was due by today – but now has been deferred until January 13, 2013. The delay shouldn’t impact what companies disclose in proxy statements next year – unless the SEC decides to not go forward, which is highly unlikely given there were only 14 comment letters on this round of proposals.
Meanwhile, thanks to Baker McKenzie, we have posted a sample compensation consultant questionnaire to help you assess what you need to disclose. This sample is posted in Word in our “Compensation Consultant” Practice Area. Also remember there was a sample questionnaire included in the July-August issue of The Corporate Counsel.
Over on his “Proxy Disclosure Blog,” Mark Borges has been analyzing the latest proxy statements and commenting upon their compensation consultant conflicts disclosures. As hopefully you know, new Item 407(e)(3)(iv) of Regulation S-K requires disclosure if a conflict of interest has arisen in connection with the work of a compensation consultant (whether selected by management or the compensation committee). To satisfy this disclosure requirement, companies will need to conduct a conflicts of interest assessment.
This raises the question of whether companies will include voluntary disclosure (so-called “negative disclosure”) in their proxy statement when a determination of “no conflict” has been made. To attempt to get a handle on what folks are planning to do, I have posted this “Quick Survey on Compensation Consultant Conflicts Disclosure.” Please take a moment to participate – all responses are anonymous as always…