A new study – entitled “Executive Superstars, Peer Groups and Over-Compensation – Cause, Effect and Solution” – examines flawed peer group methodology, finding that CEO pay has become untethered from both broader organizational wage structure and from economic fundamentals due to the use of peer benchmarking. Funded by the IRRC Institute, Professors Charles Elson and Craig Ferrere of the University of Delaware wrote the study. Here’s a NY Times article about the study from yesterday – and here’s the IRRC press release.
This new study makes it clear that peer grouping with minimal board discretion is a seriously flawed methodology even when the peer groups are fairly constructed. The authors note their study is the first to document that peer group benchmarking has accidentally become the de facto standard even though it never was designed to determine CEO compensation.
The fact that most CEOs aren’t transferable is something that we have been saying for a long time (eg. this blog). And we also have been warning compensation committees that if they rely heavily on peer groups – and don’t use alternative benchmarking techniques like internal pay equity instead – they can be in trouble in court since so many have warned that pay has skyrocketed over the past two decades due to peer group benchmarking. In other words, it arguably isn’t reasonable to rely on peer group surveys any more (here’s my latest rant on this topic). Will boards and their advisors finally wake up on this issue? They should before the lawsuits come – because then it will be too late…
I’ve added one more company to our failed say-on-pay list for 2012 as RBC Bearings failed during the past week with less than 30% support. We are now at 58 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
We just wrapped up the Lynn, Borges & Romanek’s “2013 Executive Compensation Disclosure Treatise & Reporting Guide.” For those that want to access it online, it’s now posted on CompensationStandards.com. For those that like a hard copy, it will be finished being printed in a few weeks.
How to Order a Hard-Copy: Remember that a hard copy of the 2013 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately – however, CompensationStandards.com members can obtain a 40% discount by trying a no-risk trial now. This will ensure delivery of this 1200-plus page comprehensive Treatise as soon as it’s done being printed.
And note there an additional 40% off when you purchase this Treatise in combination with the just finished Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide.”
In our “2012 Consultant League Report,” we took a look at annual reports and proxy filings of public companies to determine which consulting firms had the largest, most profitable clients, and which had the best market share in various indices, sectors, and geographic locations. Although many of the large consulting firms consistently stand atop the rankings, categorical breakdowns reveal some of the smaller shops’ unique market niches. Some of our findings:
– Frederic W. Cook & Co. garnered the largest market share for board engagements in the Russell 3000 (14.8% market share), Fortune 100 (22.9%), and the S&P Composite 1500 (17.2% market share).
– W.T. Haigh & Co. achieved the highest average and median percentages of votes in favor of their clients’ Say-on-Pay proposals at 95.5%.
– Towers Watson had the highest percentage of new engagements with 14.5% market share.
Below is a sample table from the report, detailing the market share of firms engaged by the Russell 3000 (in comparison, here are last year’s numbers):
Other charts in the 2012 Consultant League Report include:
– Financial Data: Firms’ client base ranked by revenue, net income, year-end market capitalization, total assets, and one- and three-year total shareholder return
– Indices: The firms with the most market share in the Fortune 1000, S&P 1500, and more
– Sectors: Eight different industry categories, from Healthcare to Financial Services
– Geography: The firms with the most market share in each of four U.S. regions
– Engagement: The market share of firms engaged by management
The complete report is provided to all Equilar Knowledge Center subscribers. Non-subscribers can request a copy of the report.
Tower Watson’s Steve Seelig answers 7 questions in this article about the SEC’s new independence rules…and here is a sequel that answers 4 more questions…
Did you know that approximately 2000 people attend this Conference every year? And the vast majority of our attendees are in-house. They have figured out that we work hard to ensure that the panels are practical and that you leave with valuable knowledge – and new friends. If you haven’t been to our Conferences before, give it a try – particularly this year when New Orleans needs the tourism dollars. Here are the agendas for the event. Register Now.
In my capacity as the DJ for our Conferences – “Dr. Broc” – I’ll soon be putting together my set list. Here’s a sampling of last year’s set list. Feel free to send suggestions…
Recently, Ruth Wimer of McDermott, Will taped a podcast with me on personal use of aircraft. Since Ruth wrote out her answers to some of the questions, I thought I would share them since they are so useful. Below is one answer:
I believe that most public companies have some sort of aircraft policy, but there are still many that do not. Often what I see is a description of the amount of personal use, and sometimes business use, in an executive’s employment contract. In Chapter 3 of “The Corporate CEO,” the author provides that an Aircraft Use Policy, should be a simple, relatively short document that provides the central repository for: How the aircraft is to be used, Who can use it, How the aircraft is scheduled, Special cases, and Operating restrictions.
However, in drafting policies, I like also to describe, using the company’s actual information, examples showing the tax effect to the executive for his own or that of his guests, personal travel, the tax effect to the company, and if it is a public company, a description of the SEC reporting obligations concerning the travel. By covering not only the procedural aspects of the airplane travel, but also the legal effects for the company and the executive, the executive can make more informed decisions about his choice of travel.
Many of the panels for our upcoming week of conferences on executive pay are now planning their agendas. One frequent area of discussion will be the “how, when & why’s” of additional soliciting materials. One common complaint from institutional investors is their tendency to find supplemental materials that merely argue about a proxy advisor’s recommendation as not being too useful. Many would rather read about the company’s analysis – and support – for why their pay program is designed a certain way.
So perhaps they found this presentation filed by Freeport McMoRan useful as it delves into the feedback it received on its prior say-on-pay vote and provides analysis of how its program has changed since it failed its say-on-pay last year. The presentation does not comment on any proxy advisory firm recommendations for 2012.
I found this article from the Hay Group about the role of experts in compensation litigation interesting because I haven’t seen anything like it before…
Last month, it was reported that Tyco International and its former CEO, Dennis Kozlowski, reached a tentative settlement in litigation over compensation before he was convicted and jailed in 2005 for a massive fraud. This litigation has been going on for a decade – and the settlement amount has not been publicly released.