The Advisors' Blog

– Broc Romanek, CompensationStandards.com

I know I’ve blogged before about this topic, but it’s an important item – so I refer you to this Davis Polk blog which includes a link to the March consultation paper from the UK’s Department of Business Innovation & Skills (BIS).

– Broc Romanek, CompensationStandards.com

I’ve added 7 more companies to our failed say-on-pay list for 2012! We are now at 39 companies that have failed to garner major support – with Digital River garnering support only in the teens (19.2%; going even lower than Chiquita Brands)! And Safety Insurance Group became the first company to fail after receiving a ‘For’ recommendation from ISS, as noted in this Semler Brossy blurb. Hat tip to Karla Bos of ING Funds for keeping me updated!

– Broc Romanek, CompensationStandards.com

I’m still in the camp that peer group surveys aren’t an inherently evil thing in isolation – but that the heavy reliance on boards on them to pay CEOs in the top quartile over many years has unfortunately tainted the pay databases so much that the data is useless unless there is some sort of reboot. That’s why this blog by Steven Kittrell about how some New York agencies have proposed the use of benchmarking to limit pay made me smile. The proposal is that if pay exceeds $199,000, the total pay cannot be greater than the 75th percentile of comparable executives of comparable companies (as to size and services) in a comparable geographic area. The slippery slope downwards.

I imagine that if this type of proposal was ever floated for public companies, many of those that blindly follow benchmarking today would suddenly find religion and claim that boards should have the discretion to set pay levels based upon their own circumstances and that benchmarking should barely even be considered…

– Broc Romanek, CompensationStandards.com

Last year, I was shocked to read Mike Melbinger’s blog that a major insurance broker plans to begin offering “policies that would cover financial firms against both their legal costs in the event that they underwent investigation by the FDIC and any compensation that their executives had to hand back as a result of action by the agency.” Yesterday, as noted in this article, Rep. Barney Frank introduced a bill that would bar executives at financial firms from being able to buy insurance to protect themselves against compensation clawbacks or civil penalties. Here’s analysis of the bill from the D&O Diary Blog.

– Broc Romanek, CompensationStandards.com

We are very excited to announce that Corp Fin Director Meredith Cross will be part of our “7th Annual Proxy Disclosure Conference” on October 8th in New Orleans (and by video webcast). Just look at this beautiful baker’s dozen of panels for this Conference:

1. An Interview with Meredith Cross, Director of the SEC’s Division of Corporation Finance
2. Say-on-Pay Disclosures: The Proxy Advisors Speak
3. The Executive Summary & Other Ways for Disclosure to Facilitate Solicitation
4. The Latest SEC Actions & CD&A Developments: Compensation Advisors, Clawbacks, Pay Disparity & More
5. Refining Your Pay-for-Performance Message & Addressing the Impact of Your Vote
6. Getting the Vote In: The Proxy Solicitors Speak
7. Dealing with the Complexities of Perks
8. Conducting – and Disclosing – Pay Risk Assessments
9. Overcoming Form 8-K Challenges
10 Handling the Golden Parachute Requirement
11. Challenges for Smaller Companies: Their First Year
12. How to Handle Preliminary Proxy Statements
13. How to Handle the ‘Non-Compensation’ Proxy Disclosure Items

Register Now for Early Bird Rates – Act by May 31st: For the early bird discount rate, register by May 31st. This Conference is paired with “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” and they will be held October 8-9th in New Orleans and via Live Nationwide Video Webcast.

– Broc Romanek, CompensationStandards.com

I’ve added 14 more companies to our failed say-on-pay list for 2012! We are now at 32 companies that have failed to garner major support – with Chiquita Brands garnering support only in the teens (19.8%; see Mark Borges’ analysis of this failure)! Hat tip to Karla Bos of ING Funds for keeping me updated!

And Hercules Offshore became the first (41% support in ’11 and 48% in ’12) – and Kilroy Realty became the second (49% support in ’11 and 30% in ’12) – company to fail two years running…

And this list doesn’t include the recent voting results from Cablevision Systems – a company which did not have say-on-pay on its ballot this year because the frequency is triennial (per page 26 of their proxy statement; triennial was the choice of shareholders last year) – whose members of the compensation committee received less than majority support presumably due to pay issues. The company has a plurality vote standard so there is no direct impact of this vote. So this result doesn’t get picked up in the “failed SOP” count even though I would consider it to be a more serious failure than a nonbinding SOP vote…

– Broc Romanek, CompensationStandards.com

A while back, Frederic W. Cook’s 2011 Top 250 executive compensation report came out:

Key findings from the study include the following:

– For the first time in the history of this report, the use of long-term performance shares now is more prevalent than the use of stock options, while the prevalence of time-vesting restricted stock awards appears to have stabilized.

– Stock options continue to decrease in prevalence, but are not expected to go away, as they are by nature a performance based long-term incentive vehicle and a common complement to full-value share awards.

– Variations of basic grant types (like “premium” or “performance accelerated” stock options), common in years gone by, have dwindled and are on the brink of extinction, perhaps casualties of greater transparency and simplicity in a say on pay environment.

– Vesting periods of awards, and performance periods for performance awards, remain stable at 3 years.

– The use of profit measures and total shareholder return in long-term performance plans continues to be the most widely used performance categories, and the prevalence of types of measures used for performance awards has stabilized.

– Broc Romanek, CompensationStandards.com

Here is a 20-minute video podcast, featuring Daniel Abrams of FAS123 Solutions and Arthur Kohn of Cleary Gottlieb. The presentation covers:

1. The use, in connection with 2011 equity awards, of routine option valuation methods and historical measurements of volatility will, for many companies, overstate the value of option awards for compensation and disclosure purposes.

2. Volatility and other factors, including in particular the degree of difficulty of vesting conditions, affect the value of equity compensation awards other than options in ways that should be considered in the design of executive compensation programs that use a “portfolio approach” to long-term incentive grants.

3. Decomposing the value of equity compensation awards in a way that gives insight into the amount of value delivered in different factual scenarios will help to properly design such awards from an incentive and value perspective.

– Broc Romanek, CompensationStandards.com

Ning Chiu of Davis Polk bring us this news from her blog:

This proxy season there has been a lot of focus on companies filing additional soliciting materials to supplement proxy disclosure, with a particular focus on executive compensation in light of the say-on-pay vote. Exxon Mobil has taken a particularly interesting approach turning a two-dimensional paper communication into something more dynamic by inviting interested persons to a company-sponsored webcast on executive compensation.

The webcast represents an additional proactive step Exxon has taken. On the same day it filed its proxy statement, Exxon took the unusual step of also filing a colorful presentation filled with data, graphs and photos to explain how its pay-for-performance approach focuses on the long-term nature of its capital-intensive business. In supplemental information filed more recently, Exxon took issue with specific aspects of the ISS analysis, including the peer group selected, which Exxon asserted failed to adjust for its size and complexity, since the company’s revenue is more than 4X larger by revenue and 3.5X larger by market capitalization than the median of the peer group.

On the webcast, which included a presentation, Exxon representatives discussed the company’s business environment, the scale and scope of the company and its focus on the long-term nature of its business strategy. The company explained that together, these form the basis for customized compensation decisions, including a lengthy “hold-to-retirement” policy and a unique approach on the deferral of 50% of annual bonuses, a measure rarely seen outside of financial institutions. The company’s focus on executive training, retention and succession was emphasized, including the fact that the company achieves its retention goals without change in control or severance agreements with senior executives. The company also discussed the shareholder engagement it undertook as a result of last year’s say-on-pay vote. In response to questions during the webcast, the company noted how its programs focus on performance assessments that take a more holistic approach rather than concentrating on formulas that inspire executives to reach for only certain specific goals. The company received several questions about specific aspects of its pay decisions, the reasons for the webcast and the proxy advisory firms’ recommendations.

In his blog, Mark Borges recently provided this analysis of ExxonMobil’s executive pay disclosure and more…

– Broc Romanek, CompensationStandards.com

I’ve added four more companies to our failed say-on-pay list for 2012: OM Group – 23%; First California Financial – 42%; Charles River Laboratories – 36%; and Comstock Resources – 35%.