The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Illustrating how no company is immune from shareholders voting down a say-on-pay (regardless of its size), Tuesday Morning Corporation – as Mark Borges blogged yesterday – became the latest to fail when its SOP received only 36.4% support for its say-on-pay at its annual meeting. I will be adding Tuesday Morning’s Form 8-K to our list of failed say-on-pays in our “Say-on-Pay” Practice Area.

– Broc Romanek, CompensationStandards.com

The new phone book is here! The new phone book is here! Yesterday, ISS released its 2012 updates for its US, Canadian, European and international proxy voting guidelines. Here is a description of some of the updates from ISS:

One of the most significant updates is ISS’ revised U.S. pay-for-performance policy. During the policy process, both clients and issuers indicated that pay-for-performance alignment should be viewed in a long-term context rather than the most recent year. In light of this guidance, ISS’ new approach will provide clients with a more robust view of the relationship between executive pay and company performance over a sustained time horizon. Specifically, ISS will consider: the relative alignment between the company’s total shareholder return and the CEO’s total pay rank within a peer group, as measured over one and three years; and absolute alignment (the alignment between CEO pay and a company’s share return over the prior five years). If alignment appears weak, further in-depth analysis will determine if there are mitigating factors.

ISS strives to make its policies as transparent as possible. ISS will provide additional guidance on its pay-for-performance methodology in December 2011. ISS also intends to disclose its peer group methodology and rationale, allowing investors and issuers to understand how peer groups are constructed by ISS.

In line with investor feedback, ISS will make recommendations on a case-by-case basis on compensation committee members and the management say-on-pay proposal if the company’s previous say-on-pay resolution received less than 70 percent support from all votes cast, taking into account the company’s response; disclosure of engagement with major investors; specific actions taken to address the compensation issue(s) that caused the significant dissent; whether the issue(s) raised is recurring or one-time; and the company’s ownership structure. Cases where support was less than 50 percent will warrant the highest degree of responsiveness.

I am posting memos analyzing the 2012 updates in our “ISS Policies & Ratings” Practice Area, including this Holme Roberts memo that has a nifty chart summarizing the compensation changes.

– Broc Romanek, CompensationStandards.com

We have posted the Fall 2011 Issue of our Compensation Standards newsletter that contains practical guidance pulled from our successful pair of executive pay conferences. With Dave Lynn and Mark Borges wrapping up the 2012 Edition of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise & Reporting Guide”- about half of the updated Chapters of the Treatise are already posted on CompensationStandards.com – we thought it was best to compile a select group of the Talking Points as our Fall issue (attendees of the Conferences received the entire 200-page set; you can still register to watch the archived video of the Conferences) since it’s too late to insert them in the upcoming edition of the Treatise.

If you wish to order a hard-copy of the Treatise so you receive it as soon as it’s printed, try this No-Risk Trial to the Hard-Copy of Executive Compensation Treatise.

– Theresa Tovar, Towers Watson

In last year’s report on director pay trends, we asked if compensation for corporate directors had found its floor following two consecutive years in which the economic environment prompted many companies to hold director pay levels in check. Pay for directors rose 3% in 2008 and just 1% in 2009. However, our latest annual review of director pay programs shows that, as with executive pay, director compensation rose in 2010 as the market and economy regained momentum.

Although last year’s growth in director pay levels was below the nearly 10% level of several years ago, the trend is once again upward. Our latest analysis of director compensation at Fortune 500 companies shows a moderate increase in year-over-year pay for directors in the largest U.S. companies, increasing 6% at the median during the past year. While most large companies continue to provide a roughly equal mix of cash and equity for directors, recent increases in pay components have been primarily concentrated on the stock side of the program, further strengthening the link between the interests of shareholders and directors.

– Broc Romanek, CompensationStandards.com

Last week, the SEC posted a transcript of the remarks made by SEC Chair Mary Schapiro at our “Say-on-Pay Workshop: 8th Annual Executive Compensation Conference.”

– Broc Romanek, CompensationStandards.com

It’s uncommon for the SEC to go after perks in an enforcement action – so I thought it was worth repeating this WSJ article from Friday:

Nabors Industries Ltd., the oil-drilling contractor whose chairman is set to receive $100 million for relinquishing his chief-executive title, said Wednesday the Securities and Exchange Commission has opened an investigation into perks received by its executives, including personal flights on company jets.

The Securities and Exchange Commission has opened an investigation into perks received by Nabors Industries executives, including personal flights on company jets. The disclosure of the SEC inquiry came in a regulatory filing by Nabors, a Bermuda-registered company with operational headquarters in Houston. A Nabors spokesman didn’t respond to requests for comment. An SEC spokesman declined to comment on the investigation. The use of Nabors’s jets for potentially personal travel by executives was a focus of a broader June 17 page-one article in The Wall Street Journal on corporate jets that frequently travel to resort destinations.

Using Federal Aviation Administration flight records, the Journal reported that Nabors’s jets made frequent stops in Palm Beach, Fla., and Martha’s Vineyard, Mass., both spots where Nabors Chairman Eugene Isenberg has residences. The Journal estimated the flights cost a total of about $704,000, yet Nabors didn’t provide a dollar figure for the cost of aircraft perks for Mr. Isenberg in 2009 or 2010. In June, a Nabors spokesman said the company “complies with all IRS guidelines and SEC disclosure requirements with respect to the use of company aircraft by its executive officers.” Under SEC rules adopted in 2006, companies generally must annually disclose the cost of executives’ personal use of corporate planes if it exceeds either $25,000 or 10% of the cost of all perks.

The SEC has brought actions against companies for failing to disclose executive perks. In a civil action brought in January against a Kansas-based website-services firm, NIC Inc., the SEC said the company had failed to disclose executive perks, including payments for its former CEO to commute via private jets from the Wyoming ski lodge where he lived to NIC’s headquarters. NIC and three current and former executives paid a total of $2.8 million to settle, without admitting or denying the allegations.

Mr. Isenberg’s employment contract with Nabors, filed with the SEC in April 2009, entitles him to establish company-subsidized offices at or near his principal residence in Palm Beach, “and/or at any other residence maintained by him.” The contract also entitles him to perform his duties “from offices in or near his places of residence.” In the filing Wednesday, Nabors said the company was cooperating with an “informal inquiry” by the SEC “related to perquisites and personal benefits received by the officers and directors of Nabors, including their use of noncommercial aircraft.”

Late last month, Nabors announced it was promoting a lieutenant of Mr. Isenberg’s to the position of CEO, but Mr. Isenberg would remain as chairman. Even though he wasn’t leaving the company, the change triggered a clause in Mr. Isenberg’s contract that entitled him to a $100 million payout under various scenarios, including his removal as either CEO or chairman.

– Broc Romanek, CompensationStandards.com

Here’s news about this lawsuit culled from this Reuters article:

Chesapeake Energy Corp CEO Aubrey McClendon plans to reimburse the company $12 million it paid to purchase his antique map collection in 2008 as part of a settlement with shareholders angered by the transaction. The preliminary settlement, filed in Oklahoma state court on Tuesday, also places restrictions on senior management’s right to hold company stock in a margin account or make speculative trades with Chesapeake shares. The settlement requires court approval, after which ownership of the maps will revert back to McClendon.

McClendon, who founded the company and is one of the industry’s most visible proponents of natural gas, was forced to sell 94 percent of his Chesapeake shares in 2008, amounting to 6 percent of the company’s outstanding stock, to meet margin calls. That same year, the company’s board awarded a $75 million bonus to McClendon in a year when its stock fell 60 percent. The sale of his map collection to the company in 2008 also netted McClendon a $4 million profit. Influential proxy advisory service ISS this year opposed McClendon’s reelection to the company’s board, citing unresponsiveness to investors and compensation issues.

At this year’s annual meeting in June, more than 40 percent of the company’s shareholders rejected Chesapeake’s executive pay plan, and McClendon was reelected with 78 percent of the vote. Before the settlement, Chesapeake had already taken some steps in respect to its governance practices. It hired a compensation consultant and a lead independent director this year.

– Broc Romanek, CompensationStandards.com

As Ted Allen blogged yesterday, Regis Corporation received more than 71% opposition to its say-on-pay at its annual meeting, which is the greatest dissent seen so far this year. We have added the Regis Form 8-K to our list of failed say-on-pays in our “Say-on-Pay” Practice Area.

– Broc Romanek, CompensationStandards.com

The video archive of last weeks’ pair of Conferences – the “6th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 8th Annual Executive Compensation Conference” – are posted. Hopefully, you’ve talked to some of the many that attended this event and heard how much practical guidance was imparted. Our panels really delivered this year – and it’s not too late to watch them as you can still register and watch the panels now or when you are gearing up to draft your proxy materials.

Here are three short videos from our week of Conferences this week – this first one shows the sheer size of our “Investors Speak” panel on Wednesday (2000 attendees in person and many more online):

A groovy exhibit from E*Trade in our Exhibit Hall:

Also liked this set-up in the Exhibit Hall from Bank of America/Merrill Lynch:

– Broc Romanek, CompensationStandards.com

Equilar recently released two new surveys. One examines Fortune 100 CEOs from 2005 to 2010, evaluating how the financial crisis and the recession have changed boards’ approach to perks. A few of those findings:

– Total “other” compensation drops: After falling 28.3 percent from 2008 to 2009, the median value of “other” compensation for F100 CEOs fell again in 2010, with a more modest decline (8.3 percent) from 2009 levels.

– Tax gross-ups on the chopping block: The median value of perquisites related to tax gross-ups fell 48.4 percent from 2009 to 2010. Their prevalence decreased from 50 percent in 2009 to 25.3 percent in 2010.

– Eliminating some perquisites is on the rise: In 2010, 14.7 percent of F100 companies indicated that they would eliminate some executive perquisites in late 2010 or early 2011. The most frequently eliminated perk was tax reimbursements, with 7.4 percent of companies eliminating them.

The other is a survey on equity trends in the S&P 1500, which found:

– Stock options declining: The median number of options granted by S&P 1500 firms fell 3.8 percent annually from 2006 to 2010.

– Restricted stock is becoming more common: 74.9 percent of companies disclosed restricted-stock grants in 2006, while 89.9 percent disclosed them in 2010.

– CEOs are getting bigger slices of the equity pie: The amount of options granted to CEOs as a percentage of total options granted rose from 6.2 percent in 2006 to 7.4 percent in 2010.