The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Check out this interesting paper by Towers Watson entitled “Career Shares: New Ideas to Reward Sustained Performance.”

– Broc Romanek, CompensationStandards.com

Our pair of popular executive pay conferences – “6th Annual Proxy Disclosure Conference” & “The Say-on-Pay Workshop Conference” – is quickly approaching and the Conference hotel is nearly sold out; register for the Conference today and make your hotel reservations online or by calling them at 800.445.8667 or 415.771.1400. Be sure to mention the Conferences to get the best rate. The Conferences will be held on November 1-2 in San Francisco and by video webcast. If you have difficulty securing a room, contact us at 925.685.5111.

With Conference registrations going strong – on track to reach nearly 2000 attendees – you don’t want to be caught unprepared as we head into next year. The last time we held our Conferences in San Francisco – two years ago at the height of the recession – we sold out a month in advance: the Conference itself, not just the hotel! And that was without the reality of Dodd-Frank and mandatory say-on-pay hanging over our heads. Register today to ensure you don’t miss out.

– Broc Romanek, CompensationStandards.com

Last week, the 9th company that failed to garner majority support for their say-on-pay was sued – Dex One Corp in a federal district court in North Carolina (here’s the complaint). We continue to post pleadings from these cases in our “Say-on-Pay” Practice Area.

But that’s not all in the area of lawsuits over pay practices. Last week, Chesapeake Energy’s board was sued for allegedly bailing the company’s CEO out of financial trouble by awarding him bonuses – as well as buying his personal art collection for $12.1 million and relying only on the CEO’s art dealer for determining the value of the art – in a federal district court in Oklahoma. Not sure why, but it doesn’t seem like the mass media has caught up with this one. Thanks to Paul Hastings’ Mark Poerio for pointing it out!

And then as I blogged last week, arguments where just made in a lawsuit in the Delaware Chancery Court over Goldman Sach’s pay practices. If the case survives, it should be interesting – as will the Citigroup case where discovery ended last week and now we’re just waiting for a trial date to be set before VC Glasscock…

– Broc Romanek, CompensationStandards.com

With the proxy season long over, it’s been a long time – 9 weeks – since we’ve seen a company fail to garner majority support for its say-on-pay. But as Mark Borges reported over the weekend in his blog, Exar has become the 41st company to do so this year.

In this Form 8-K, Exar reports that it was a close vote with the company receiving more “for” votes compared to “against” – but as Mark notes, the Delaware company counted its “abstentions” as “against” votes back when the company filed its proxy statement (see pg. 4) – thus resulting in the receipt of 49% in support. A list of the Form 8-Ks of the “failed” companies is in our “Say-on-Pay” Practice Area.

– Broc Romanek, CompensationStandards.com

In a post entitled “Can an Excessive Compensation Case Survive a Business Judgment Rule Challenge?,” Cydney Posner of Cooley reports the following:

If it survives at all, this case might be worth watching. This Bloomberg article reports on arguments heard in In re the Goldman Sachs Group Inc. Shareholder Litigation in the Delaware Chancery Court. Counsel for plaintiff Southeastern Pennsylvania Transportation Authority argued that Goldman’s compensation plan unfairly rewards the investment bank’s employees at shareholders’ expense, that Goldman “is being run for the benefit of employees rather than shareholders,” and that the firm’s compensation system is wasteful and rewards employees for taking risks that hurt the firm’s stock price, such as the creation and sale of CDOs that resulted in Goldman’s paying a $550M settlement with the SEC.

According to the article, Goldman has lost $50 billion in market value since 1999 while the company has paid out billions in compensation, including $19 million to CEO Lloyd Blankfein for 2010. His compensation was almost double the prior year’s award and included a $5.4 million cash bonus, even though Goldman’s profits fell. The derivative suit against the Goldman directors seeks to hold them “responsible for the firm’s flawed pay plan and for not properly overseeing the company’s employees.”

The author reports that Goldman’s counsel argued in response that it is not the role of the courts to decide how much risk a firm should take or how much compensation its employees should be paid. As I said, if this case survives at all, it should be interesting.

– Broc Romanek, CompensationStandards.com

Equilar recently released a report -“TSR Performance and CEO Pay Report” – about the relationship between total shareholder return (TSR) and CEO compensation in the S&P 1500. The report’s findings include:

– 23.9% of firms increased their CEO’s pay, despite below-median TSR, in the past year (2008-2009).
– 30.0% of firms increased their CEO’s pay, despite below-median TSR, in the past three years (2006-2009).
– Almost all companies studied increased their CEO’s base salary from 2006 to 2009, even if the CEO’s total compensation went down.

Normally, you can request a copy of Equilar’s reports – but I don’t see a link for that yet on their site…

– Steve Quinlivan, Leonard, Street and Deinard

Here’s something that I just blogged: Yesterday, the SEC announced a settlement with the former chief financial officer of Beazer Homes USA to recover his bonus compensation and stock sale profits from the period when the Atlanta-based homebuilder was committing accounting fraud.

According to the SEC’s complaint filed in federal court in Atlanta, James O’Leary is not personally charged with misconduct, but is still required under Section 304 of the Sarbanes-Oxley Act to reimburse Beazer more than $1.4 million that he got after Beazer filed fraudulent financial statements during fiscal year 2006. The SEC’s settlement with O’Leary is subject to court approval.

Earlier this year, the SEC reached a settlement with Beazer CEO Ian McCarthy to recover several million dollars in bonus compensation and stock profits that he received.

Section 304 requires reimbursement by some senior corporate executives of certain compensation and stock sale profits received while their companies were in material non-compliance with financial reporting requirements due to misconduct. According to the SEC, this can include an individual who has not been personally charged with the underlying misconduct or alleged to have otherwise violated the federal securities laws.

Without admitting or denying the SEC’s allegations, O’Leary agreed to reimburse Beazer $1,431,022 in cash within 30 days of entry of the court order approving the settlement. This amount includes O’Leary’s entire fiscal year 2006 incentive bonus: $1,024,764 in cash incentive compensation and $131,733 previously received from Beazer in exchange for all restricted stock units he received as additional incentive compensation for fiscal year 2006. The settlement amount also includes $274,525 in stock sale profits.

– Broc Romanek, CompensationStandards.com

From an anonymous member: “Recently, I listened to an ISS Corporate Services webcast about their new ExecComp Analytics platform. Based on what I saw during the webcast, it would give subscribers access to the same executive compensation database that ISS uses when doing its proxy voting analysis, including their proprietary way of valuing equity-based instruments. It would also give subscribers some insight into how ISS views certain pay elements for particular companies.

One interesting thing I learned during the Q&A is that this platform will not source its exec comp data from Equilar. Instead, going forward ISS will use an in-house team to compile exec comp data. To me, this signals the beginning of ISS and Equilar competing head-to-head for subscribers to their respective exec comp databases. While some companies will be able to afford to subscribe to both, I think many may not.”

On the heels of receiving this note, Equilar announced that it was terminating its agreement with ISS…

– Broc Romanek, CompensationStandards.com

Check out this recent article from Frank Glassner of Veritas about the future of stock options. I would repeat it in this blog but the blogging software won’t let me paste charts…

– Broc Romanek, CompensationStandards.com

Thanks to Mike Melbinger of Winston & Strawn for contributing this nifty chart that lists issues to consider when drafting clawback policies. We have posted it in our “Clawback Policies” Practice Area.