Sometimes it’s interesting to read commentary about CEO pay from someone not involved in the executive compensation industry. I thought this BNET blog featuring an interview with Roger Martin, Dean of the Rotman School of Business at the University of Toronto, entitled “Why CEOs Are Overpaid, and NFL Stars Aren’t” provided good food for thought. Here’s a few words about Roger’s book from Paul Hodgson.
Recently, Mike Kesner and I weighed in on a question posed on our “Q&A Forum” (#867) regarding “Why is it that so many of the companies failing to win their say on pay votes are smaller companies, while most of the largest ones are passing muster?”
My answer is up on the “Q&A Forum” – but I repeat Mike’s here for you to consider:
I agree with Broc that it is tough to generalize, but smaller companies probably do not have the resources to track what all the different proxy advisory firms think about their compensation program and what changes they need to make to fall within these firms’ guidelines. Smaller firms probably do not have the resources to do an in-depth analysis of their shareholder base to understand who is aligned with the different proxy advisory firms and what, if any specific policies, their major shareholders have regarding pay policies.
Smaller firms probably do not hire proxy solictors to set up individual calls with the governance people at their major institutional shareholders to determine if there are specific concerns regarding pay, nor do they have the proxy solicitor monitor voting results on a daily basis to make sure they know about a no vote from a major shareholder in a timely fashion and can take action to try and move the vote to the FOR column prior to the annual meeting.
It is also possible that the number of smaller companies getting a no vote appears high, but is in fact proportionate to their percentage of all publically traded firms. The S&P 500 only represents a small percentage of the 10,000-11,000 publically traded firms, and if 2% of companies fail, on average, there will be a lot more smaller companies failing ( 200 or so) than large companies (20 or so).
A shareholder proposal seeking an investor vote on future “golden parachute” arrangements earned 57.8 percent support (based on votes cast “for” and “against”) at the May 27th annual meeting of Lowe’s Companies.The proposal was filed by t e Trowel Trades S&P 500 Index Fund, which is seeking a vote on future severance arrangements that would provide benefits that exceed 2.99 times the sum of an executive’s base salary plus bonus. The North Carolina-based home improvement retailer previously adopted a policy that provides for shareholder ratification of any new agreement that provides for a total cash value severance payment exceeding 2.99 times the sum of the salary plus bonus, but this policy excludes tax gross-ups, which can be significant.
Overall, 80 U.S. shareholder proposals have received majority support this proxy season. Other recent votes include 84.5 percent support for declassification at Neurocrine BioSciences, a 86.9 percent vote for declassification at Thermo Fisher Scientific, and 78.3 percent approval for majority voting at Tessera Technologies.
Meanwhile, more issuers are filing proxy materials that include stand-alone golden parachute votes, as required by the Dodd-Frank Act for companies that seek shareholder approval for mergers and other transactions. Among those companies are: Lawson Software (June 29), K Sea Transportation (July 1), GS Financial (July 7), and Digital Angel (July 14). In addition, the agenda for the June 14 meeting of BioMimetic Therapeutics includes a bundled “say on pay”/golden parachute vote, one of the first ballot items of its kind this year.
Recently, Equilar released this report on CFO pay strategies in the S&P 500 finding that:
– Median total compensation for S&P 500 CFOs grew by 26.1% from 2009 to 2010. In 2010, median total compensation for S&P 500 CFOs was approximately $3.0 million, up from approximately $2.4 million in 2009.
– Median total bonus payouts for S&P 500 CFOs increased to $710,864 in 2010, up 32.7% from the 2009 median of $535,625.
– Healthcare CFOs received the most compensation, having a median total pay of $3.5 million in 2010.
As I recently blogged, there has been a trend of companies that fail to garner majority support for their say-on-pay getting sued – a trend that started last year. In his “D&O Diary Blog,” Kevin LaCroix provides details about a fifth say-on-pay related lawsuit – this one filed against Umpqua in a federal district court in Portland. We continue to post pleadings from these cases in our “Say-on-Pay” Practice Area.
We are excited to announce that SEC Chair Mary Schapiro will open the second day of our annual package of executive pay conferences to be held on November 1st-2nd in San Francisco and by video webcast: “Tackling Your 2012 Compensation Disclosures: 6th Annual Proxy Disclosure Conference” and “The Say-on-Pay Workshop Conference: 8th Annual Executive Compensation Conference.” Save by registering by June 24th at our early-bird discount rates. Note this early-bird discount will not be extended.
For those attending, take a moment to RSVP on this LinkedIn Event – in the upper right corner – so your friends can know you are going…
As noted in this recent blog by Ning Chiu of Davis Polk, some confusion exists about which of the SEC’s forms can companies use to disclose their SOP frequency in the wake of their annual meeting.
While Ning addresses the ambiguities in the SEC’s rules as to whether the determination can be made in the Form 8-K announcing the annual meeting results that is filed within 4 business days after the meeting, as compared to an amendment of the Form 8-K filed within 150 days after the meeting (Ning notes that many companies have indeed gone the original 8-K route rather than wait for a later amendment), there also remains the question of whether this determination can be filed in a Form 10-Q if that filing is otherwise due and a company is ready to disclose its determination. Although a CDI exists that would seem to support that avenue of disclosure, a member recently posted a discussion with a SEC Staffer in TheCorporateCounsel.net’s Q&A Forum (Q&A #6432) that said:
In response to a similar question, the SEC’s Office of Chief Counsel confirmed by telephone that an Item 5.07 triggering event must be filed on Form 8-K. Their reasoning was that there is an expectation that the issuer will be filing an amendment, either to report final voting results or to report the board’s determination on the frequency of say on pay votes, and that for ease of finding the information they want it all to be reported on an 8-K or 8-K/A.
The staff person I spoke with acknowledged the C&DI referenced above (Question 101.01) and indicated that they are looking into providing an update to that C&DI to address this particular issue.
So it seems that perhaps we may see some CDIs that address these murky issues sometime soon…
For those who want the skinny on every single vote on say-on-pay so far, Womble Carlyle released this comprehensive survey yesterday of 1600 SOP votes (here’s the related memo). This section of our “Say-on-Pay” Practice Area includes a bunch of resources that have been keeping track of the latest results. Another popular item is this list from Semler Brossy of the 69 companies that have filed additional soliciting materials to combat the negative recommendations that their pay agenda item received from ISS.
As noted in this recent Towers Watson study, many companies are making changes to the CD&A sections of their proxies. One-half of the 170 Fortune 1000 companies that Towers Watson studied (50%) added an executive summary to their 2011 proxy statements, and as a result, nearly two-thirds (64%) of companies now include an executive summary. Additionally, 85% disclosed specific performance goals for the 2010 plan year, while more than three-fourths (78%) showed actual performance attained for 2010 to support the annual bonus paid.
Other findings from the Towers Watson proxy analysis include:
– Almost three in 10 (29%) companies made one-time and/or retention grants in 2010, compared to 16% in 2009. The vast majority of grants in both years were awards that vest solely on the basis of time.
– One-fourth (25%) of companies changed the performance measures used for 2010 annual bonuses, while slightly fewer (24%) changed performance goals for long-term incentive awards.
Last month, Equilar released a research report on equity trends in the S&P 1500 (you can request a copy). Some of the findings include:
– Stock options are declining: From 2006 to 2010, the median number of total stock options granted fell at an annual rate of 3.6 percent.
– Restricted stock is on the rise: In the same period, the prevalence of companies awarding restricted-stock grants rose from 74.9 percent to 90.2 percent.
– An early look at 2010 proxies: In proxies filed so far, 48.8 percent of CEOs received a grant of performance-based equity. 60 percent of CEOs received shares with performance periods spanning multiple years.