Recently, we wrapped up our new “2009 Say on Pay Survey,” which offers an in-depth look at how 231 respondents across a range of industries are approaching this major new governance initiative. While an advisory proxy vote on executive pay seems increasingly to be mandated for all public companies, the survey revealed that most companies are postponing taking many important steps to make programs more shareholder-friendly, such as:
– Focusing on market benchmarking practices and the link between executive pay and
performance
– Anticipating the attitudes and policies of institutional shareholders and proxy advisory firms
– Enhancing shareholder communications around pay
– Identifying any perceived poor pay practices
Recently, Equilar released a “Fortune 500 Peer Group Report” (you can request a copy). As noted in this press release, the findings include:
– Among the Fortune 500, 27.2% of peer groups have between 16 and 20 companies listed
– The average peer group size is 24 while the median size of peer groups is 19 companies
– Most companies benchmark to peers one-half to two times their size
– 24% of companies named as peers also show up as peers of peers (2nd-degree peers)
– Most companies are used in a peer group at least 10 times
– The industries with the largest average number of stated peers in a group were Industrials with 35, Utilities with 28 and Services along with Technology both having 26
In this article, Bud Crystal gives his thoughts on Equilar’s new study…
I loved Michelle Leder’s title of her footnoted.org blog recently entitled “On Black and Decker’s CEO and unicorns…“. Michelle was referring to the Form 8-K filed by Black & Decker which reveals that its CEO would forego $20 million in severance, a sum he would be entitled to under his arrangements with the company as triggered by this week’s announced merger with Stanley Tools. The Washington Post ran this article last week noting how this move is perhaps not as generous as it seems.
And here is a response from a member:
I don’t mean to throw stones, but Mr. Archibald is 66 years old. Why is he entitled to three years severance in the first place?
Based on my review of his new three year Executive Chairman Agreement, he is entitled to a base salary of $1.5 million per year, a target bonus of $1.875 million per year and long-term incentives of $6.65 million per year, (of which 50% is in stock options and 50% in restricted stock). Add to that, a 1 million share “sign-on” stock option grant (estimated value $15 million) and a Synergy Bonus Amount of as much as $45 million. All in, he could earn $90 million over the next three years, which would easily make up for his contract waiver if the company performs.
It is also worth noting that his current SERP is worth $35 million as of December 31, 2008, and he retained the right to an enhanced SERP if he is terminated before the end of the new contract term (i.e., he gets additional years of service and his foregone severance is included in the benefit calculation).
While I am glad to see a CEO waiving severance, it looks to me like he is getting it back, and then some.
Today is the “6th Annual Executive Compensation Conference”; yesterday was the “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference,” whose archives are already posted. Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to). Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive. A prominent link called “Enter the Conference Here” on the home pages of those sites will take you directly to today’s Conference.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the Conference Agendas; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few (but hours for each state vary; see the CLE list for each Conference in the FAQs).
– How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant only to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.
Late yesterday, I uploaded a rare afternoon blog to note Corp Fin Shelley Parratt’s important keynote speech regarding what the SEC Staff expects from 2010 executive compensation disclosures, as well as observations from the ’09 proxy season (eg. still not enough “analysis” in the CD&A). Read that blog for more information.
Today, Corp Fin Shelley Parratt delivered this important keynote speech regarding what the SEC Staff expects from 2010 executive compensation disclosures, as well as observations from the ’09 proxy season (eg. still not enough “analysis” in the CD&A). Among other important points that I will cover in this blog later this week, Shelley raised this point regarding how the Staff will administer the comment process in the near future:
It means that after three years of futures comments, we expect companies and their advisors to understand our rules and apply them thoroughly. So, any company that waits until it receives staff comments to comply with the disclosure requirements should be prepared to amend its filings if it does not materially comply with the rules.
Shelley addressed several other crucial points during a Q&A period not covered in her posted speech. The archive of her keynote should be available in our archived Conference sometime tomorrow for those that want to see that…
Today is the “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference”; tomorrow is the “6th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to). Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference” on the home pages of those sites will take you directly to today’s Conference.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the Conference Agendas; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few (but hours for each state vary; see the CLE list for each Conference in the FAQs).
– How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant only to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.
Remember you will need your Conference ID and password to access these. Here is other important Conference information that I blogged about earlier this week.
Yesterday, SEC Chair Mary Schapiro delivered a speech at PLI’s annual Securities Law Institute that summarized the current state of proposals that are Corp-Fin related, including identifying the areas that the SEC’s upcoming concept release on proxy plumbing will address. She indicated that the proxy access proposal would be considered by the Commission in early 2010 (which is not new news, as noted in this blog).
But she did not indicate when the proxy disclosure enhancements proposals would be adopted (a set of proposals that includes the proposed executive compensation rules). At this point, it’s clear that these rules will not be adopted on November 9th – as widely rumored for some time – and it’s unknown when they will be adopted or if they would still apply to the upcoming proxy season even though time is running short to modify D&O questionnaires to capture new information. Corp Fin Director Meredith Cross indicated on a panel that these rules might indeed apply to the 2010 proxy season, but as I understand it, her statement wasn’t definitive so anything can happen. [Don’t forget our upcoming TheCorporateCounsel.net webcast: “Ask the Experts: Prepping for a Wild Proxy Season.”]
And even harder for many companies: timing compensation committee meetings (and other board meetings) to deal with any new rules before the year is out. Numerous members have been emailing me asking if – and when – this is gonna happen…
Survey: Will Your Compensation Committee Hold a Special Meeting if the SEC Adopts New Rules?
Here is an anonymous survey to gather information about what companies are doing to prepare for the possibility of new SEC rules that apply to the upcoming proxy season:
Companies have continued to tune down their use of stock options, driven by the need to minimize the often significant financial impact of option expensing and equity dilution. There is also the very real need to better align executive compensation with sustained growth in shareholder value. Here are the charts that go along with this blog.
The most common approach to the options issue is reduction of option grants, elimination of broad-based plans, amendment or elimination of employee stock purchase plans, and/or adjustment of the vesting period or other terms of existing plans. While stock options should, and will remain a key element of executive compensation, the multi-million dollar “mega-grants” that fueled the biggest executive pay packages in recent history will continue to dwindle.
In place of stock options, companies are tuning up the use of performance-based restricted stock and restricted stock units (RSUs), as well as cash-based performance shares and performance units. With pure time-vested awards widely criticized by shareholders and governance watchdogs as “equity giveaways”, well designed long-term incentive (LTI) plans are based on meeting tangible, clearly defined, and measurable financial and/or operational goals that are ultimately linked to boosting overall corporate performance – rather than just share price alone.
The new accounting rules support this new trend, permitting companies considerable creativity and flexibility and in combining the use of different LTI vehicles, including cash-based alternatives such as stock appreciation rights (SARs) that pay out the difference between the strike price and the fair market value of the underlying shares. Even better, the optics of these performance-based plans look great to the very public eyes of shareholders and the media. We still have to be thoughtful though, and need to take into account the reduced risk of full-value plans such as restricted stock, as compared to stock options or other LTI vehicles, and need to carefully consider the standards and methodologies used by different institutional shareholder and governance ratings services when assessing new LTI plans.
Some companies, particularly start-ups, pre-IPO, and other high-growth companies, continue to conclude that the usefulness of stock options in attracting, retaining and motivating essential talent is worth swallowing the charge to earnings. Other companies use the advent of option expensing as the rationale for continuing to curtail or eliminate stock option participation, particularly among lower level employees. Either way, companies should ensure that, in analyzing the impact of accounting considerations and investor pressures, business and human resource considerations do not take a back seat.
As companies focus LTI plans on nuts-and-bolts business fundamentals that drive sustained growth rather than just market performance, short-term (annual) incentive (STI) plans are assuming a much more prominent role. Revised STI metrics reward executives for meeting specific tactical (quarter-by-quarter) targets, such as business unit or departmental performance goals that represent milestones that are key to the achievement of multi-year strategic goals.
For example, a performance-based long-term incentive plan pegged to three-year return on invested capital might be supported by an annual plan with related goals such as increasing revenue, lowering expenses, restructuring debt or developing new business opportunities.
Opportunities and leverage in both STI and LTI plans are also being customized to an organization’s business strategy and financial situation. For instance, rather than adopting the traditional “80/120” leverage design, payout thresholds might be lowered when budgets are “stretched” and difficult, or raised when performance is more certain. Likewise, some companies have chosen to increase upside opportunities to make rewards for incremental performance more meaningful.
– Test Your Access Now: To ensure you don’t have any technical snafus for the Conferences, please test your access today (this test is only available this week) by using the ID and password that you received for the Conferences.
When you test your access, you can test our CLE Tracker as well as input your bar numbers, etc. You also will be able to input your bar numbers anytime during the days of the Conferences too (remember that you will need to click on the periodic “prompts” all throughout each Conference to earn credit). If you are experiencing problems, follow these webcast troubleshooting tips.
– How to Access the Conference: To access the webcast, use the ID/password that you received in an email from us to get in via a prominent Conference link that will be on the home page of TheCorporateCounsel.net on the day of the Conference; this ID/password is separate and different from any you use for our sites. Note that times posted are in Pacific Time; archives will be available within 24 hours after the live event ends.
– How to Earn CLE Online: Read the “FAQs about Earning CLE” carefully to see if it is possible for you to earn CLE for watching online – and if so, how to accomplish that. Both Conferences will be available for CLE credit in most states (but hours for each state vary; see which state and hours in List: CLE Credits).
– Don’t Share Your ID/Password: We remind you that sharing your ID and password with anyone is stealing from us and a crime.
For those attending in San Francisco:
– Check-In Times: When you come to the San Francisco Hilton – located at 333 O’Farrell Street – you can check in for the Conferences (i.e. pick up your Conference materials, etc.) starting at 7:30 am on Monday, November 9th until the last panel on Tuesday. Continental breakfast is available on Monday from 7:30 to 8:30 am – and on Tuesday from 7:00 to 8:00 am.
– Monday Night Reception: We hope you can join us after the Conference on Monday for our Opening Reception – to be held after the last panel ends – from 6:00 to 8:00 pm. The opening reception will be held in the Exhibit Hall.
You Can Still Attend Via Video Webcast: Due to unprecedented demand and limited space at our conference hotel for the Conferences, we were forced to end Conference Registrations for those attending live in San Francisco. It’s sold out! But note in the alternative, you can still attend by video webcast. You automatically get to attend both Conferences for the price of one: Register now.