Governance Center Blog

Feb
01
2012

Boards Beware of Growing Executive Compensation Packages

By Anthony Galban

Some 25 years ago I attended a crowded and agitated shareholders meeting for a Fortune 500 company. During the meeting, a shareholder held up a large and colorful chart for the meeting attendees to see. The chart showed the change in the CEO’s compensation compared to shareholder return over the past several years. Impressively, the CEO pay had grown by roughly 300%. As I struggled to see the second line charting shareholder return, I noted the flat line running along the x axis indicating little to no growth for shareholders. When challenged by this graph, the CEO stated that his pay was “comparable” to what other Fortune 500 CEOs were paid. The shareholder proposal to freeze the CEO’s compensation got a surprising 30% of the vote and both the Board and management were visibly shaken.

This story captures many of the dynamics of the “say on pay” issue that remain important to this day. This topic can be an emotional one for shareholders and Boards, and emotions can be both volatile and unpredictable. Here are my observations on this issue:

1. The “status” argument doesn’t hold water anymore. Today’s shareholders want value, which is driven by corporate performance. Being told that large compensation packages are required for “captains of big ships” doesn’t resonate. Today’s CEOs and Boards should expect to answer the question regarding executive compensation in terms of performance and the shareholder experience.

2. CEOs may overrate their value. There are actually only a handful of companies where shareholders may feel a CEO is absolutely indispensable—and at those companies, the shareholders may be willing to give the CEO a “pass” on issues such as compensation because the CEO brings that much value to the table. These are usually situations where the shareholders have experienced significant appreciation.

3. Things can turn quickly. Shareholders can be surprisingly relaxed with executive compensation when things are going well, but they can agitate quickly finding big pay packages outrageous when the tides turn. This can create a material disconnect between shareholders and the Board when executive compensation has grown to very high levels and the company is no longer performing.

As a directors and officers underwriter, I am wary when I see a company with a very large executive compensation package. It could signal future trouble should the company’s financial situation falter. But in the marketplace the rule of thumb seems to be that the climate for bigger and bigger pay is quite good so long as the company and the stock are doing well. It’s when they disconnect that I sense trouble – and it’s headed towards the Board.

 

Anthony Galban, a senior vice president and directors and officers liability underwriting manager for the Chubb Group of Insurance Companies, can be reached at galbant@chubb.com.

Posted by at 2:47 PM | No Comments »

Permalink: Boards Beware of Growing Executive Compensation Packages

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Jan
18
2012

Governance Challenges and Priorities for 2012

What are the biggest corporate governance challenges and issues for 2012?  I spoke with a number of investors and other governance experts, and here’s what they said:

Read the rest of this entry »

Posted by at 5:17 PM | 1 Comment »

Permalink: Governance Challenges and Priorities for 2012

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Jan
13
2012

Executive Compensation–Tips for Preparing Your Company’s 2012 Proxy Statement

Last week the Governance Center held a webcast on Executive Compensation and the 2012 Proxy Season.  Our panelists had a number of tips for companies as they approach the second year of say on pay and prepare their proxy statements:  Read the rest of this entry »

Posted by at 5:05 PM | 1 Comment »

Permalink: Executive Compensation–Tips for Preparing Your Company’s 2012 Proxy Statement

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Jan
01
2012

2011 Top Read Blog Posts

As 2011 comes to a close, we wanted to share with you the five most read blogs from The Governance Center Blog in 2011.  Executive compensation was the big topic of 2011 and we think it will continue to be in 2012 as the focus stays on pay practices in the 2012 proxy. (Don’t miss our upcoming Governance Watch webcast on January 5, which will focus on exec comp and the 2012 proxy.) We think we’ll see more on Dodd-Frank in 2012 as the SEC begins rulemaking. And sustainability will be an increasingly important and public topic for boards. What are you expecting for 2012? Read the rest of this entry »

Posted by at 11:59 AM | No Comments »

Permalink: 2011 Top Read Blog Posts

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Dec
21
2011

ISS Publishes White Paper on Pay for Performance Evaluation

Yesterday ISS published a white paper detailing its new methodology for the pay-for-performance test described in ISS’ 2012 proxy voting policies. ISS’ new approach to evaluating pay for performance alignment consists of two steps:

Read the rest of this entry »

Posted by at 3:33 PM | No Comments »

Permalink: ISS Publishes White Paper on Pay for Performance Evaluation

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Dec
15
2011

For Companies in the Gray Zone, Preparing for the Next Say-on-Pay Vote is Black and White

As I noted in my post about the 2012 ISS Policy Updates, in the lead up to the 2012 voting season, there has been a great deal of discussion about what happens with companies that garnered a of majority shareholder support for the company’s say-on-pay proposal, but not overwhelming majority support.  With ISS effectively drawing a bright line around those companies with “truly” passing say on pay votes (more than 70 percent), and those in the “gray” zone (those with more than 50 but less than 70 percent), we asked Yonat Assayag, a Partner with ClearBridge Compensation Group, for her firm’s view on how companies in this “gray zone” prepare for the 2012 say on pay vote.  Here is Yonat’s response . . .

 

As 2011 comes to a close, most public companies have by now had their shareholder advisory vote on their executive pay programs, known as “say-on-pay.”  Say-on-pay, an outcome of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires publicly-traded companies in the U.S. to hold shareholder advisory votes at least once every three years. Read the rest of this entry »

Posted by at 11:31 AM | No Comments »

Permalink: For Companies in the Gray Zone, Preparing for the Next Say-on-Pay Vote is Black and White

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Dec
02
2011

Executive Compensation Director’s Forum

SH&P - Forum Sponsor
This week, The Conference Board Governance Center co-hosted a director’s forum on executive compensation with the Weinberg Center for Corporate Governance at The University of Delaware in New York City.

Key topics covered include:PwC - Forum Sponsor

  • Engaging Shareholders on Say-on-Pay and Other Issues
  • Structuring the Right Performance-Based Compensation Plan for Your Organization
  • Advice and Counsel from a Legal Perspective
  • A discussion of Peer Grouping and its Role in the Compensation Process
  • Creating a Template for Effective Compensation Committee Performance
  • Institutional Investor Viewpoints and Perspectives
  • A keynote Address by Justice Jack Jacobs from the Supreme Court of Delaware

Clearly, this topic is front of mind for management, boards, and stakeholders as we head in to the 2012 proxy season. And the media have shown a continued interest in this as well. Read the rest of this entry »

Posted by at 6:30 AM | No Comments »

Permalink: Executive Compensation Director’s Forum

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Oct
18
2011

Reports: Say on Pay Votes Bridging Shareholder-Director Communication Gap

Even though shareholders approved most of the executive compensation plans put up for vote in the 2011 proxy season, the tiny minority of failed say on pay votes are getting an inordinate amount of attention for a myriad of reasons.

Those reasons, which reflect an overarching problem between shareholders and companies, range from a pay-for-performance disconnect to poor pay practices to poor disclosure and pay reasonableness, according to a new study by the Council of Institutional Investors (Say on Pay: Identifying Investor Concerns). Based on its interviews with institutional shareholders who voted against say on pay proposals, Farient Advisors LLC, which was commissioned by CII to write the report, found that 92 percent gave pay-for-performance disconnect as the biggest reason for their vote. The other top reasons were poor pay practices (57 percent) and poor disclosure (35 percent). Read the rest of this entry »

Posted by at 4:27 PM | No Comments »

Permalink: Reports: Say on Pay Votes Bridging Shareholder-Director Communication Gap

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Sep
06
2011

Is Executive Compensation Information Accuracy Vulnerable as Equilar ends ISS Deal?

There was a snippet of information that caught my eye last week as I was researching the hash tag #corpgov on Twitter: “Equilar terminates agreement with ISS.”

While that news isn’t earth-shattering, it’s what’s not in the press release that this tweet was linked to that could have deep implications for next year’s proxy season. What I’m talking about specifically is executive compensation data. For those not familiar with the Equilar name, it is a California-based provider of total executive compensation information for public companies. So why is a termination of an agreement between Equilar and the proxy advisory firm Institutional Shareholder Services mean anything to corporate secretaries of public companies or others in the corporate governance world? Read the rest of this entry »

Posted by at 4:26 PM | 2 Comments »

Permalink: Is Executive Compensation Information Accuracy Vulnerable as Equilar ends ISS Deal?

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Jul
18
2011

Derivative Lawsuits on Radar of Failed SOP Vote Companies

If you sit on the board of any of the 39 companies that had a failed Say on Pay vote the past proxy season, I don’t need to tell you that despite the fact the votes were only “advisory” there will be some shareholder repercussions. In the past year, seven companies have already faced one of those repercussions – the dreaded derivative shareholder lawsuit.

It’s possible the plaintiff’s bar may not limit their targets to companies with failed SOP votes; the word is that any vote below 70 percent is troubling. And in some cases compensation consultants have been named as defendants.

At last check, the companies facing derivative lawsuits from shareholders after negative SOP votes include:

  • Occidental Petroleum (2010)
  • Keycorp (2010)
  • Beazer Homes (2011)
  • Umpqua Holdings Corp. (2011)
  • Jacobs Engineering Group (2011)
  • Hercules Offshore Inc. (2011)
  • Bank of New York Mellon (2011)*

*=It should be noted that BNY Mellon is the only company to be sued following a successful SOP vote. Read the rest of this entry »

Posted by at 5:03 PM | No Comments »

Permalink: Derivative Lawsuits on Radar of Failed SOP Vote Companies

Share: Digg | Twitter | Stumble | del.icio.us | Facebook | MySpace | Google

Older Entries

Governance Center Blog