This is a summary of all the articles of interest we encounter — news, consulting white papers, academic studies, and other items of interest. Please enjoy.
If you have another item to add to this list, please email email@example.com.
We’re going to pin articles on CEO Pay Ratio to the top here: Pay ratio disclosures reveal surprising truth about companies (Crains New York) — discusses relatively significant differences in median pay among similar companies; Convergys’ CEO pay ratio shows how little its overseas employees are paid (paywall: Cincy Biz Courier); ConocoPhillips — median pay = $150,000! (Houston Biz Journal); the first CEO Pay Ratio less than one!: Plains All American CEO made less in 2017 than median employee pay (Houston Biz Journal)
Americans Split on Government Action to Limit Executive Pay (Gallup) — Only 47% of Americans favor federal government regulations to limit the pay of executives at major companies. This is down from 59% who favored limits 10 years ago.
Did some companies fudge their pay ratio disclosures? (Compliance Week) — ““Very similar companies are reporting dramatically different compensation numbers, pay ratios and median salaries to the SEC, and there does not appear to be any explanation for the discrepancies,” claims Public Citizen in a letter to the agency this week.”
The Fix for Misleading ‘CEO Pay Ratios’ (WSJ) — “The Securities and Exchange Commission has mandated methodologies that create the wrong impression.”
Warren Buffett has been making the same salary for decades — and it’s surprisingly low (CNBC) — and from the category of “Not really news anymore…
GE reports CEO pay ratio at 157-1 of median employee (CT Post) — Another CEO Pay Ratio reported, albeit from a distressed company
Walmart’s Former CEO Takes a Page From Trump’s Book, Slams Amazon for ‘Destroying Jobs’ (Footwear News) — Walton family: think about how many Main Street businesses you disrupted and how many people you put out of business becuase of your innovative business model…
BlackRock’s CEO wants more transparency on private company CEO pay (Yahoo Finance) — of course he does, since it would only advantage his own company in competing for talent.
Verizon shareholders want executive pay tied to how well it improves its cybersecurity (Fast Company) — “shareholders in Verizon filed a proposal for the company’s May 3 annual meeting requesting the board to consider tying the compensation of “senior executives” to the company’s security performance.”
Selecting the right performance period for long-term incentive plan (Singapore Business Times) — Three years might be the most prevalent period for a long-term incentive plan, but it might not align with your companies business model, economics, or strategic priorities.
Post-bankruptcy stock award boosts Peabody CEO’s pay to $20.6 million (St. Louis Post-Dispatch) — “Peabody Energy Chief Executive Glenn Kellow forfeited $8 million worth of stock in the company’s bankruptcy, but Peabody more than made up for it with a $15 million stock award when it emerged from Chapter 11 last April.”
Biglari CEO awards himself 800% pay raise for 2017 (San-Antonio Express News) — Another public company rife with governance concerns and potential (perhaps real) conflicts of interest.
The Fix for Misleading ‘CEO Pay Ratios’ (WSJ) — “the pay ratio will be two or three times as high for retailers as for drug, financial or tech companies. But the reason isn’t soaring CEO pay in the retail industry. For one thing, midlevel retail workers simply make less, on average, than their peers in pharma, finance and tech, which skews the ratio.”
Bosses’ pay disclosures fuel staff dissatisfaction (FT) — “Make no mistake: failing to narrow the yawning pay gap between the elite and the average worker will imperil capitalism itself.”
MBA recruits under pressure to justify their pay (FT) — “Business schools emphasise financial and professional rewards of an MBA to graduates. But the return on investment to employers is also a concern for those hiring MBA graduates, who must balance the cost of paying out higher salaries against the potential for greater value to the business.”
Executive Pay at Public Corporations After Code §162(m) Changes (NY Law Journal) — “changes [to 162(m)], how the changes might impact on different forms of executive pay and some of the steps public corporations need to take in light of these changes.” — a pretty good summary of the changes to 162m and the anticipated implications on executive compensation.
Top Ten Emerging Trends in Pay Ratio Disclosure (Pillsbury) — Statistics from early CEO Pay Ratio disclosures
Taxation and Executive Compensation: Evidence from Stock Options (Harvard Law School) — “…taxes, in this case on the firm, can have significant impacts on the form and level of compensation. ”
The CEO of the biggest Dutch bank is paid a tenth of his American counterparts, and it’s a national scandal (Quartz) — Kinda puts US CEO compensation in perspective. ING eventually scrapped the plan to increase their CEO pay so that it would have been only 80% lower than US CEOs. Related: Under Pressure, ING Scraps Plan to Raise CEO Pay (US News) Related: Big Bank CEO pay here
GE’s Terrible 2017 Means No Executive Bonuses. But Its CEO Pay Is Still Stratospheric (Fortune) — “GE won’t be paying out bonuses for 2017 (with one exception), but even so, CEO John Flannery made $9 million—157 times what the median GE employee earned—for the year. ”
Tesla, Disney Face Backlash Over CEO Pay Packages (Investopedia) — Tesla gets AGAINST vote rec from ISS; Disney actually loses their SOP vote.
CEO Pay Rewards What Was Going to Happen Anyway (Bloomberg View) — “Perhaps the biggest concern for shareholders is how we compensate public CEOs in America: They get paid not for how well their companies do, but for how well the stock market does.”
Fund managers ‘asleep at the wheel’ over exorbitant executive pay (FT) — “The low votes against high pay by BlackRock and Vanguard come amid concerns that fund managers are failing to tackle fat cat pay because their own chief executives earn large sums of money.”
Oracle’s Road To Moving The Needle On ‘Say On Pay’ Votes (Forbes) — ORCL has failed their say on pay vote for six straight years
ISS Buys EVA Dimensions to Bolster Voting Advice for Investors (Bloomberg) — Shefffield Barry take: Look for EVA to be key measure of financial performance for ISS’ Pay for Performance analyses within 1-2 years.
Study: When CEOs’ Equity Is About to Vest, They Cut Investment to Boost the Stock Price (HBR) — “the more equity CEOs have vesting in a given quarter, the more they cut investment. This result holds for five different measures of investment and for both vesting stock and vesting options. In addition, vesting equity is positively correlated with the CEO just barely meeting analyst earnings forecasts — suggesting that it causes the CEO to focus on short-term earnings rather than long-term investment.”
Snap CEO Spiegel’s $637 million bonus shows just how broken executive compensation is (Business Insider) — “Snap recently disclosed that it paid CEO Evan Spiegel $638 million last year — mostly in the form of a gigantic stock award. The award was worth more than any other since at least 2011, bigger even than the jumbo award Apple gave Tim Cook when he took over from Steve Jobs as CEO.” Alternative Perspective here: Why Snap’s Evan Spiegel Got Paid $638 Million–And Deserved It (Fortune)
Why employers should revisit their executive compensation strategies (Employee Benefit News) — implications from the changes in 162(m)
CEO Pay Ratio Survey Results: The Bigger the Company, the Larger the Pay Gap (Equilar) — “Overall, the median ratio of these companies was 140:1, but of course, ratios differed widely depending on various analyses of the data. One of the survey’s main findings—that pay gaps are wider at the largest companies—may not be surprising. However, not only are the largest companies paying their executives more, compensation for median employees is also lower. ”
Elon Musk’s New Pay Deal Sets the Wrong Targets (Barrons) — “However bold this new pay plan might seem—it considers that Musk could grow Tesla’s market capitalization from the current $58 billion to $650 billion in 2028—shareholder-friendly it is not. It emphasizes market cap goals, not sustainable profits. Under the new plan, Musk, who owns about $13 billion in Tesla stock, gets nothing until the company’s market cap reaches at least $100 billion. He gets a huge trove—about $55 billion—if it rises to $650 billion.” — Related: The Real Problem With Elon Musk’s Massive Tesla Pay Package (Motley Fool)
CEO Pay Is Even More Outrageous Than It Seems (HBR Video) — Discussion of Fair Value of equity awards vs. actual realized gains.
Wynn Resorts says ex-CEO Steve Wynn not entitled to severance pay (Reuters) — Too bad, so sad. It’s not fun (or profitable) to be terminated for cause.
Snap CEO Spiegel’s $637 million bonus shows just how broken executive compensation is (Business Insider) — “Snap recently disclosed that it paid CEO Evan Spiegel $638 million last year — mostly in the form of a gigantic stock award. Snap says it gave him the award for leading it to an IPO, but its rationale for the award itself and its huge size doesn’t make much sense. The award points not only to problems with Snap’s governance, but to the broader issue of executive compensation.”
Summaries of the Tax Law Changes: Tax Law Changes to Executive Compensation (Arnold Porter Kaye Scholer); A Review of the Tax Cuts and Jobs Act – What You Need to Know, Now (Cohn Reznick); Companies respond to GOP tax bill nixing CEO bonus deductions (HR Dive); Time to Revisit Executive Compensation Arrangements in Light of Recent Tax Reform (National Law Review); TAX REFORM IMPLICATIONS FOR EMPLOYEE BENEFITS AND EXECUTIVE COMPENSATION (Thompson & Knight); Responding to the Tax Act’s Executive Compensation Changes (SHRM); 162(m) changes will affect your proxy disclosure, but not in the manner some suggest (WTW); Not So Fast: The Tax Reform Act DOES Impact Executive Compensation and Employee Benefits (Riker Danzig); The Final Tax Cuts and Jobs Act’s Effects on Executive Compensation and Employee Benefit Practices (Morrison Foerster); What the final tax reform bill approved by House and Senate means for compensation (WTW); Tax Cuts and Jobs Act – New Executive Compensation Rules (Spencer Fane); Responding to the Tax Act’s Executive Compensation Changes (SHRM);
First CEO pay-ratio disclosure sighted (Cooley) — Invivo Therapeutics is the winner in the CEO pay ratio disclosure derby. Congratulations!
Shareholder proposal to exclude impact of share buybacks on executive compensation (Cooley) — “In 2016, the AFL-CIO (and entities apparently acting on its behalf) attempted to curtail the impact of buybacks on executive compensation by submitting shareholder proposals to Illinois Tool Works, 3M and Xerox, asking these companies to adjust executive pay metrics to exclude the impact of stock buybacks.” This article is an interesting discussion of how such a proposal would work, along with the implications of such.
Tesla Jumps The Shark On CEO Compensation (Seeking Alpha) — “Tesla announced a CEO payment scheme based exclusively on performance milestones. The milestones appear unattainable, given Tesla’s already stretched valuation. Assuming that Tesla can achieve some or all of the milestones, the compensation still looks totally unjustifiable.” More: A Bold New Executive Compensation Plan (Boyden)
Market Trends: Say on Pay, Frequency, and Golden Parachute Payments (Skadden Arps) — Partner Joseph Yaffe and associate Lindsay Docto look at trends from the 2017 proxy season relating to say-on-pay, say-on-frequency and golden-parachute votes.
Small & Mid-Cap Public Company Update: 2018 Annual Report and Proxy Season Highlights (Williams Mullen) — Summary of 2018 changes to 10K, Proxy and A/R disclosures.
Executive Compensation Performance Metrics Will Change Under Tax Reform (FEI Daily) — Tax, accounting and governance issues related to the TCJA legislation
Chipotle is promising to pay top executives up to $1 million if they don’t ditch the chain before it finds a new CEO (Business Insider) — Mixed feelings about another poor pay practice from Chipotle: There’s a solid business rationale for retention programs like this, but Chipotle has a history of very poor pay practices.
The CEO of a $3 billion startup shared his salary with everyone in the company — here’s why (Business Insider) — discussing the strengths and risks of complete pay transparency
Pay for bank execs may rise as a result of tax reform (American Banker) — ““Salaries will rise, but it’s likely that annual incentive opportunities will not be reduced,” Hay said. “The result would be greater executive pay.””
Pay Ratio Disclosure Checklist (Stinson Leonard Street) — good checklist for calculating your CEO Pay Ratio
Ripped from Today’s Global Headlines: Lessons on Executive Pay Ratio Communications (Compensation Cafe) — A lesson learned from pay transparency from across the pond.
To Make More Money, CEOs Harm Company Value (CFO); “Quarters when CEO equity awards vest coincide with corporate actions that pump up stock prices briefly while damaging the company’s long-term value.”
The Future: Issues After the Publication of the CEO Pay Ratio (Pay Governance) — Good discussion of how the media, internal employees, and investors are likely to interpret your CEO pay ratio disclosure.
How the Highest-Paid Boards Compare to Peers (Equilar) — A discussion of ISS and Glass Lewis guidelines on Board of Director pay, in addition to the companies with egregiously high Director compensation. Regeneron Pharma, Tesla and Goldman Sachs top the list.
Share Buybacks: Who Really Benefits? (CFO) — Are share buybacks really the best way to return capital to shareholders? Or are they simply a way to maximize compensation to executives?
The Free Market Made Us Do It! (Common Dreams/Inequality.org) — a view from the left: If there is a free market in executive talent, then why such a wide gap between US CEOs and CEOs from other developed countries?
ISS Releases Additional Guidance on its 2018 Voting Policy Changes (Pay Governance) — CEO Pay for Performance assessment, and other changes to ISS’ voting methodology for 2018
Skyrocketing executive pay packages are about to become more costly for corporate America (WashPo) — Exec pay above $1M becomes non-deductible. Perhaps there’s no value in paying it out in bonuses, so maybe more companies will just roll their executive bonuses into much higher salaries, like Netflix just did for 2018…
A Proxy Season Guide to 2018 (National Law Review) — a review of 2017 and a look forward to 2018
Practical Tools for Fighting Short-termism in your Executive Pay Plans (Semler Brossy) — 1. Seek balance in program design. 2. Foster a culture and ethic of stock ownership. 3. Ensure buybacks are a business issue and not a compensation issue. [Ed: Yes, all of these. And especially #3. But also, emphasize longer vesting periods, and emphasize LT incentive rather than annual incentives.]
TCJA BECOMES LAW — HERE’S HOW IT AFFECTS EXECUTIVE PAY: Final 2017 Tax Cuts and Jobs Act: Executive Compensation and Employee Benefits (Sidley Austin) — Very good summary of final legislation; Limitation on Deduction of Executive Compensation in Excess of $1M (Manatt, Phelps, Phillips); What the final tax reform bill approved by House and Senate means for compensation (Towers Watson); Tax Act Alters Executive Pay, Affects Bonus Deductions and Withholding (SHRM); Tax Cuts and Jobs Act Becomes Law (Pay Governance); Tax Reform: New Law Delivers A Bundle Of Executive Compensation And Employee Benefits Changes For The Holidays (ackerman)
An Unexpected Tax Cut Bonanza (Seeking Alpha) — “The Trump tax cut could produce more economic stimulus than many economists (ourselves included) expected. This could occur if others copy the example of several big corporations that announced they will share their tax bonanza with employees.”
Tax Reform Legislation Updates (due to the importance of this issue, we are pinning this to the top of our digest until the legislation is signed or dies — most recent posts are at the end of this entry): Tax Reform: The Shifting Landscape of Executive and Equity Compensation (Pillsbury); Senate Finance Committee Modifies Executive Compensation Provisions in New Modified Mark of Tax Reform Bill (McDermott Will Emery); Pending Tax Legislation Would Affect Executive Compensation for Tax-Exempt Organizations (Jones Day); 2017 Tax Cuts and Jobs Act: Impact on Executive Compensation and Employee Benefits (Sidley); Proposed Tax Cuts and Jobs Act Would Send Executive Compensation Back to the Stone Age (K&L Gates) – perhaps just a tiny bit hyperbolic?; Differences in amended House bill, Senate proposal, place future of executive compensation changes in limbo (Towers); Preparing for Tax Reform: The Current State of Play on Proposed Changes to Executive Compensation and Employee Benefits (Skadden); Comparison of the House and Senate Tax Reform Drafts (Proskauer) — good side by side summary, including Proskauer commentary; The Senate Finance Committee Speaks: Proposed Executive Compensation Changes (Drinker Biddle); Holy Cow, Tax Reform Now Appears Certain (Winston & Strawn) — Melbinger FTW!; Follow-Up on Making Annual Bonus Payments Deductible in 2017 – 162(m)! (Winston & Strawn); Key Benefit and Exec Comp Tax Changes Employers Should Watch (Bloomberg); 2017 Tax Cuts and Jobs Act: Comparison of Senate and House Bills on Executive Compensation and Employee Benefits (Sidley) [Great side-by-side comparison of both bills]; Tax Reform Bills – Executive Compensation Provisions (Holland & Hart); The Impact of Pending Tax Reform on Executive Compensation: The Need for Deductive Reasoning (Latham Watkins); Tax Overhaul Would End Company Breaks for Executive Pay (WSJ); Tax Reform Bill Tightens $1M Limit on Deductibility of Public Company Executive Compensation (Pepper Hamilton); Tax Reform Act – Impact on Executive Compensation (Baker Botts);
This Is How Much Money Apple CEO Tim Cook Will Get as a Bonus for Fiscal 2017 (Fortune) — “Cook’s incentive pay totaled $9.33 million for the year ended Sept. 30, the Cupertino, California-based company said Wednesday in a regulatory filing. He also took home $3.06 million in salary and a previously disclosed equity award of $89.2 million, bringing his total payout for the year to about $102 million.”
Executive Compensation Bulletin: CEO compensation slows and shifts, report finds (Towers Watson) — “CEO compensation among S&P 1500 companies has both slowed and changed, the Willis Towers Watson “CEO Pay at S&P 1500 Companies: 2014 – 2016” report found. The shift in compensation includes a decline in targeted and earned pay, a slowdown in salary increases and relatively flat bonus payouts.”
How CEOs Can Maximize Tax Reform Benefits (Chief Executive) — “companies that expect an executive’s compensation to top $1 million may look to expedite those employees’ compensation from 2018 to 2017 in order to take advantage of the deductions before the new year. While that would be a good financial move for companies, it could cost executives some tax savings. “This would run contra to the executive’s desire, because they’re looking at lower tax rates next year,” Cole says. And with the performance-based compensation exception eliminated, companies may turn to options such as deferred compensation and incentive stock options when determining executive compensation, as those areas were left untouched in tax reform plan.”
DID THE ENRON SCANDAL REALLY CHANGE EXECUTIVE COMPENSATION? (Pacific Standard) — Article conclusion: Not much
Preparing for Employee Reactions to the CEO Pay Ratio Disclosure (Conduent) — “Your company’s CEO pay ratio will send a message to your most important stakeholders – employees, customers and shareholders. But, the ratio is only part of the story – subject to misinterpretation without context. Your company has the opportunity to own its narrative, so that all stakeholders understand the intended meaning of the analysis.”
Director Discretionary Compensation Awards Tested by Entire Fairness Standard According to Delaware Supreme Court (Stinson Leonard Street) — “According to the Court, “when stockholders have approved an equity incentive plan that gives the directors discretion to grant themselves awards within general parameters, and a stockholder properly alleges that the directors inequitably exercised that discretion, then the ratification defense is unavailable to dismiss the suit, and the directors will be required to prove the fairness of the awards to the corporation.””
We are in the prime part of College Football Bowl Season. So, get ready for the articles on bowl director executive pay: Scott Ramsey of Music City Bowl has ninth-highest salary among directors at $492,301 (Tennessean); Bowl game executive pay soaring around $1 million (USA Today); We also wrote about bowl director pay last year: DOES IT MATTER HOW MUCH CFB BOWL EXECUTIVES ARE PAID?
ISS Updates Proxy Voting Guidelines for U.S. Public Companies (McGuire Woods via JD Supra) — Summary of key changes in ISS voting guidelines for 2018.
Buybacks, CEO pay add up to big costs for shareholders (Investment News) — Discussion of dilution, share buybacks and the collusion of passive index funds.
As Music Industry’s Fortunes Rise, So Do Warner Music Group’s Executive Payouts (Billboard) — A discussion of compensation choice programs at Warner Music Group.
One-Size-Fits-All Executive Compensation Has Exceptions (Fred Cook) — Typical pay practices of FANG (+ Tesla) companies, and where/when to deviate.
2017 Year-End Planning Opportunity Related to Executive Compensation Changes in the Proposed Tax Legislation (Alvarez and Marsal) — A discussion of why you might want to consider accelerating year end bonuses, both annual and long-term.
Determining the effectiveness of a board of directors (Calamatta Cuschieri) — discussion of best practices for Board governance
Life Insurance – The Bonus Plan for the Executive Who Has Everything (InsuranceNewsNet) — a discussion of how to develop executive bonus programs where after-tax payouts are used to purchase Fixed Indexed Universal Life insurance.
Activist shareholders and executive compensation (Pay Governance via Ethical Boardroom) — A discussion of what activist shareholders are seeking in executive compensation programs of their target companies, and some strategies to address the requests and justify your pay programs.
2018 Proxy Season – Quick Reference Guide (Shearman & Sterling) — A checklist of items to complete or consider as we look forward to proxy season.2018
Women and minorities capture most new board seats for first time (Crains NY Business) — “Women and people of color were picked for a majority of open S&P 500 board seats this year for the first time, due in part to pressure from investors to improve gender and racial disparities.”
2017 Executive Compensation Report: Hospitality Industry Annual and Long-term Incentive Practices (FTI) — A review of the proxy-reported pay data for 550 companies in the hospitality industry. Includes incentive design, number of metrics, LTI vehicles, vesting period, vesting type, and other information.
Chipotle’s outgoing CEO Steve Ells could make up to $2.9M a year as board chairman — One of the public companies with the worst pay practices (along with ORCL; see below) fires CEO, but continues its egregious pay practices.
On Governance: CEO Pay Ratio Planning: 10 Consensuses from Thought Leading Companies (Conference Board) — 10 takeaways for companies currently compiling their CEO Pay Ratio.
How to make pay for performance more than just a tagline (Towers Watson) — a roundtable discussion with four TW consultants on pay and performance
2018 National Compensation Forecast (ERI) — 2018 compensation increase forecast, along with historical compensation adjustment data
CEO Pay Ratio: It’s Not Too Late to Calculate! (National Law Review) — practical guidance for calculating your CEO pay ratio. The Mercer Survey reference in the article is here
Rethinking Restricted Equity: A Path to Successful Executive Compensation (FEI) — This is a very interesting article arguing for “hold past retirement” vesting provisions on equity awards for top executive. We are supportive.
COMMONLY ASKED QUESTIONS REGARDING CEO PAY RATIO DISCLOSURE RULES (Latham) — Video discussion of CEO Pay Ratio FAQs
Do performance metrics based on rTSR transform an equity award into a lottery ticket? (Coooley) — discussing the benefits and pitfalls of relative TSR in performance equity plans.
2017 STUDY OF EXECUTIVE CHANGE IN CONTROL ARRANGEMENTS (Meridian) — Trends since 2011: Companies have ” * Reduce[d] cash severance multiples, * Eliminate[d] single-trigger vesting of equity awards in favor of double-trigger vesting, and * Eliminate[d] excise tax gross-ups and modified tax gross-ups.”
This tax loophole led to massive CEO pay packages. Why eliminating it isn’t likely to rein them in. (WashPo) — “just because adding a loophole played a role in sending CEO pay skyward decades ago does not mean removing it will bring it back down to earth. Executive pay experts and activists said in interviews that companies are unlikely to severely limit the size of their CEOs’ compensation just because a big portion of it — the vast majority of those multimillion-dollar packages are paid in incentive-based pay — is no longer deductible.”
Norway’s $1 Trillion Wealth Fund Steps Up “No” Votes on CEO Pay (Bloomberg) — “Since releasing a position paper in April, the world’s biggest wealth fund has increased the number of votes against management compensation proposals in the companies it invests in, Carine Smith Ihenacho, its global head of ownership strategies, said in an interview in Oslo. It has this year voted down pay plans at Alphabet Inc., Google’s holding company, offshore driller Noble Corp. and media company Liberty Global Plc, among others. The fund was unable to provide aggregated statistics on its publicly available votes, but plans to do so in connection with its annual report on responsible investment, due in February.”; Norway’s $1 Trillion Gorilla Shouldn’t Set Your Pay (Bloomberg Commentary) — I guess some shareholders should get a say on corporate governance, but others don’t deserve one?
ISS Announces 2018 Updates to US Proxy Voting Guidelines (Skaddden Arps) — Summary of ISS proxy voting guidelines for 2018 for all ballot issues, not just executive compensation; Morgan Lewis summary here. Ropes & Gray summary here.
Retailers Have Concerns Over Upcoming Rule Requiring Their Companies to Disclose Ratio of CEO Pay to Median Employee Salary (Korn Ferry) — Retailers expect CEO pay ratios ranging from 200 to 2,000; 70% will use W-2 earnings as their “consistently applied compensation measure.” Sheffield Barry perspective: On the CEO Pay Ratio, Wall Street Banksters will look golden compared to their counterparts in the retail space.
Proxy Adviser ISS to Call Out Companies With All-Male Boards (Bloomberg Law) — is Board Diversity the next big Corporate Governance issue? “Institutional Shareholder Services Inc. will call out companies with no women on their boards, under a Nov. 16 update to the policies behind its voting advice for investors.”
The ethics of pay in a fair society (PwC) — Interesting study on the elements that individuals use to characterize what determines fair pay.
Oracle Investors Say No to Executive Pay for Sixth Straight Year (Bloomberg) — the poster child of poor executive pay practices fails their SOP vote. Again. For the SIXTH year in a row. Despite the fact that Larry Ellison’s 28% of the vote surely voted in favor of the SOP issue. The Board of Directors apparently doesn’t give a sh** what ORCL shareholders think. Who to blame? Compensation Committee members are Renee James (Chair), Naomi Seligman (Vice-Chair), and George Conrades. They deserve much of the blame, along with all other independent Board members (Jeffrey Berg, Michael Boskin, Bruce Chizen, Hector Garcia-Molina, and Leon Panetta). Compensia, the Compensation Committee’s advisor, is at fault as well. Weak. Very Weak.
Year-End Compensation Planning in Light of the House Tax Reform Proposal and Proposed Changes to the Taxation of Stock Options (Davis Polk) — see the slew of briefings on the Tax Reform implications on Executive Compensation a bit further down in the November digest.
Pay: why companies need to figure out what’s fair — recent research from PWC and the London School of Economics.
Of CEO Pay and Passthrough Guardrails (US Chamber of Commerce) — A discussion of the differences between proposed tax treatment of C-Corps vs. pass-through entities in the proposed tax reform legislation.
Looking for impact in CEO compensation (Putnam) — An interesting discussion of executive compensation and the measures in executive incentive programs.
SEC guidance simplifies calculation of CEO pay ratio (Willis Towers Watson) — “The Securities and Exchange Commission (SEC) recently confirmed that companies must begin disclosing their CEO pay ratio on schedule (starting in 2018). The commission also provided guidance that should ease the calculations considerably, including an Interpretive Release and new Division of Corporation Finance Guidance on Calculation of Pay Ratio Disclosure.”
Cross-Border Incentive Plans: One Size Does Not Fit All (Blakes) — A discussion of tax and employment law differences between U.S. and Canada, and implications for harmonzing executive incentive programs for companies with executives in both countries.
Is Black-Scholes Always the Right Option? (Semler Brossy) — Thorough discussion of Black-Sholes, and implications on equity incentives.
CEO Succession: The Hidden Costs of Shortcuts (Chief Executive) — Create a CEO Leadership Profile, then work on succession planning.
Why Small Firms Peg Executive Compensation to Rivals’ Higher Pay (Columbia Law School blog) — “smaller firms do indeed select better paying peers, on average. Relative to larger companies, small firms select peers that pay their executives approximately 30 percent more than they pay their own executives. However, my results suggest that this apparent bias in peer selection is not a manifestation of agency conflicts. Instead, I find that compensation benchmarking is consistent with rational contracting in which boards strategically adjust pay to retain valuable managers. Additionally, the data imply that there are notable labor market differences between the general population of public firms and the largest firms in the U.S. economy.”
Takeovers and (Excess) CEO Compensation (Hardvard Law School Forum) — “An executive compensation contract, especially when it comprises equity-based remuneration, ought to align the managerial objectives with those of shareholders. In our paper Takeovers and (Excess) CEO Compensation, we study if a CEO’s equity-based compensation—especially when it seems excessive—affects the choice and expected value generation in takeovers announced by European firms.”
CEO Update Live: Strong pay growth expected to continue (CEO Update — registration required) — “Solid economy, higher expectations, tight market for executive talent among factors behind growth in CEO compensation, panel says”
Stock Buybacks: Quietly Haunting the American Economy (Brown Political Review) — “Americans often decry the high rate of executive pay in this country. It is certainly true that American CEO’s are being paid more than they were in the past – about 940% more than the late 1970s. But the much more interesting, and perhaps dangerous, aspect of corporate governance is the expansion of stock buybacks. A stock buyback is the practice by which a corporation repurchases publicly offered shares of its own stock. The general basis of such a move is that by reducing the number of shares available, the value of each share will increase. Despite the technicalities involved in the process, our current weak regulation of stock buybacks is causing a profound harm to the everyday American people, and more need to be aware of the need to address this issue.”
Tax Cuts and Jobs Act Would Significantly Impact Executive Compensation Arrangements (Pay Governance) — Every executive of a public company — and every Compensation Committee member — needs to review these summaries. Even though the Tax Cut/Jobs Act is still in its infancy and almost certainly will be amended before it is signed into legislation, the provisions in the draft bill contains significant implications for executive pay. Related: Proposal Aims to Eliminate Tax Break Linked to Performance-Based Pay for Executives (Fox Business); Executive Compensation Under the Tax Cuts and Jobs Act: The End of Executive Compensation As We Know It (Skadden); Holy Cow! Proposed Tax Bill Would Turn Executive Compensation on Its Head (Winston & Strawn); House Tax Bill Targets Deferred Compensation, High-Paid Execs (Forbes); The GOP Wants to Kill Rule That Led to Astronomical CEO Pay (Bloomberg); Closing CEO Pay Loophole Doesn’t Make Up for GOP Corporate Tax Giveaway (HuffPo); Executive Compensation Ramifications of Proposed Tax Cuts and Jobs Act (Latham & Watkins); Executive Compensation Under the Tax Cuts and Jobs Act: Chairman’s Amendment Impacts Carried Interests, Private Company Stock Options and Restricted Stock Units (Skadden); The Proposed Tax Cuts and Jobs Act Would Make Sweeping Changes to Executive Compensation and Employee Benefits (National Law Review); The Proposed Tax Cuts and Jobs Act Would Make Sweeping Changes to Executive Compensation and Employee Benefits (Jackson Lewis); Tax reform bill seeks to transform executive compensation, eliminate tax-favored treatment for key employee benefit programs (DLA Piper); Potential Changes in Taxation of Executive Compensation and Employee Benefits Under the Proposed House Tax Legislation (Gibson Dunn); House Tax Bill Would Fundamentally Change Executive Compensation and Employee Benefit Practices (Morrison Foerster); House bill could prompt the most significant changes in pay plan design in a generation (Towers Watson)
The Impact of Executive Pay Decisions (Harvard Law School) — “Automation, the “gig economy”, big data—all will impact talent needs and compensation tools. More than ever, compensation committees need to engage with these large-scale talent issues, with a well-considered appreciation that board-level compensation discussion cannot focus solely on executives anymore.”
Imagine CEO Pay Ratio Communications Going Well–Part 2 (Compensation Cafe) — Insightful tips for communicating your CEO Pay Ratio internally to your employees.
Are your compensation plans a risk to your company? Here’s how to find out. (Willis Towers Watson) — “The final quarter of the fiscal year is an opportune time to conduct a risk review. Finance, HR and other personnel critical to the review, while busy, are not yet preoccupied with year-end or post year-end matters.” Related: Step Carefully: Your incentive plans could be hiding significant risks.
CMO PAY IS RISING. WHO MAKES THE MOST MONEY? (AdAge) — Summary of Equilar’s pay study of Chief Marketing Officers
What Does ‘Reasonable’ Mean Under the SEC’s New Pay Ratio Disclosure Rules? (Corporate Counsel) — A discussion of year-end issues with the CEO Pay Ratio
Does an unfavorable say-on-pay vote mean what it says? (Cooley) — Cooley perspective on the Harvard Business Law Review study referenced about 7 article below in this digest.
Does Your Pay Program Balance Pay Energy™ and Pay Risk? (Pay Governance) — A discussion of Pay Energy (TM?) and Pay Risk.
Wal-Mart’s Marc Lore Blows Top Off Exec Compensation List (Arky Business) — “Marc Lore — pronounced “Lorry” — was awarded more than $242 million worth of stock when the online retailer he helped found, Jet.com of Hoboken, New Jersey, was sold to Wal-Mart Stores Inc. in August 2016 for $3.3 billion. Lore’s total compensation of $243.9 million, in fact, was a mere $4.2 million more than the total of the 101 other named executive officers reported by 20 public companies in the state [of Arkansas].”
Executive Compensation Lessons Learned from the UK Market (PM&P) — our friend and former colleague, Simon Patterson, shares results and insights from PM&P’s UK CEO Shareholder Value Index.
Does your Bank have a CEO Succession Plan? (Bank Director) — “48 percent of bank directors and executives say their bank does not have a successor to replace the chief executive officer when that person leaves. While some responders indicated they did not have a designated successor because their CEO did not plan to retire soon, there are other unforeseen events that could prompt the need for a successor sooner than expected. Starting early on a good succession plan is one of the keys to a successful transition event.”
2017 Proxy Season Results in Silicon Valley and Large Companies Nationwide (Fenwick) — Findings on Annual Meeting participation, Director Elections, Say-on-Pay, and other shareholder proposals.
Murdochs’ Fox Says Compensation Aligned With Peers as ISS Recommends ‘No’ Votes (The Street) — ISS Recommends “No” votes for FOXA Comp Cmte members. Fox defends pay, says it spoke with shareholders who had concerns last year (but did not make any changes to their executive pay programs.) NYT Reporting here.
On executive pay, incentives have limits (FT) — “The lesson is that while proper incentives and full transparency are important, an element of judgment and a sense of proportion will always be required on the part of boards. There is such a thing as too much. Rules, guidelines and procedures cannot absolve us from recognising it when we see it.” Related: FORMULAIC EXECUTIVE COMPENSATION: RISKS AND REWARDS
Is Say on Pay All About Pay? The Impact of Firm Performance (Harvard Law School) — “shareholder support for executive pay seems to be highly correlated with an issuer’s short term stock performance. Shareholders appear to focus substantially on performance and to be punishing executives, through say on pay, for poor performance rather than excessive pay. To the extent that the say on pay vote heightens executives’ incentives to focus on short term stock price at the potential cost of working to enhance long term firm value, it may be counterproductive.”
Strong Advice for Compensation Committees On Targets, Methods, and Clean Sheets (NACD) — A roundtable of executive compensation consultants discusses issues they confront with clients.
Firms should make more information about salaries public (Economist) — The case for pay transparency
Year-end Public Company Reporting Update (Cohen Gresser) — Discusses CEO Pay Ratio disclosure among other reporting updates, including pending legislation.
Proxy Adviser ISS Slams Oracle’s New Executive Compensation Plan (Bloomberg) — The poster child for poor executive pay practices gets spanked again. ORCL has failed its Say-On-Pay vote five years in a row. Failure in year 6 is looking promising too…
Getting the Most out of your Executive Compensation Plan (Chief Executive) — “Executive compensation is one of the biggest investments most companies make, yet far too few approach it strategically. A compensation plan should be about more than simply paying competitive salaries and bonuses—it should be designed to encourage executives to work together to build long-term enterprise value.”
3 Things to Look for in Executive Pay (Compensation Cafe) — Focus on how you got there, not where you ended up; new ways to communicate pay in light of CEO Pay Ratio disclosure; a retreat to stock options
CEO Pay Ratios: What Do They Mean? (New York Law Journal) — “There are two ratios often cited to support the argument that CEO pay is too high. But these ratios do not necessarily support that argument and do not explain underlying factors that cause pay levels to be where they are.”
Equity Plan Share Reserves: How to Increase Its Life Expectancy: Executive Compensation Practical Pointers (National Law Review) — 7 ideas to conserve the shares in your shareholder approved equity plan
Equity Expert 52 – The Latest on the CEO Pay Ratio with Steve Seelig (NASPP PODCAST) — discussion of CEO Pay Ratio with Willis Towers Watson’s Steve Seelig.
GE Compensation Moves Likely to Include More Performance-Based Changes (WSJ) — A nothingburger. So far. Highlight: “The new chief executive said Friday he was working with the board “on comprehensive changes” to the company’s compensation plans to “better align the team with investors.” The company declined to elaborate on those plans. ”
Key 2018 Dollar Limits for Benefits and Executive Compensation to Increase (Willkie Farr) — 401(k) limits to increase from $18,000 to $18,500; limit on annual benefits under DB plan increases from $215,000 to $220,000; qualified retirement plan maximum income limit increases from $270,000 to $275,000.
Pearl Meyer On Point: Looking Ahead to Executive Pay Practices 2018 (Pearl Meyer) — Among other findings, 76% of companies have not discussed how to communicate the CEO Pay Ratio disclosure internally and externally.
Straight Talk About Incentive Compensation (Foley & Lardner via National Law Review) — Don’t set your performance goals too aggressively or make them too easy. Related: Step Carefully: Your Incentive Compensation plan could be hiding significant risks
Highlights from the Annual NASPP Conference (Winston & Strawn via Lexology) — Mike Melbinger provides his highlights from this years’ NASPP conference.
The Top 100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel? (As You Sow) — AYS promotes Corporate Social Responsibility organization via shareholder advocacy and legal strategies. They have published their Most Overpaid CEOs report for the past several years. Spoiler Alert: CBS’ Les Moonves tops the list, followed by Salesforce.com’s Benioff, and Discovery Communications’ Zaslav.
Sen. Gillibrand Urges Congress To Reject GOP Tax Reform Plan (CBS) — “Gillibrand has introduced her own legislation, the Stop CEO Excessive Pay Act, which would close the tax loophole that allows companies to deduct part of the amount they spend on executive compensation. It would also require a vote among shareholders to determine whether CEO’s should receive substantial raises or bonuses.”
Americans Don’t Mind High CEO Pay — Really (Investor’s Business Daily) — “a majority of Americans oppose the idea of regulating CEO pay. Despite this, government regularly seeks to cut executive compensation.”
Preparing for the 2018 US Proxy and Annual Reporting Season—Are You Ready? (Mayer Brown) — “This Legal Update provides an overview of key issues that companies should consider as they get ready for the upcoming 2018 proxy and annual reporting season.”
White House Officials Backed 2019 Pay Freeze, $300 Billion in Cuts to Employee Compensation (Government Executive) — “White House officials reportedly recommended that President Trump order a pay freeze for federal workers in 2019 and seek to eliminate the Federal Employees Retirement System defined benefit program for all new government hires”
Arnold & Porter Discusses Risks for Compensation Committee Members (Columbia Law School) — “Boards should utilize this trend and the lessons learned from the consent order as a reminder to periodically review compensation arrangements and compensation standards at their bank to ensure they are adequately fulfilling their fiduciary duties. Such reviews should critically analyze executive and incentive compensation arrangements and seek to ensure that bank and board policies governing such arrangements meet regulatory expectations.”
Finding and Avoiding Perverse Incentives (NACD) “Even the best metrics can lead to catastrophe if they are coupled with unrealistic goals or embedded in incentive structures that drive short-term, parochial, or illegal behavior. ”
The Drivers that Continue to Dog Say-on-Pay (Davis Polk) “ISS Analytics has identified the seven main drivers that leads to say-on-pay issues…”
All TSR Incentive Plans Are Not Created Equal (Equilar) “examine[s] the prevalence of weighted metrics vs. modifiers, performance targets and performance leverages” of TSR plans.
Imagine CEO Pay Ratio Communications Going Well (Compensation Cafe) “…the median employee communication is going to get as big a reaction as the CEO Pay Ratio, or even bigger.”
Pay Raises for Corporate Board Members Far Outpace Average Americans’ (Fortune) “Compensation rates for corporate directors at the largest U.S. public companies have jumped nearly 20% in the past five years. That’s nearly twice the salary increase of the average American.”
Top 6 findings from PwC’s 2017 Annual Corporate Directors Survey Highlights: 46% of Directors say someone on their board should be replaced; 21% say two or more board members should be replaced. 70% of Directors believe executives are overpaid; 66% say executive pay worsens income inequality. Complete Survey Results here.
Companies going public are paying a price for disclosing less (Pittsburgh Post-Gazette)
Americans Don’t Mind High CEO Pay — Really (Investors Business Daily) — Many Americans are comfortable with CEOs making a lot of money – so long as they don’t hurt anyone. They are also concerned that government regulation will do more harm than good.
Pay-for-performance update for the S&P 1500: a strong first half (Willis Towers Watson) — Willis Towers Watson review S&P performance for the first half of 2017, and relatively strong performance indicates 2018 performance pay may be on the rise.
STRESSING OVER PAY-RATIO STRATEGIES (Human Resource Executive: HRE Online)
Employee reaction is U.S. employers’ biggest challenge to pay ratio disclosure rule (Willis Towers Watson) HRDive Summary — One of the key challenges in implementing the new CEO pay ratio is considering how to communicate this to firm employees.
P&G Proxy Fight: Trian Pushes to Reevaluate Executives’ Incentive Compensation Goals (Equilar via Harvard Law School) — A review of activist investor Trian’s concerns with P&G’s executive compensation.
S&P 500 CEO Compensation Increase Trends (Pay Governance via Harvard Law Review) — A review of CEO pay levels, and how these have increased over the last six years, and expectations for 2017.
Trump Administration Calls for Scrapping CEO Pay Rule (WSJ, Paywall)
Oracle bows to shareholders by cutting Larry Ellison’s pay (Financial Times) — One of the worst Compensation Committees of all time is showing signs of reform…
A new report suggests a fundamental idea behind CEO pay could be ‘broken’ (Washington Post) — MSCI Study referenced in WaPo article
Senators: Wells-Fargo CEO Sloan Isn’t ‘Building Better’ Fast Enough (Chief Executive) — Related: WELLS FARGO SCANDAL: 4 TAKEAWAYS FOR COMPENSATION COMMITTEES (Sheffield Barry)
Why Is CEO Pay Rising? Maybe There Aren’t Enough Good CEOs (Harvard Business Review) Survey Results Here; Bloomberg’s alternative perspective: “the other possibility is that people who are inclined to respect CEOs are also the people who are likely to become public company directors, and their predisposition to admire CEOs leads them to pay their CEOs a lot.”
Companies That Perform Best Don’t Pay CEOs the Most (WSJ — Paywall)
SEC Issues Additional CEO Pay Ratio Disclosure Guidance (HaynesBoone) CEO Pay Ratio Client Alert (Pearl Meyer) CEO Pay Ratio Guidance (Perkins Coie)
The Do’s and Don’ts of CEO Pay Ratio Communications (Towers Watson)
Looking Back at the 2017 Proxy Season (Fredrickson & Byron)
2017 Top 250 Pay Report (Fred Cook) — LTI prevalence and characteristics among 250 large US companies
2017 Proxy Season Review (Kingsdale Advisors)
SEC Issues Additional Guidance on CEO Pay Ratio Rule (Foley & Lardner) SEC Issues More Guidance on CEO Pay Ratio Rule (Pay Governance) CEO Pay Ratio Guidance (White & Case)
The 5 Elements of a Good Incentive Plan (PayScale)
Executive Compensation and Activist Shareholders (Pay Governance via Ethical Boardroom)
High Non-GAAP Earnings Predict Abnormally High CEO Pay (MIT Academic Paper)
The Evolution and Current State of Director Compensation Plans (Pay Governance via Harvard Law School Forum)
Excessive CEO Pay Damages Shareholders and Pension Funds (Forbes contributor)
CEO Pay Ratio Update (Mayer Brown)
Fall Executive Compensation Priorities (Morgan Lewis)
Selecting Effective Performance Metrics: Why Shareholders Are Wild About Return on Invested Capital (Semler Brossy) — a discussion of the benefits and risks of ROIC
Compensation Consultants and the Level, Composition and Complexity of CEO Pay (Harvard Business School working paper)
Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance (Cooper, Gulen, Rau academic paper) — “Measures of Chief Executive Officer (CEO) excess compensation are negatively related to future firm returns and operating performance. The effect is stronger for more overconfident CEOs at firms with weaker corporate governance. Overconfident CEOs receiving high excess pay undertake activities such as overinvestment and value-destroying mergers and acquisitions that lead to shareholder wealth losses.”
2017 Bank Compensation Survey Results (Bank Director) — “The vast majority—91 percent—believe the bank’s CEO compensation package is competitive enough to attract future CEOs or retain the current CEO. The median CEO salary for fiscal year 2016 was $366,250, with a median cash incentive of $131,697.”
Top 10 Executive Compensation Consulting Firms (Sheffield Barry)
Executive Compensation: Where we are and How we Got There (This is a very long and thorough, but very informative academic paper on executive compensation history and issues)
Executive Compensation: A Modern Primer (Another Academic Paper; thorough overview of history of Executive Compensation and key issues)