Tag Archives | compensation

Say-On-Pay Key Coordination Issues

Say-on-Pay (SOP)A recent paper [Miriam Schwartz-Ziv and Russ Wermers,  Do Small and Large Shareholders Have a Say-on-Pay? (October 15, 2014) available at SSRN] investigates the voting patterns of shareholders on Say-On-Pay and finds that ‘small’ shareholders are more likely than large shareholders to use the non-binding Say-On-Pay vote to govern their companies, are more likely to vote for an annual Say-On-Pay vote, and are more likely to vote “against” Say-On-Pay (i.e., to vote against the pay package). Continue Reading →

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Noteworthy Proposal to Cap Pay Ratio at Microsoft (MSFT)

qube-logomicrosoftA proposal by Qube Investment Management, which owns 10,208 shares of Microsoft ($MSFT), to cap pay has been challenged through the “no-action” process. See incoming correspondence to the SEC. The resolved clause of Qube’s proposal reads as follows:

Resolved: The the Board of Directors and/or the Compensation Committee limit the average individual total compensation of senior management, executives and all other employees the board is chanted with determining Continue Reading →

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Corporate Governance Bites

Continuing challenges to exclusive forum bylaw provisions – Lexology

An increasingly popular trend in recent years has been the adoption by Delaware public companies of an exclusive forum provision in their bylaws. An exclusive forum provision generally provides for the Delaware Court of Chancery to be the exclusive forum for certain disputes (including derivative actions, breach of fiduciary duty claims, claims arising pursuant
to the company’s charter or bylaws and other shareholder litigation) against the company — and prohibiting such suits in other jurisdictions. Expected benefits cited by companies of adopting exclusive forum bylaw provisions include decreased litigation costs, avoiding parallel litigation in multiple jurisdictions and the predictability of Delaware courts. Continue Reading →

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New Pay Comparison Tool From Stanford

Aligning CEO pay with shareowner value is key for many. A new tool (at least new to me), the Compensation and Wealth Calculator, from the Stanford Graduate School of Business, Corporate Governance Research Program, allows users to see how the compensation of CEOs and other NEOs, which they have already received over the years in the form of stock and stock options, aligns with share price. Continue Reading →

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Median CEO Pay Up Again: My Apologies

Do I need to apologize? I’ve been using USPX guidelines to vote down pay packages at large companies over the $9 million 2010 median reported by Equilar earlier this year. Now, they’ve revised their pay figures. Final data show median pay for top executives at 200 big companies last year was $10.8 million, up 23% from 2009. (We Knew They Got Raises. But This?, New York Times, 7/2/2011)

The average US worker earned $725 a week in late 2010, up 0.5% (less than inflation) from the year before. I’ve been voting down almost all pay packages where a named executive officer (NEO) earned more than what I thought was the median last year of $9 million. Now it looks like I’ve been too harsh and should have only been voting against those over $10.8 million. I suppose I could say I’m sorry for my vote at those companies where an NEO got more than $9 million but less than $10.8 million. On the other hand, only 1.5% of the companies in the Equilar study had they pay proposals rejected… so, no harm, no foul.

Do we really need to pay them that much? I think our attempt to link pay to performance has resulted in refocusing the corporation. Instead of serving some reasonable public purpose and paying profits to shareowners, many corporations now are moving off shore to avoid paying taxes and are focused on maximizing profits for named executive officers.

Meanwhile, a study from Capgemini and Bank of America Merrill Lynch estimates that financial wealth control by the high net worth individuals jumped 9.7% over the last year to $42.7  trillion. It is hard to see the economy really recovering while the middle class is being hollowed out… although I suppose we could pin our hopes on exports to the growing middle classes of China, India and Brazil.

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InGovern Proxy Analysis Launched in India

A new proxy vote analysis service, InGovern Corporate Governance Platform, allows institutional investors to analyze various companies, follow the agendas of shareholder meetings, exercise votes and collaborate with other investors. Research based on “objective criteria” – Governance Radar – is also embedded into the platform, according to a press release from Bangalore.

This is a part of InGovern’s pioneering efforts at promoting shareholder activism among institutional investors in India.

Global research has shown that there is high correlation between good corporate governance and long term returns on an investment. Shareholder activism is in its infancy in India. The Ministry of Corporate Affairs and SEBI have been prodding institutional investors to exercise their rights as minority shareholders in companies. Investors can hope to get superior investment returns by actively participating in enhancing the corporate governance culture in India.

 

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Transocean: Now, the Rest of the Story

I get hundreds of e-mails every day and often delete before even glancing if I am especially busy. Fortunately, Timothy Smith of Walden Asset Management also sent out an e-mail on a post by Theo Francis, of footnoted*, that had already hit my trash. We’ve all heard about Transocean’s bonuses for “the best year in safety performance in our Company’s history.”

The bonus incident speaks volumes about Transocean and the tone set at the top of the company. But so do two other details in the filings. First, the company’s board created a Health Safety and Environment Committee in August last year, some four months after the spill. Guess how often it met during the four months between then and the end of the year? Once.

Agenda Item 2 in the proxy is even more eye-opening. To hear the company tell it, the provision is an attempt to “discharge the members of the Board of Directors and our executive management from liability for their activities during fiscal year 2010,” explicitly including the rig explosion and oil spill. It would, Transocean says, not only prevent many shareholders from suing directors and officers entirely — whether by taking part in existing lawsuits or future ones — it would give other shareholders a narrow window of just six months to sue.

Those who vote for the measure give up their right to sue altogether, Transocean says. Those who vote against the measure, assuming they fail to stop it, will have just six months to sue, the company says:

“After the expiration of this six-month period, such shareholders will generally no longer have the right to bring, as a plaintiff, claims in shareholder derivative suits against our directors and executive management.”

And there’s more at Transocean’s quiet risk panel & push for immunity | footnoted.com, 4/6/2011. (apologies to Paul Harvey)

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Enthusiasm for Free Market Drops

When GlobeScan began tracking views in 2002, four in five Americans (80%) saw the free market as the best economic system for the future–the highest level of support among tracking countries. Support started to fall away in the following years and recovered slightly after the financial crisis in 2007/8, but has plummeted since 2009, falling 15 points in a year so that fewer than three in five (59%) now see free market capitalism as the best system for the future.

GlobeScan Chairman Doug Miller commented: “America is the last place we would have expected to see such a sharp drop in trust in the free enterprise system. This is not good news for business.”

The results mean that a number of the world’s major emerging economies have now matched or overtaken the USA in their enthusiasm for the free market. The Chinese and Brazilians, 67 percent of whom regard the free market system as the best on offer, are now more positive about capitalism than Americans, while enthusiasm in India now equals that in the USA, with 59 percent rating the free market as the best system for the future.

Among the 20 countries polled in both 2009 and 2010, an average of 54 percent today rate the free market economy as the best economic system, unchanged from 2009.

Americans with incomes below $20,000 were particularly likely to have lost faith in the free market over the past year, with their support dropping from 76 percent to 44 percent between 2009 and 2010. American women have also become much less positive, with 52 percent backing the free market in 2010, down from 73 percent in 2009.

via Sharp Drop in American Enthusiasm for Free Market, Poll Shows – World Public Opinion, 4/6/2011.

My guess is that these numbers could easily be reversed with higher taxes on the rich, a more equal distribution of the wealth and of productivity gains, as well as more democratic corporate governance. A free market that allows the vast majority of its population to fail or stagnate, while the wealth of the top 1% soars, is not going to win any popularity contests. What are we waiting for?

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CEO Pay: Ready to Draw the Line?

At a time most employees can barely remember their last substantial raise, median CEO pay jumped 27% in 2010 as the executives’ compensation started working its way back to prerecession levels, a USA TODAY analysis of data from GovernanceMetrics International found. Workers in private industry, meanwhile, saw their compensation grow just 2.1% in the 12 months ended December 2010, says the Bureau of Labor Statistics…

Median CEO pay in 2010 was $9.0 million, based on 158 Standard & Poor’s 500 index companies with the same CEO serving all of 2009 and 2010 that have reported CEO pay, according to the USA TODAY analysis of data from GovernanceMetrics based on proxies that have already been filed. (CEO pay soars while workers’ pay stalls – USATODAY.com, 4/1/2011)

As William Lazonick, professor at the University of Massachusetts points out in the article, while companies in the S&P 500 boosted profit 47% last year, much of that was due to cost-cutting and layoffs. Actual revenues for selling goods and services grew at only 7%. How much longer can businesses grow profits through layoffs and cost-cutting?  If businesses are really becoming more efficient, shouldn’t workers expect raises and shouldn’t shareowners expect rising dividends.

I’ve been thinking about “say on pay” votes lately, trying to figure out how I should vote as an individual retail investor. I’m relatively lazy when it comes to researching clawbacks, holding periods, correlations between pay and performance and all the rational factors that go into voting by large institutional investors like CalPERS or voting advice from Glass Lewis or ISS. Usually, I’ll look up on ProxyDemocracy.org or MoxyVote.com to see how others who put time and research into their efforts are voting.

However, after talking with some large progressive institutional investors, I’m concerned that none appear to be using any decision models that address the “Lake Woebegone Effect,” where all the children are above average.  Former DuPont CEO Edward S. Woolard, Jr. speaking at a Harvard Business School roundtable on CEO pay said,

The main reason (CEO) compensation increases every year is that most boards want their CEO to be in the top half of the CEO peer group, because they think it makes the company look strong. So when Tom, Dick, and Harry receive compensation increases, I get one too, even if I had a bad year…. (This leads to an) upward spiral.

Every year companies want to pay their CEOs more than average and every year when compensation consultants survey a company’s peers they find that average going up. Yes, it is a little simplistic but one way to stop that spiral would be if every shareowner voted against every CEO pay package that is above the median. For 2010, that would be every pay package above $9 million.

I’m not sure what CEO pay should be but I find it difficult to believe that any CEO would work 30% harder for $12 million than they would for $9 million. Personally, I almost always worked at full capacity no matter what my pay because I enjoyed my work and it was meaningful… I still do and it still is.

I started my career as a teacher. It was long before Alfie Kohn wrote the book Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A’s, Praise, and Other Bribes but even back in 1970 I felt that rewards and punishments were artificial ways of manipulating behavior that destroy the potential for real learning. Instead, I found it was better to design classroom experiences to provide an engaging  atmosphere so that students could act on their natural impulses to explore and gain knowledge.

Most social psychology studies show the more you reward someone for doing something, the less interest that person will tend to have in whatever he or she was rewarded to do. Instead, their focus moves to the reward itself. Isn’t leading a Fortune 500 company intrinsically rewarding? Shouldn’t $9 million be enough for anyone for one of those jobs?

As long as shareowners approve outrageous pay packages for CEOs the averages will keep ratcheting up and the disparity between the top 1% and the rest of us will continue to grow. We need to ratchet down the Lake Wobegon effect and bring our CEOs down to earth.

Yes, I’m still going to check ProxyDemocracy.org and MoxyVote.com to see how others are voting. If Florida SBA or CalSTRS are voting against a pay package I’m likely to join them. However, a couple of weeks ago, I voted against Andrew Gould’s $15 million pay at Schlumberger just because it was too much. I might just do that for all pay packages over $9million. What do you think? Can $9 million ever be too little?

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