Data driven management consultants

Executive Compensation

CalPERS is Say(ing No) on Pay in 2018

The California Public Employees’ Retirement System (CalPERS) is putting its foot down when assessing executive compensation packages in 2018. The US’ largest state pension fund voted against nearly half of executive compensation programs (43%) this past year—amounting to over 900 US companies. One of major catalysts in their increased opposition from last year’s—CalPERS opposed only 18% of executive compensation packages in 2017—is scrutiny on returning value to shareholders over a longer-term horizon. In an interview with Bloomberg, CalPERS’ Simiso Nzima pointed out, “Over one, two or three years, performance might look good, but over 10 years, the relationship sometimes just isn’t there.”

Besides the considerable opposition posed to Say on Pay, CalPERS is zeroing in on harassment/misconduct and board diversity. Just as we’ve seen the #MeToo movement affecting management teams in the mainstream news, CalPERS’ recently updated governance guidelines call for increased disclosure measures and oversight to prevent harassment and other misconduct. In addition, they voted against 438 directors at 141 companies where there were concerns about a lack of diversity in the boardroom.

Pay Ratio Disclosure Location?

I know most of us would rather put this straight in the trash can but, due to the requirements of Section 953(b) of the Dodd-Frank Act and Item 402(u) of Reg S-K, pay ratio disclosure will need to be part of your 2018 proxy statement. The SEC has not provided specific guidance as to the exact location of this disclosure in your proxy. To date, about 50% of companies have furnished this information in the CD&A, with the remainder placing it elsewhere in the document. As the ratio is most likely not part of the compensation discussion, it’s fair to argue that this should not reside in the CD&A. In fact, as more companies file, it is likely that this data will less often reside in this section. Depending upon the company culture, document structure and final ratio relative to peers, perhaps the best place for this disclosure is in the proxy summary. Or toward the end of the document, after the awards table? Or just before the FAQ section toward the back of your proxy?

Regardless of where it’s included, it cannot be hidden. And keep in the mind, the real focus should be on the language itself as well as understanding who your audience is and how they will likely use this information.

UK Government’s Tough New Rules on CEO Pay

With executive compensation continually in the headlines and with Say on Pay seemingly having minimal impact on tempering executive pay packages, regulators in the UK are looking at new measures to limit the amount a public company C-suite executive can get paid.

A raft of wide-ranging measures had been proposed by the government back in June, including providing shareholders with a binding say-on-pay vote. The rules are greatly watered down from the initial proposal but still contain several measures that will make life challenging for senior executive teams.

The UK government has announced measures to rein in executive pay. Some of the plans discussed previously have been dropped – as various sources recently predicted – but others have been confirmed as going ahead.

Perhaps the two most controversial measures are the CEO pay ratio and the “Name and Shame” list. The pay ratio legislation will look very similar to that proposed in the US and will require public companies to disclose the difference between CEO compensation and that of the “average” employee. Secondly, the Investment Association (IA) will be responsible for monitoring all annual meetings in the UK and publicly naming all companies that receive 80% or less on a say-on-pay vote. Presently, many companies manage to fly under the radar with respect to significant resistance to pay practices and low results typically are not heavily marketed. This could change if IA starts using mainstream media to publicize all companies that fall below the 80% threshold, thus further shining a light on pay at those companies.

Only time will tell if the new measures result in reductions in CEO pay, but one thing is certain – the reforms will shine an even brighter spotlight on executive compensation and intensify debate over appropriate pay levels and paying for performance.


ISS & Glass Lewis Peer Group Updates

The semiannual ISS and Glass Lewis peer group update processes is open. This process is designed to allow companies to inform the two governance advisories of any peer group changes that will be disclosed in the next proxy filings. This helps ensure the most up-to-date peer group information is available for their pay-for-performance assessments.

For ISS, North American companies with annual meetings between September 16, 2017 and January 31, 2018 have until 8pm EDT on July 21, 2017 to submit their updated peer groups. Please click on this link under the My Company menu item to do so.

Russell 3000 and Canadian TSX companies that file proxies between June 15, 2017 and January 14, 2018 have until July 14, 2017 to submit their updated peer group through Equilar’s peer group portal for Glass Lewis analysis.

This action is purely voluntary, but a worthwhile process in the event of peer group amendments.

Governance Professionals Compensation Survey

As we take a breath from the recent proxy season, I thought it would be a good time to alert you to the release of our Governance Professionals 2016 Compensation Survey. For those that participated in the study, we thank you for taking the time to complete it, and the respondent report will be provided in the coming few weeks.

Overall, governance professionals cite the top three goals of their company’s governance program as advising the board of directors, overseeing effective disclosure and ensuring regulatory compliance.

Only 11% have a defined or formal set of metrics by which performance is measured, although most receive a bonus and equity compensation.

Is there a glass ceiling in the governance profession? In terms of representation, there is gender equality in the profession (51% female and 49% male). However, this is not reflected in the in the internal structure, with the “Head” CG position dominated by men (61%) and the “Secondary” CG position dominated by women (66%).

Among Head CG professionals, 73% have the term “Corporate Secretary” in their title and 57% have “General Counsel” in their title.

The full Governance Compensation report will be available shortly to Corporate Governance Intelligence Council members via the Governance Gateway. If you did not participate and are not a Council member but would like to review the full report, please contact me directly.