Latest News on Executive Compensation

* * * Updated: March 10, 2010, 2:45 am EST * * *

Stock Options Haven’t Vanished From Silicon Valley

While a major post-recession trend has been the shifting of stock option grants to restricted stock, many Silicon Valley executives are still getting a fair amount of  options, according to today’s Wall Street Journal. Oracle’s Larry Ellison leads the pack, with a whopping $57.4 million of options awarded in 2009. That’s more than seven times the options granted to #2 on the list, Cisco CEO John Chambers. (We see many more yachts in Mr. Ellison’s future.) Oracle also led the pack in total option grants given to executives, by a pretty wide margin.

In the third-place slot was NetApp, which awarded $7 million in options to new CEO Thomas Georgens. This is at least partially attributable to the new contract it had to work out when Georgens was appointed to the slot. Either way, it seems to be evidence that for some of the biggest Valley firms, restricted stock isn’t looking as necessary anymore.

Why Do GCs Reporting to CEOs Make More?

One of the big conclusions drawn by Equilar in their 2010 General Counsel Pay report was that GCs who report to the CEO make significantly more than their counterparts who don’t. Rees Morrison examined this disparity, and came up with a few theories:

• Direct reporters are more likely to be older, have more experience, and therefore, command a higher salary.
• Direct reporters may lead numerous functions, while non-direct reporters may only lead one or two.
• A hierarchy has emerged in big corporations: one out of three GCs are non-direct reporters, meaning that they’re at least one rung below someone else, and therefore paid less.

These facts may be cold comfort to the GC who’s making significantly less than his or her directly-reporting counterpart. If that’s the case, they may want to keep in mind an Equilar finding from last year:  CEOs promoted internally tend to make less than those who switch companies to become CEO. If this also holds true for the GCs who directly report to them, a job change might start to seem like a good idea.

Harold Ford’s Merrill Lynch Pay Under Scrutiny

This is a tough time to be transitioning from the world of banking to the world of politics, as the latter is gaining plenty of ground from the populist move of decrying the former. Harold Ford, the former Tennessee congressman who is considering challenging Kirsten E. Gillibrand for a New York Senate seat in the Democratic primary, is now under fire for the pay he received in the interval between political jobs, when he worked at Merrill Lynch. The Times cites two sources who said that Ford’s contract guaranteed him $2 million per year in salary, a significantly higher level of base pay than that of Merrill’s CEO, Stanley O’Neal, who took home only $700,000 in base salary in 2007. (Don’t feel too badly for O’Neal, however; he netted another $18.5 million in cash and $27 million in restricted stock as his 2007 bonus.)

Even for politicians who’ve ended their relationships with these former employers, one-time bank affiliation is going to be a hot-button issue for years to come, and no amount of impartiality claims will quench speculation that a politician is a mere shill for his or her former bank. For those considering leaving Wall Street for Capitol Hill, it’s something that’s worth keeping in mind.

Health Perks Still Drawing Fire

Obviously, you don’t want your executive to drop dead or be sidelined by a health crisis, but it’s still pretty amazing to see the medical costs of the five CEOs profiled by Fortune. With full disclosure of perquisites drawing more attention every year, we’re surprised to see these execs still receiving what is almost a universally poorly-received perk, instead of simply cutting it in favor of a cash replacement. (See also: club memberships.)

Particularly notable is the fact that Angela Braly, WellPoint’s CEO, receives an annual physical to the tune of $1,044, despite the fact that she almost certainly has the best insurance plan that the large health conglomerate could possibly provide her. Wonder if she had to stay in-network.

On the other hand, Lowe’s discloses that they consider these plans a best practice, noting that McDonald’s recently lost two CEOs to poor health within nine months (one dying at work). While we certainly wouldn’t want anyone to lose their life over a few grand, we have to wonder if the $4,986 exam Lowe’s requires their CEO to receive isn’t a little bit egregious, considering the notable disparity between what the two companies produce.

Equilar Exec-Comp Summit Shaping Up

Equilar unveiled their 2010 Executive Compensation Summit today, and it looks to be a good one. In addition to being the only totally dedicated exec-comp conference, it’s also going nationwide this year, with one big event in Washington, D.C. on June 15 and 16. They’ve got many of the speakers from last year, like Blair Jones from Semler Brossy and George Paulin from Frederic W. Cook, with some cool new additions: Stanford professor Daniel Siciliano, Compensia principal Mark Borges, and the Washington Post’s Tomoeh Murakami Tse.

We particularly like the new second day, which is an emphasis on education for younger or less seasoned people in the field. WorldatWork will be hosting a big workshop, and they’ll be training people on Equilar products as well. If all this is old hat, they’ll be doing focused roundtables and breakout sessions on specific industries and topics.

Registration is now open, and with a $300 discount through March 19th, this is a good time to sign up.

Say on Pay More Likely in Certain Scenarios

Equilar just released their new article on Say on Pay, which isn’t available to the general public but can be requested here. “Say on pay,” for those who aren’t aware, is the nickname given to the practice of allowing shareholders to vote on proposed executive compensation packages.

There were a couple of key findings in the report. The first was that large-cap companies are about four times more likely to undergo some kind of say-on-pay process than their mid- and small-cap counterparts. There are a few possible reasons for this: the companies involved in TARP, which requires say on pay, are all large; the bailout brought attention to the pay practices of other large companies; executives of larger companies tend to make more, and therefore attract more scrutiny. Regardless, large-cap companies should be particularly aware of the explosion of say on pay among their peers in size.

The second major finding was that shareholder proposals for say on pay flagged in comparison to advisory votes: only 22.3% of shareholder proposals succeeded, while 100% of advisory votes did. Shareholder sentiment may be able to float the idea of instituting say on pay, but that doesn’t mean that the vote will end in favor of the investors.

In this highly-charged environment, it can sometimes help to set your own terms before they’re set for you. Four companies in the S&P 500 sought to avoid shareholder discontent by instituting their own say-on-pay policies.

The Obama administration has noted that it would like the SEC to institute say on pay for all the corporations it oversees, but such a decision would require Congressional approval, a goal that’s increasingly difficult in the entrenched  environment that’s arisen of late in both parties. It should be interesting to see how the future of this regulation plays out.

2010 Could Be Big for Compensation Consulting Firms

The world of compensation consulting is getting infinitely more complicated, with new SEC requirements for board compensation consultant disclosure sending many companies in search of advice on how to stay compliant with the rules. Should these trends hold, 2010 could be a very good year for those in the business of compensation consulting.

Equilar’s Consultant League Table, released yesterday, has some fascinating facts and figures about compensation consultant market share. As expected, the newly merged mega-firm Towers Watson (formerly Towers Perrin and Watson Wyatt) leads the pack in almost every major index, with 22.3% market share in the Russell 3000 and 26.8% in the Fortune 1000, in addition to dominant market share with all sizes of companies in the S&P 1500. They’re also at the top in all four regions of the U.S.

But big firms aren’t the only winners in the new climate; a few boutique shops have carved out niches in the data. Examples include Steven Hall & Partners and James F. Reda & Associates, which have built a strong client base in the consumer goods industry, and Amalfi Consulting, which is particularly strong in the South. We’ll be interested to see if board independence requirements push these small firms even higher.

The report isn’t available to the general public, but you can request a copy at Equilar’s website.

Chief HR Executive Compensation Report

The analysis presented in Equilar’s 2007 Chief HR Executive Compensation Report is derived primarily from data disclosed in fiscal year 2005 and 2006 SEC filings for publicly traded companies in the Russell 3000 index.

The specific companies covered by this analysis include the 161 Russell 3000 firms which disclosed compensation data for Chief HR Executives in 2006.

Annual Revenue

In fiscal year 2006, publicly traded Russell 3000 companies with a Chief HR Executive listed in the Summary Compensation Table had median annual revenues of approximately $1.2 billion. From 2005 to 2006, median annual revenues increased by 8.7 percent.

Net Income

Similar to annual revenues, net income for Russell 3000 companies with a Chief HR Executive listed in the Summary Compensation Table increased from 2005 to 2006, rising by 26.5 percent.
In fiscal year 2006, these firms had a median net income of approximately $63.7 million.

Fiscal Year-End Market Capitalization

In 2006, Russell 3000 companies with a Chief HR Executive listed in the Summary Compensation Table had a median fiscal year-end market capitalization of approximately $1.3 billion, up 8.3 percent from the prior year.

Employees

From 2005 to 2006, the median number of persons employed by Russell 3000 companies with a listed Chief HR Executive increased by 2.4 percent, rising from 4,200 to 4,300.

[click here for the full report]

Compensation Committee Report

With the new SEC compensation disclosure rules upon us, the level of scrutiny placed on the compensation setting process by shareholders and institutional investors has significantly increased.

In this environment, Compensation Committee members fall into a uniquely challenging position. They are often actively involved in the analysis and preparation of compensation strategies to ensure that their companies and executive team are in compliance with a myriad of regulatory matters while also sensitive to the concerns of investors.

[click here for the full report]

To help provide Compensation Committee members with practical insights into the nature and value of compensation of their peers, this report covers the following key topics:

• An overview of committee member tenure and the number of committee meetings held per year at S&P 1500 companies;
• Year-over-year pay trends for Audit and Compensation Committee chairs and members, including retainers and meeting fees;
• An analysis of the various pay structures currently in use at S&P 1500 companies; and
• General Board-level compensation trends.