* * * Updated: May 23, 2015, 12:52 am UTC * * *
* * * Updated: May 23, 2015, 12:52 am UTC * * *
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- THE BUSINESS TIMES
The panic over appearances that has marked the world of executive pay in the past couple of years hasn’t yet extended to boards of directors and their committees, according to a new Equilar study. While conflicts of interest haven’t left the table as a key concern (avoiding them is now a mandate, thanks to Dodd-Frank), most committee members and chairs saw increased or stagnant pay in the period between 2007 and 2009. Chairs of compensation committees were the biggest winners, with a 6.3% pay boost at large-caps, a 7.1% jump at mid-caps, and a 7.3% increase at small-caps. Audit committee chairs and members were most likely to see their pay fall, but still get paid significantly more than their compensation and governance counterparts (and go to a lot more meetings as well).
It’s obvious that many firms are leaning on their compensation committee chairs to serve as figureheads to shareholders and the media that everything is proceeding correctly– and that they’re giving these folks a pay bump to compensate for the increased responsibility. Board members and chairs of S&P 1500 firms still make a median $142,500, according to the study, which can seem like small change in a world of multi-million-dollar executive salaries and bonuses. Only time will tell if the Dodd-Frank-related shifts in the industry will extend to them, or if they’ll continue to remain fairly unshaken by the new landscape.
You can request the full reports here: Large-caps, mid-caps, small-caps.
Faced with the twin demons of intense public scrutiny and the pending Dodd-Frank legislation, increasingly large numbers of companies are showing an active interest in their peer groups. Equilar’s newest study found that 63.9 percent of the S&P 1500 made some kind of change to their peer group (adding, deleting, or replacing at least one company) in 2009. In the wake of the infamous Tootsie Roll incident, it’s clear that no one wants to be caught asleep at the wheel when it comes to selecting a relevant peer group.
But while there may not be any Tootsie Roll-sized gaffes in the mix, it’s clear that the trend of smaller companies benchmarking to larger companies is far from over. The S&P 600 (small-caps) had a median revenue rank in the 38th percentile compared to their peers, while their mid-cap compatriots were at the 43rd percentile. The S&P 500 achieved the optimum balance, at a median of the 50th percentile. For the entire S&P 1500, 76.9 percent of companies had median revenues at or below the 60th percentile of their peer group.
Request the full report to see more peer group data, including specific disclosure examples.
Among the numerous shakeups that will result from the new Dodd-Frank Act is a tougher clawback policy that will be required of all companies (well, all companies that want to list their securities on a national exchange–we doubt anyone will disobey). Unlike Sarbanes-Oxley, which triggers clawbacks in the event of executive misconduct causing a financial restatement, Dodd-Frank triggers clawbacks in the event of any financial restatement– regardless of whether or not misconduct was involved. The message is clear: get your proxy statement right the first time, or feel the consequences.
The good news is that most of the Fortune 100 is already on the clawback train, with a good chunk more or less Dodd-Frank compliant. 82.1 percent of F100 companies had a 2010 clawback policy, up from a mere 17 percent just four years ago. 81.3 percent of these policies cover any financial restatement, 78 percent cover executive misbehavior, and 63.7 percent require both. Cash incentives are covered at 87 percent of companies, and equity incentives are included at 81.5 percent.
Unsurprisingly, the financial industry leads the clawback field, with 90.5 percent disclosing a policy (as required by TARP). Once Dodd-Frank goes into effect, the Wall Street wizards will have plenty of company in the clawback arena, and a number of other exec comp arenas as well. You can request the full report for more information.
Equilar has released both the Executive and Director Stock Ownership Guidelines reports, and in an era of newfound corporate accountability, it’s not surprising to find that over 80% of Fortune 250 companies require them for CEOs and directors– nor is it surprising that these numbers continue to be on the rise. When it comes to the specific details of the ownership policy, however, things vary greatly between the two groups.
The first major difference is holding requirements. Most of the time, these are combined with ownership guidelines to create a double-strength package. A whopping 40.1 percent of CEOs are subject to them, but only 19.8 percent of directors have the same responsibility. Companies are obviously a lot more concerned about tightening the strings on their CEOs than on their directors– CEOs were required to meet a median ownership target of around $6 million, while the 2009 median for directors was a comparatively meager $262,850.
Directors also get more flexibility in the design of their ownership guidelines. The gold standard for CEOs is multiples of base salary (used by 82.2% of companies), followed by a fixed-number-of-shares target (12.6%). For directors, on the other hand, the design field has widened: while multiples of the retainer (54.8%) and fixed number of shares (23.9%) are still the most common strategies, they’re increasingly losing ground to setting a fixed value of shares (14.4%) or coming up with another, unique plan (7.7%), both of which have risen significantly in occurrence over the past three years.
Request the Executive or Director Stock Ownership Guidelines reports for the full details.
Having knocked out CEO and CFO pay, Equilar’s third report in the C-Suite lineup focuses on the S&P 1500′s Chief Operating Officers. While the median CEO and CFO saw their total pay fall between 2008 and 2009, no C-Suite group has taken a hit like that given to COOs, who saw their pay go down in every industry. Even in the Utilities industry, where they’re paid the most, COO pay was down about three percent. Companies seem to be addressing some of the damage by awarding bigger bonuses: the median bonus was up 14.5 percent in 2009, from $350K to $400K. But with more than a third (34.9 percent) not receiving any bonus at all, 2009 hasn’t been a banner year for a good chunk of the COO population.
In general, the COO data for 2009 was consistent with what we’ve seen for CEOs and CFOs: pay down, bonuses up, pay-for-performance fairly intact, and 2009 equity awards making up for the majority of 2008 equity awards that are still underwater. One odd change: unlike every other study, where the first and second quartile of COOs by company performance saw bonus leaps, the second quartile in the COO study actually saw its bonuses go down 7.8 percent, while the third quartile’s COOs saw bonuses that rose 20.5 percent. Sounds like a few companies need to show a little more bonus love to their stronger-than-average performers– and a few other companies need to show a little less love to below-average execs. To request the full COO report, click here.
Reform-minded folk will be pleased at Equilar’s new data on CEO perks for the Fortune 100, which shows the median value of “other” compensation declining 28.3 percent from 2008 to 2009 (compare that to only a 2.3 percent drop from 2007 to 2008). The two most publicly reviled perks, tax gross-ups and personal use of corporate aircraft, were most likely to be cut; 34 percent of companies disclosed cutting at least one perk in ’09, and overall perk prevalence decreased five basis points in 2009.
But that doesn’t mean perks have completely disappeared. 50 percent of CEOs in the F100 still get gross-ups, and flexible perquisite accounts, which more or less shield a disbursement of “other” comp from targeted hatred, are on the rise (as is spending on security fees). 66 percent of CEOs still get to take rides on the corporate jet. All in all, the median perks package for a F100 CEO is still $249,632. The decline in perks may be a sign that Corporate America is listening, but that doesn’t necessarily mean they’re taking drastic action.
Equilar has just released its 2009 pay reports for S&P 400 and 600 CFOs, completing the trifecta begun two weeks ago with the S&P 500 CFO pay study. The most interesting part of comparing the three groups is that cap size has a small effect on CEO pay cuts, but a big effect on bonus increases. To wit:
Pay Decrease for CFOs in 2009
- Large-cap: 3.1 percent ($2.675 million median total pay)
- Mid-cap: 2.7 percent ($1.399 million)
- Small-cap: 0.64 percent ($840,903)
Bonus Increases for CFOs in 2009
- Large-cap: 20.9 percent ($536,250 median bonus)
- Mid-cap: 14.8 percent ($280,000)
- Small-cap: 10.2 percent ($145,457)
See a trend? CFOs of large-cap companies may have taken the biggest total pay cuts (which still weren’t all that big), but they recouped much larger bonus increases as a reward. Were it not for those pesky 2008 option grants, salaries would be flying pretty high. What’s more, this trend also plays out with the upside-downside of good and bad performance: on a percentage scale, large-cap companies’ CFOs see bigger bonus increases when they perform the best and smaller bonus decreases when they perform the worst. Smaller S&P companies may be under less scrutiny, but they’ve somehow absorbed the “pay for performance” rhetoric more quickly than their large-cap counterparts.
If one were to choose any executive hot seat in the S&P 500 right now, the Chief Financial Officer job might be the way to go. Though they make less overall than their counterparts in the CEO suite, CFOs have proven more resilient in terms of avoiding big pay drops and reaping bigger bonuses in these turbulent times. Equilar’s new study shows that CFOs’ median total pay only fell 3.1 percent (versus 7.9 percent for CEOs) while their bonuses jumped a jaw-dropping 20.9 percent (versus only an 8.5 percent boost for CEOs). The industries with well-paid CFOs include Conglomerates (the highest-paying, with median comp of $4.6 million) and Industrial Goods (which saw the biggest pay jump, rising 9 percent over 2008). Strangely, healthcare, the best-paying industry for small-, mid-, and large-cap CEOs, isn’t much of a hotspot for well-paid CFOs; total pay in that industry declined nearly 25% from 2008 to 2009.
CFOs are also benefiting from the same early-2009 stock grants given to their counterparts, where grant size was often inflated to make up for decreased stock price. Over 85 percent of those options are now in the money. To see all the data, request the report here.
The final chapter in Equilar’s cap-size CEO trilogy is out, and it looks like the CEOs of the smallest companies have taken some of the biggest hits. The S&P 600 is the only one of the three groups where bonuses were down in ’09– though median bonus value rose 3.3% for those who got bonuses, over 25% didn’t get any bonus, a 6.6% increase from 2008. Like the S&P 500, total pay is also down for the small-cap CEOs (the S&P 400 rose slightly), by 5.4%.
There’s also the question of stock: compared to their large- and mid-cap peers, small-cap CEOs are less likely to have options and more likely to have restricted stock. The share of their earnings that came in cash also shot up 8% between 2008 and 2009.
Ironically, the small-cap companies seem to be most enthusiastic about implementing the type of strictures to which the government would like to bring their big brothers around. In addition to the increased likelihood of restricted stock, bonuses correlate very strongly with performance for this group, with the top-performing quartile of companies raising CEO bonuses 71.1% and the bottom quartile docking them 32.6%.
You can get more information by requesting the full report here. If you’re interested in the S&P 500 and 400, go here and here.
Unlike their counterparts in the S&P 500, who were lamenting a 7.9% slide in their median total pay last week, S&P 400 CEOs have something to be (relatively) happy about: their total pay rose slightly from 2008 to 2009, increasing 1.7% to a median of $3.76 million. They also saw a bonus bump of 11.6%, slightly higher than the S&P 500 bonus pop of 8.5%.
S&P 500 CEOs, however, do have one thing to crow about over their mid-cap peers: the CEOs of the 400 seem to get less money when they do well, and take a bigger hit when they do poorly. The top quartile of S&P 400 CEOs by company performance definitely got a nice reward, with a 66.7% bonus rise, but their peers in the bottom quartile took a hit of 32.6% in their bonus pay. Compare that to an upside of 86.8% and a downside of only 10.3% for S&P 500 CEOs in the same positions, and you have to admit that the air’s a bit nicer up in the large-cap leagues, even if you’re flailing. With Washington crying for blood, we have to admit surprise that the biggest CEOs in the country had bigger bonus upsides and smaller bonus downsides than their smaller-cap peers– aren’t these folks the primary occupants of the spotlight?
The final chapter in the CEO Pay trilogy, the S&P 600, will debut next Wednesday, and we’ll be interested to see if the trend for bigger downsides continues as the stakes get (slightly) smaller. In the meantime, if you’re full of burning questions for the statistical minds behind this epic, consider logging in to Equilar’s CEO Pay Strategies Webinar, also next Wednesday. You can sign up for it here.