Long-Term Goals Are Most Commonly Cited Risk Mitigator

April, the cruelest month of proxy season, is approaching its end, and in the wake of the numerous filings this month, interesting information is beginning to emerge, such as Equilar’s new report on risk disclosure. The SEC introduced new guidelines for discussion of risk this year, and there was a lot of buzz about how companies would (or wouldn’t) handle the new regulations. The good news is that there seems to be a lot of consensus: of the 100 large ($14.5+ billion in revenues) public companies Equilar surveyed, 72% noted long-term performance goals as a risk-management policy, while 59% cited ownership guidelines and 50% touted clawbacks. Don’t feel badly for those poor NEOs, though: 56% also cited balancing short-term performance goals with long-term ones as important. Not such an important risk-management tool: reducing or eliminating perquisites, which only one of the 100 companies cited.

The landscape isn’t free from disagreement, however. Pension plans were a notable opinion-divider, with some companies touting their employee-retention powers, while others emphasized cutting them to avoid short-term goal focus. It’ll be interesting to see how things normalize (or don’t) next year, when everyone has their peers’ disclosures as a baseline.

CEO Bonus Results From Latest Proxy Filings

Equilar released another round of the latest proxy findings from its CEO Bonus report today, and the picture is looking similar to last time, but with a lot more evidence to back it up. Companies with fiscal years ending in June-November saw a 29% decrease in median CEO bonus payouts, while companies with fiscal years ending in December (now a cohort of over 200) saw a 28.9% increase, with a median payout of $1,450,000.

By industry, financial bonuses were still flat, since last year’s median payout was $0, but consumer industry bonuses soared 116.9% over last year’s numbers, followed closely by the 87.5% rise for basic materials industry bonuses and the services industry’s 40.5% jump. The big losers: capital goods, down 43.9%, and technology, down 30.9%.

CEO Bonuses Slide, But December Proxies Show a Rebound

The full Equilar Bonus Plan report is now out, and things have changed significantly with the addition of one week of new proxy data. While companies with fiscal year-ends in June-November had a 29% drop in CEO bonuses, those with FYEs in December had a 46.9% increase in their bonuses year-over-year. Our guess is that a lot of companies are beginning to come out of their recession-induced hiding places, and the overall bonus climate at the end of proxy season is looking increasingly rosy for the execs whose fiscal years ended in the past few months. Well, until the next round of media and politicians calling for their heads on a platter begins, anyway. Add to this the finding that financial-industry bonuses jumped from a median of $0 in \’08 to $576,294 in \’09, and the firestorm is practically visible from here.

That\’s not to say that every CEO is making off with beaucoup bonus bucks– 45.5% of them didn\’t take home a dime in bonuses, and as the report shows, many of those who did get a bonus got it in restricted holdings, equity, a mix of cash and equity, or performance-based awarding, rather than time-based. But with unemployment still high and unlikely to drop before proxy season\’s end, these December numbers seem like a bellwether of anti-bonus vitriol to come.

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.

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.

CD&A Overview

An examples-based review of key CD&A elements

With CD&A disclosures entering their second year, numerous questions still remain regarding the appropriate structure and design of executive compensation disclosure.

The SEC\’s recent round of comment letters now provide compensation professionals, consultants and directors with a new set of challenges and a renewed sense of urgency in dealing with these issues.

In particular, companies face increased pressure to improve transparency on performance-based compensation and to answer the question of \’why,\’ in addition to the questions \’how\’ and \’when.\’

Fortunately, with the bulk of public companies having now submitted their first CD&A, we can, unlike last year, draw important insights from a wealth of available information.

[Click here to download the 2007 CD&A Overview]

CEO Benefits & Perquisites Report

2007 Equilar CEO Benefits Perquisites Report

The 2007 proxy season ushered in a new generation of executive and director compensation disclosure. Among the many changes introduced for the first time, the Securities and Exchange Commission’s (SEC) new disclosure regulations significantly altered the manner in which executive benefits and perquisites are disclosed.

First, information on executive benefits and perquisites was consolidated into a single column of the Summary Compensation Table. Next, entirely new disclosure sections of the proxy give more visibility into accumulated pension benefits and deferred compensation plan balances. Last, the disclosure threshold for the aggregate value of executive perquisites was lowered.

The SEC’s new disclosure rules forced companies to provide an unprecedented amount of detail on the nature and value of executive benefits and perquisites in 2007, and,as a result, executive perquisites remain in the spotlight. It is against this backdrop of expanded disclosure that Equilar presents the 2007 CEO Benefits and Perquisites Report. This report offers an in-depth analysis of the following key benefits and perquisites offered at Fortune 100 companies:

• Financial Planning and Other Professional Services;
• Flexible Perquisite Accounts;
• Personal and Home Security;
• Personal Use of Corporate Aircraft; and
• Tax Reimbursements.

In addition, this year’s expanded report includes sections on retirement benefits and highlights trends among companies that have eliminated perquisites in the last year. As companies enter into a new era of disclosure, this comprehensive review of benefits and perquisites is an invaluable tool for compensation professionals developing compensation packages for their own executives.

Executive Stock Ownership Guidelines Report

Shareholder pressure for improved alignment of executive and shareholder interests has led, in part, to increased use of executive stock ownership guidelines and holding requirements.

This trend, in conjunction with improved transparency in corporate governance disclosure, has generated a wealth of new information on the prevalence and design of stock ownership policies.

Furthermore, the SEC\’s new compensation disclosure regulations include the requirement for disclosure of corporate policies on stock retention and hedging in the new Compensation Discussion and Analysis (\”CD&A\”) section, ensuring continued public discussion of ownership guidelines and holding requirements for years to come.
Although different in structure, both ownership guidelines and holding requirements encourage executives to develop a sizable equity stake in the companies they lead. Ownership guidelines generally establish stock acquisition goals that executives must achieve within a specified period of time, typically over three to five years.

Holding requirements call upon executives to retain a certain percentage of shares acquired through the exercise or vesting of stock options, restricted stock, and other equity awards.

With disclosure of these policies on the rise, Equilar reviewed trends in the prevalence and design of executive ownership guidelines and holding requirements among Fortune 250 companies for fiscal years 2005 and 2006.

This report, covering numerous aspects of the design of share retention policies is an invaluable tool for compensation professionals seeking to adopt or amend ownership guidelines and holding requirements for companies of all sizes.