Articles by Garry Rogers

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Just Realize It’s Simply One More Tool in Your Toolbox

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Can you hear them? Scratching away, or these days more likely pecking away at keyboards. The auditors are at it, it’s coming up on proxy time! They are working furiously, not exactly 24/7 but close to it to balance the books for some 10,000 publicly traded companies in the US. Unfortunately, not even Grahall can do this in its sleep! Journalists, activist investors, and regulators are poised to dissect the proxy statements that will start to be released in just a few weeks.

Today’s proxy bears little resemblance to that of 5 or 10 years ago, as there have been lots of changes in the way executives are compensated and the way that compensation is reported. As Grahall’s Garry Rogers says: “Nearly every aspect of compensation, with the exception of Code Section 162(m), has been revisited in the past several years. Stock options have been marginalized as a primary compensation tool because of changes in expensing and concerns about risk. In their place, the prevalence of restricted stock and performance shares is on the rise.”
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What You Need to Know NOW about Say on Pay Advisory Votes

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Expert Perspective By Grahall’s OmniMedia Editorial Board

In her February 17, 2011 article in Forbes  (Proxy Season Again? Creating a Compensation Discussion and Analysis That Really Speaks to Shareholders) Robin Ferracone asks: as you “…hunker down to write drafts of the  Compensation Discussion & Analysis (CD&A), will it be business as usual… or will it be time to start over?” 

Not only is it time to start over, but we may be in the verge of a paradigm shift where boards and their committees will begin to engage shareholder AND stakeholders in discussions with the purpose of explaining and defending executive compensation structures and results. 
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Filed under: Expert Perspective - Rewards, Regulatory Updates



The Say on Pay Paradigm Shift: What You Need to Know NOW!

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Expert Perspective by Grahall’s OmniMedia Editorial Board

In his most recent client alert, “Say On Pay Ushering in Paradigm Shirt? What You Need to Know NOWGrahall’s Garry Rogers discusses trends appearing in the first two months of early filing companies regarding Say on Pay requirements and frequency.  And those trends are potentially significant. Rogers says: “… we may be heading for nothing less than a total transformation of the process by which executive compensation is both determined and implemented.”


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Say on Pay Voting Periods – Size Does Matter

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Expert Perspective from Grahall’s OmniMedia Editorial Board

In a nearly unprecedented turn of events, 39 institutional investors issued a press release (Investors Issue Call for Annual Vote on Executive Pay)  calling for “public companies to support annual advisory votes on executive compensation in their 2011 proxy statements and for investors to vote for annual ‘Say on Pay’ votes.” 

According to Grahall’s Garry Rogers who has reviewed over 200 such early filings, a majority of public companies are recommending three-year votes. So the lines are clearly drawn in the sand.  Rogers says: “Although it’s still early, at this point the three year time period is clearly the most popular.”  However, the size of the filer also appears to be a factor on the frequency recommendation. Rodgers adds: “Seven of the ten largest companies have recommended annual reviews, and the overall rate of annual reviews is noticeably higher for companies over $1 billion in market capitalization when compared to smaller companies”.      

According to the press release, 39 institutional investors, major mutual funds and influential proxy advisor Institutional Shareholder Services (formerly RiskMetrics) have thrown their weight behind annual votes. 

Clearly a one-year period creates a much stronger “watchdog” atmosphere, and some companies may benefit from this level of oversight.  Our concern is that like any other corporate structure, program or protocol, “one size may not fit all.”  Two-year or even three-year voting periods might make sense for some public companies particularly if their compensation structures are based on longer performance periods.   In addition, some observers have argued that the one-year period may become just another compensation formality, while a three-year review would be more novel and taken more seriously, while promoting a more significant emphasis on long term growth.

In either event, the Say on Pay process has its weaknesses regardless of what duration period a company employs.  Already, one high profile filer Monsanto, received a 65% vote in favor.  Is that sufficiently high for the company to accept, or should it revise its compensation programs?  Clearly, 35% is a significant number of shareholders unhappy with the current program.  This starkly illustrates the potential quagmire that can result from an “up or down” Say on Pay” vote , which obviously doesn’t lend itself to specific interpretation, and it’s not clear what to do in such circumstances, other than to engage your shareholders.

What is clear is that as investors, mutual funds and ISS continue to press for annual reviews, we may just see the annual period become the norm, particularly at larger companies.   Whether this will result in maximum accountability, and encourage companies to communicate effectively with shareowners (who themselves may be voting against a program for individual reasons) remains to be seen. 

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com

Filed under: Expert Perspective - Rewards, Regulatory Updates



Say on Pay Goes On

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Expert Perspective from Grahall’s OmniMedia Editorial Board

An article by Richard Levick (Transparency on Executive Pay Begins with Clarity) caught our attention. 

Mr. Levick begins his article (much of which he shares was excerpted from the book “The Communicators: Leadership in an Age of Crisis “ that he co-authored with Charles Slack) noting that “…on Jan. 25, SEC commissioners voted 3-2 to enact the say-on-pay measure that subjects compensation plans to non-binding shareholder votes as often as once a year…”.  In our blog published on January 25th, Grahall’s Garry Rogers reminded us of that meeting and said:  “The final rules are not likely to contain any real surprises, but of particular interest will be whether exemptions for ‘small-companies’ and for new issuers will survive.” (To read more about the Say on Pay rules click here.) We followed up with Garry to get his take on the SEC hearings.
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Filed under: Expert Perspective - Rewards, Regulatory Updates



Fixing Executive Compensation: It’s Not a Simple Job

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Expert Perspective by Grahall’s OmniMedia Editorial Board

In his article for the Huffington Post (Wall Street CEO Pay Problems Worsened By New Regulations, Report Says) William Alden writes that “…one of the primary forces encouraging greater risk [and setting off the ‘Great Recession’] was the way that executives at major banks were compensated: Aggressive moves that made stock prices soar in the short-term triggered hefty bonuses, and even when those same moves led to longer-term disasters, the chieftains got to keep the money, leaving taxpayers on the hook for the losses.  A new regulatory framework and much talk of lessons learned was supposed to have changed all that, putting the fortunes of the bank chiefs on the line, and tying their pay to the longer-term health of their companies.”

Alden refers to a report  issued by the Council of Institutional Investors, an association of public and private pension funds (Wall Street Pay) which suggests that the new regulations have done little to reduce risk since the changes simply result in companies increasing stock payouts in lieu of cash bonuses.  The “…council report concludes that simply focusing on boosting stock as a percentage of overall compensation inadequately protects against excessive risk-taking by banking executives.”

We agree, sort of. 
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SEC to Hold Open Meeting on January 25 to Consider Final Rules on Say on Pay

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The Securities and Exchange Commission (“SEC”) has announced its intention to consider final rules for executive compensation advisory votes an open meeting to be held on Tuesday,  January 25, 2011. These rules are mandated by the Dodd-Frank Act, which requires all public filers to hold “say on pay” votes in 2011. Shareholders must be given the opportunity to advise companies whether future pay votes should occur every one, two or three years.

According to Grahall’s Garry Rogers: “The final rules are not likely to contain any real surprises, but of particular interest will be whether exemptions for ‘small-companies’ and for new issuers will survive.” Rogers adds that during the comment period, investors generally opposed this exemption while the smaller filers are pushing hard for adoption.

Click here to read the entire article regarding Say on Pay in Grahall’s Knowledge Center.

You can peruse other compliance and regulatory updates in Grahall’s Knowledge Center.

And you can contact Garry Rogers at Garry.Rogers@grahall.com.

Filed under: Expert Perspective, Regulatory Updates



Great Corporate Governance Starts with Capable Directors

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Expert Perspective from Grahall’s OmniMedia Editorial Board

Joanne Lublin’s article in the Wall Street Journal, Using a Board Seat as a Stepping Stone, quotes Susan Stautberg, co-founder of OnBoard Bootcamp as saying potential director candidates should “…downplay their usual aggressiveness during board interviews because a director must be a good listener…Boards value teamwork, diplomacy and collaboration as well.”

In our experience, the best directors are more like supreme court judges – good questioners first; good listeners second.  Unfortunately, some Boards seem to be the embodiment of the proverbial “Three Wise Monkeys,” unwilling to recognize anything damaging or detrimental in the decisions and actions of management. 
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Filed under: Expert Perspective - Organization Development



Putting a Price on Corporate Governance: Does Your Board Add To Your Value Chain?

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Expert Perspective from Grahall’s OmniMedia Editorial Board

We noticed that the Forum for Corporate Directors recently hosted the “7th Annual Directors’ Institute to Prepare Directors for Change in the Boardroom by Addressing the Consequences of New Governance Policies”.  According to the press release, the 2 day conference was to focus on “the most timely and critical issues facing today’s boards of directors.”   Quite frankly we were pleased to see that one of the panel topics was “Do You Really Have the Right Board?”  We think that if boards truly asked themselves this question, the answer for many companies going through change would be a resounding “NO”. 
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Filed under: Expert Perspective - Organization Development



Making Lemonade out of Lemons: Occidental Changes its Exec Compensation Plan

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Expert Perspective by Grahall’s OmniMedia Editorial Board

The Editorial Board read with interest the October 29, 2010 Edgar-Online article Occidental Petroleum tweaks executive compensation policy that indicated that “The company plans to use more long-term incentives to compensate its top executives. Specifically, it will rely on so-called Total Shareholder Return (TSR) Incentives, which grant bonuses to executives based on how Occidental’s stock performs relative to those of 12 peer companies.”

A little background – Occidental’s top executives (in particular Messrs. Irani and Chazen) have long been among the highest paid executives in their industry, if not in the world.  Critics have argued its rewards programs have dramatically overcompensated Mr. Irani in particular.
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Filed under: Expert Perspective - Rewards