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It is Absolutely All Relative

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There are important question shareholders, boards, the media, and the public should be asking when it comes to CEO pay, but it’s not necessarily “how much”.  In her April 6, 2013 article for the New York Times, If Shareholders Say ‘Enough Already,’ the Board May Listen Gretchen Morgenson writes, “Last year, the median chief executive at a United States company with more than $5 billion in revenue received about $14 million, 2.8 percent more than in 2011, according to an annual pay analysis conducted by Equilar. The 2012 increase, though relatively modest, still represents a raise for most of those who inhabit the corner office (and whose companies had filed the data by the end of March)…. Do this year’s figures show any evidence of progress toward a new pay paradigm? You know, where the gap between the compensation of executives and workers narrows, or where company directors put shareholders’ interests before those of the hired hands?” 
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Please sir, I want some more!

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According to an April 1, 2013 article in Financial Times, “the UK’s opposition to the new EU-wide cap on bankers’ bonuses was swept aside in an otherwise unanimous vote in favour of the new rules. The EU-wide cap, effective next year, will restrict bonuses to the same level as salary, or at twice that level with explicit shareholder approval”.

And it’s not just bankers, according to a March 24, 2013 article in the Financial Times, “Sven Giegold, the German Green party MEP spearheading the legislation, is believed to want to extend the proposed bonus caps to hedge funds, and other vehicles such as private equity funds, covered by the EU’s Alternative Investment Fund Managers Directive.”

Oh dear, such dire circumstances for the EU bankers (the majority of whom are in London). Will this harsh punishment turn EU bankers in the next Oliver Twists begging their strict regulators for just one more bowl of gruel (or a richer pay package)? Well, probably not.
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It is the Customer who Pays the Wages (Henry Ford)

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As Henry Ford more than  alluded to in his quote (above), the only way a company can pay wages to its workers and management is to have customers (or advertisers) support their products and services. To take this one step further, it is a successful company who has the resources to pay its employees well. With all employees, and especially those most highly placed in the organization the “value exchange” that results in fair pay is very much a two way street.

Employee commitment, ethical behavior, and working hard at the right tasks all improve company success, and with increased profits companies can pay better wages. The most vivid example of this can be seen with the CEO, although unlike most other employees the CEOs pay is set down in a contractual form. 
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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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The Best Compensation Programs are Those Most Frequently Examined

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Expert Perspective from Grahall’s OmniMedia Editorial Board

Kyle Stock was a little all over the place with his February 11 blog in the Wall Street Journal Jobs Report: Wall Street Continues to Tinker With Pay but we thought two points that he made were particularly worth examining.  

Stock writes: “… with the darkest days of the crisis two years gone by, executives are still tinkering with pay policies.”  To which we say, duh. 

“Tinkering with” or at the very least deeply examining pay practices is exactly what needs to be done on a very regular basis and most importantly when economic conditions are changing.
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Boards’ New Mantra: Communicate

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Expert Perspective by Grahall’s OmniMedia Editorial Board

Joann Lublin wrote a very interesting article for the Wall Street Journal recently, titled Season of Shareholder Angst: U.S. businesses are bracing for a noisy proxy-voting season this year, although we think the anxiety may be felt more fiercely by board members than by shareholders.  In her article, Ms. Lublin covers a variety of topics weighing heavily on the minds of boards and shareholders alike, including say on pay, political contributions, succession planning, board elections and environmental concerns. 

Say on pay has been in the headlines for years. It was a campaign issue in the 2008 presidential elections and we have been discussing this subject in our blogs for that long as well.  The Dodd Frank Act mandated that all public filers hold “say on pay” votes in 2011, so this proxy season has companies scrambling to make recommendations to shareholders on the frequency of these votes. 
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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