Archive for the ‘Executive Compensation’ Category

Shareholder Scrutiny and Executive Compensation

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday October 22, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Mathias Kronlund of the Department of Finance at the University of Illinois at Urbana-Champaign and Shastri Sandy of the Department of Finance at the University of Missouri at Columbia.

As a result of the Dodd-Frank Act of 2010, public firms must periodically hold advisory shareholder votes on executive compensation (“say on pay”). One of the main goals of the say-on-pay mandate is to increase shareholder scrutiny of executive pay, and thus alleviate perceived governance problems when boards decide on executive compensation. In our paper, Does Shareholder Scrutiny Affect Executive Compensation? Evidence from Say-on-Pay Voting, which was recently made publicly available on SSRN, we examine how firms change the structure and level of executive compensation depending on whether the firm will face a say-on-pay vote or not.

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APG Asset Management Issues Remuneration Guidelines

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday October 17, 2014 at 9:06 am
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Editor’s Note: The following post comes to us from David Shammai, Senior Governance Specialist and Martijn Olthof, Senior Portfolio Manager, both at APG Asset Management. APG’s remuneration guidelines are available here.

One of the world largest fiduciary asset managers, APG recently issued remuneration guidelines that will be applied to its portfolio of European listed companies. APG believes that the innovation in the new guidelines is twofold. First in that they are based on its practical experience of company engagements and therefore reflect an integrated investment and governance outlook. More specifically, the guidelines place a clear emphasis on value creation. By issuing the guidelines APG is aiming to make its ongoing discussions with companies around pay more effective, thus freeing up time for it to focus on other important corporate governance areas such as board structure, succession and nominations.

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New Evidence on Compensation Consultants and CEO Pay

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday October 16, 2014 at 9:12 am
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Editor’s Note: The following post comes to us from Jenny Chu, Jonathan Faasse, and Raghavendra Rau, all of the Finance & Accounting Group at the University of Cambridge.

In 2013, CEOs in S&P 500 firms were paid, on average, over 200 times the average worker’s salary in their firms. To avoid or minimize public outrage, managers have a substantial incentive to obscure and try to legitimize their excessive compensation. One way of doing so is to have “independent” compensation consultants recommend higher pay to the board. However, prior literature has not been able to find significant evidence that hiring consultants leads to higher pay, partly because the information is only available after 2006 and most studies on this topic examine one or two years after 2006.

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The Recent Evolution of Shareholder Activism

Editor’s Note: Matteo Tonello is vice president at The Conference Board. This post relates to a report released jointly by The Conference Board and FactSet, authored by Dr. Tonello and Melissa Aguilar of The Conference Board. The Executive Summary is available here (the document is free but registration is required). For details regarding how to obtain a copy of the full report, contact matteo.tonello@conference-board.org.

Proxy Voting Analytics (2010-2014), a report recently released by The Conference Board in collaboration with FactSet, reviews the last five years of shareholder activism and proxy voting at Russell 3000 and S&P 500 companies.

Data analyzed in the report includes:
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What Has Happened To Stock Options?

Posted by Joseph E. Bachelder III, McCarter & English, LLP, on Thursday October 2, 2014 at 9:05 am
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Editor’s Note: Joseph Bachelder is special counsel in the Tax, Employee Benefits & Private Clients practice group at McCarter & English, LLP. The following post is based on an article by Mr. Bachelder, with assistance from Andy Tsang, which first appeared in the New York Law Journal.

Stock options have been a part of executive pay at major U.S. corporations for approximately 100 years. They have had an important role for approximately 70 years, starting in the 1950s. They have gone through periods of extraordinary popularity (e.g., the 1990s) and have been less popular during periods when the stock markets were in the doldrums. They survived the change in accounting rules (2006) that now require them to be a charge against earnings. This post examines this history and takes a look at where options are today. [1]

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Preparing for the 2015 Proxy Season

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday September 26, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Lawrence R. Hamilton, partner in the Corporate & Securities practice at Mayer Brown LLP, and is based on a Mayer Brown Legal Update. The complete publication, including footnotes, is available here.

It is time for calendar year-end public companies to focus on the upcoming 2015 proxy and annual reporting season. This post discusses the following key issues for companies to consider in their preparations:

  • Pending Dodd-Frank Regulation
  • Say-on-Pay and Compensation Disclosure Considerations
  • Shareholder Proposals
  • Proxy Access
  • Compensation Committee Independence Determinations
  • Compensation Adviser Independence Assessment
  • Compensation Consultant Conflict of Interest Disclosure
  • NYSE Quorum Requirement Change
  • Director and Officer Questionnaires
  • Proxy Advisory Firm and Investment Adviser Matters
  • Conflict Minerals
  • Cybersecurity
  • Management’s Discussion and Analysis
  • XBRL
  • Proxy Bundling
  • Foreign Issuer Preliminary Proxy Statement Relief
  • Technology and the Proxy Season

…continue reading: Preparing for the 2015 Proxy Season

2014 Proxy Season Review—Looking Forward to Next Year

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday September 3, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from John P. Kelsh, partner in the Corporate and Securities group at Sidley Austin LLP, and is based on a Sidley Austin publication by Mr. Kelsh, Claire H. Holland, Corey Perry, and Thomas J. Kim.

“Proxy season” is stretching longer and longer with each passing year as the “off season” has become the season to engage with institutional shareholders and to prepare for the next season. With 2014’s annual meetings now largely completed and the 2015 proxy season on the horizon, now seems a good time to review lessons learned and themes from 2014. This Corporate Governance Update addresses some of the developments that shaped the proxy season in 2014 and discusses points worth considering as preparations for the 2015 season begin.

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Director Engagement on Executive Pay

Posted by Jeremy L. Goldstein, Jeremy L. Goldstein & Associates, LLC, on Friday August 15, 2014 at 9:00 am
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Editor’s Note: Jeremy L. Goldstein is founder of Jeremy L. Goldstein & Associates, LLC. This post is based on a publication by Mr. Goldstein.

Since the implementation of the mandatory advisory vote on executive compensation, shareholder engagement has become an increasingly important part of the corporate landscape. In light of this development, many companies are struggling to determine whether, when and how corporate directors should engage with shareholders on issues of executive compensation. Set forth below are considerations for companies grappling with these issues.

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Board Structures and Directors’ Duties: A Global Overview

Editor’s Note: The following post comes to us from Davis Polk & Wardwell LLP and is based on a chapter of Getting The Deal Through—Corporate Governance 2014, an annual guide that examines issues relating to board structures and directors’ duties in 33 jurisdictions worldwide.

Corporate governance remains a hot topic worldwide this year, but for different reasons in different regions. In the United States, this year could be characterised as largely “business as usual”; rather than planning and implementing new post-financial crisis corporate governance reforms, companies have operated under those new (and now, not so new) reforms. We have witnessed the growing and changing influence of large institutional investors, and different attempts by companies to respond to those investors as well as to pressure by activist shareholders. We have also continued to monitor the results of say-on-pay votes and believe that shareholder litigation related to executive compensation continues to warrant particular attention.

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Socially Responsible Firms

Posted by Allen Ferrell, Harvard Law School, on Wednesday August 6, 2014 at 9:02 am
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Editor’s Note: Allen Ferrell is Greenfield Professor of Securities Law, Harvard Law School. The following post is based on the paper co-authored by Professor Ferrell, Hao Liang and Professor Luc Renneboog.

The desirability of corporations engaging in “socially responsible” behavior has long been hotly debated among economists, lawyers, and business experts. Two general views on corporate social responsibility (CSR) prevail in the literature. The CSR “value-enhancing view” argues that socially responsible firms, such as firms that promote efforts to help protect the environment, promote social equality, improve community relationships, can and often do adhere to value-maximizing corporate governance practices. Indeed, well-governed firms are more likely to be socially responsible. In short, CSR can be consistent with shareholder wealth maximization as well as achieving broader societal goals. The opposite view on CSR begins with Milton Friedman’s (1970) well-known claim that “the only social responsibility of corporations is to make money”. Extending this view, several researchers argue that CSR is often simply a manifestation of managerial agency problems inside the firm (Benabou and Tirole, 2010; Cheng, Hong, and Shue, 2013; Masulis and Reza, 2014) and hence problematic (“agency view”). That is to say, socially responsible firms tend to suffer from agency problems which enable managers to engage in CSR that benefits themselves at the expense of shareholders (Krueger, 2013). Furthermore, managers engaged in time-consuming CSR activities may lose focus on their core managerial responsibilities (Jensen, 2001). Overall, according to the agency view, CSR is generally not in the interests of shareholders.

…continue reading: Socially Responsible Firms

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