Posts Tagged ‘Executive Compensation’

International Banking Regulators Reinforce Board Responsibilities for Risk Oversight and Governance Culture

Editor’s Note: Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update authored by Ms. Gregory, George W. Madison, and Connie M. Friesen; the complete publication, including footnotes, is available here.

In October 2014, the Basel Committee on Banking Supervision of the Bank for International Settlements issued its consultative Guidelines [on] Corporate governance principles for banks (the “2014 Principles”). The 2014 Principles revise the Committee’s 2010 Principles for enhancing corporate governance (the “2010 Principles”), in which the Committee reflected on the lessons learned by many central banks and national bank supervisors from the global financial crisis of 2008-09, in particular with regard to risk governance practices and supervisory oversight at banks. The 2014 Principles also incorporate corporate governance developments in the financial services industry since the 2010 Principles, including the Financial Stability Board’s 2013 series of peer reviews and resulting peer review recommendations. The comment period for the 2014 Principles expires on January 9, 2015.

This post highlights certain themes in the 2014 Principles and identifies recent comments by U.S. banking regulators that indicate that supervised financial institutions can expect new regulations to address some of these themes.

…continue reading: International Banking Regulators Reinforce Board Responsibilities for Risk Oversight and Governance Culture

Misalignment Between Corporate Economic Performance, Shareholder Return And Executive Compensation

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday December 3, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Jon Lukomnik of the IRRC Institute and is based on the summary of a report commissioned by the IRRC Institute and authored by Mark Van Clieaf and Karel Leeflang of Organizational Capital Partners and Stephen O’Byrne of Shareholder Value Advisors; the full report is available here.

Investors, directors and corporate executive management share common interests when it comes to company performance and economic value creation.

Yet, whilst this commonality is laudable, a review of performance measurement and long-term incentive plan design for USA public companies identifies that current practice is less than clear in measuring and aligning these interests in a manner that is robust and meaningful.

…continue reading: Misalignment Between Corporate Economic Performance, Shareholder Return And Executive Compensation

Global Banks at a Strategic Crossroad

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 28, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Rakhi Kumar, Head of Corporate Governance at State Street Global Advisors, and is based on an SSgA publication; the complete publication, including appendix, is available here.

In Q1 and early Q2 2014, SSgA actively engaged with 15 global banks ahead of the proxy voting season. These engagements were conducted jointly with members of SSgA’s investment and governance teams. Our engagement addressed specific governance issues at each bank and also encompassed a wider discussion on the changing regulatory landscape and its impact on business strategy, capital requirements, operations and risk management, and the bank’s global footprint. Below we have provided the perspectives and insights gleaned from our engagement activities with banks this year.

…continue reading: Global Banks at a Strategic Crossroad

Revisiting Executive Pay in Family-Controlled Firms

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday November 24, 2014 at 9:13 am
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Editor’s Note: The following post comes to us from Juyoung Cheong of the Korea Advanced Institute of Science and Technology and Woochan Kim of the Department of Finance at Korea University Business School.

In our paper, Revisiting Executive Pay in Family-Controlled Firms, which was recently made publicly available on SSRN, we reexamine executive pay in family-controlled firms and challenge the findings in the existing literature.

According to the prior literature, family executives of family-controlled firms receive lower compensation than non-family executives. Using 82 family-controlled firms in the U.S. in 1988, McConaughy (2000) report that family CEOs are paid lower compensation than non-family CEOs. Likewise, Gomez-Mejia, Larraza-Kintana, and Makri (2003) show similar findings using a sample of 253 family-controlled firms in the U.S. during 1995-98.

…continue reading: Revisiting Executive Pay in Family-Controlled Firms

Relative Total Shareholder Return Performance Awards

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 14, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Frederic W. Cook & Co., Inc., and is based on the Executive Summary of a FW Cook publication by David Cole and Jin Fu. The complete publication is available here.

Since 2010, performance-contingent awards have been the most widely used long-term incentive (LTI) grant type among the Top 250 companies [1] and are now in use by 89% of the sample. The prevalence of performance awards and investor preferences have spurred considerable interest in relative total shareholder return (TSR) as a performance metric. Relative TSR measures a company’s shareholder returns [2] against an external comparator group and eliminates the need to set multi-year goals. Use of relative TSR performance awards among the Top 250 companies has increased from 29% in 2010 to 49% in 2014, and relative TSR is now the most prevalent measure used to evaluate company performance for performance awards.

…continue reading: Relative Total Shareholder Return Performance Awards

Executive Compensation in Controlled Companies

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday November 13, 2014 at 9:12 am
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Editor’s Note: Kobi Kastiel is a fellow at the Harvard Law School Program on Corporate Governance. His article, Executive Compensation in Controlled Companies, is forthcoming in the January 2015 issue of Indiana Law Journal and available here. Additional work from the Program on Corporate Governance on executive compensation includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried, discussed on the Forum here.

More than a decade ago, Professors Lucian Bebchuk and Jesse Fried published the seminal work on the role and significance of managerial power theory in executive compensation. Their work cultivated a vivid debate on executive compensation in companies with dispersed ownership. The discourse on the optimality of executive pay in controlled companies, however, has been more monolithic. Conventional wisdom among corporate law theorists has long suggested that the presence of a controlling shareholder should alleviate the problem of managerial opportunism because such a controller has both the power and incentives to curb excessive executive pay.

My Article, Executive Compensation in Controlled Companies, forthcoming in the Indiana Law Journal, challenges that common understanding by proposing a different view that is based on an agency problem paradigm, and by presenting a comprehensive framework for understanding the relationship between concentrated ownership and executive pay. On the theoretical level, the Article shows that controlling shareholders often have incentives to overpay professional managers instead of having an arm’s-length contract with them, and therefore it suggests that compensation practices in a large number of controlled companies may have their own pathologies.

…continue reading: Executive Compensation in Controlled Companies

Harvard Convenes the Executive Compensation Roundtable

Posted by Scott Hirst, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 11, 2014 at 9:02 am
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The Harvard Law School Program on Corporate Governance and the Harvard Law School Program on Institutional Investors convened the Harvard Roundtable on Executive Compensation last Thursday, November 6. The event brought together for a roundtable discussion prominent representatives of the investor, issuer, advisor, and academic communities. Participants in the event, and the topics of discussion, are set out below.

The Roundtable, which was co-organized by Lucian Bebchuk, Stephen Davis, and Scott Hirst, was sponsored by Pearl Meyer & Partners. In addition to Pearl Meyer & Partners, the Roundtable was supported by a number of co-sponsors (listed here), the supporting organizations of the Program on Corporate Governance (listed on the program site here), and the institutional members of the Harvard Institutional Investor Forum (listed here).

The Roundtable sessions focused on both the process for determining executive compensation, and on substantive pay arrangements. The Roundtable discussion on issues relating to the process of determining executive compensation included discussion of the work of proxy advisors and their interaction with investors and issuers, engagement between issuers and investors themselves and compensation disclosure issues. The Roundtable then moved to a discussion of the substantive terms of compensation arrangements, including compensation levels, composition, and structures. Issues that were considered included the choice of peer groups, the composition of long-term and short-term incentive pay and contractual provisions such as claw-backs and golden parachutes.

The participants in the Harvard Roundtable on Executive Compensation included:

…continue reading: Harvard Convenes the Executive Compensation Roundtable

Strategic News Releases in Equity Vesting Months

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 11, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Alex Edmans, Professor of Finance at London Business School; Luis Goncalves-Pinto of the Department of Finance at the National University of Singapore; Yanbo Wang of the Finance Area at INSEAD; and Moqi Xu of the Department of Finance at the London School of Economics.

In our paper, Strategic News Releases in Equity Vesting Months, which was recently made publicly available on SSRN, we study the link between the equity vesting schedules of CEOs and the timing of corporate news releases. We show that, in months in which the CEO has equity vesting, the firm releases more news. This is an easy way to pump up the short-term stock price, as news attracts attention to the stock. This attention also increases trading volume, which allows the CEO to cash out his equity in a more liquid market. Indeed, we find that these news releases lead to significant increases in the stock price and trading volume in a 16-day window, but the effect dies down over 31 days, consistent with a temporary attention boost. The median CEO cashes out all of his vesting equity within seven days—within the window of price and volume inflation.

…continue reading: Strategic News Releases in Equity Vesting Months

ISS, Share Authorizations, and New Data Verification Process

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday November 9, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from John R. Ellerman, founding partner of Pay Governance, and is based on a Pay Governance memorandum by Mr. Ellerman.

Publicly traded companies are required by the SEC and the stock exchanges to obtain shareholder approval when such companies seek to implement a new long‐term equity plan or increase the share reserve pursuant to such plans.

Companies comply with this requirement by seeking shareholder approval through the annual proxy process. Institutional Shareholder Services (ISS), the large proxy advisory firm retained by many institutional investors for proxy voting advice, offers its services to institutional clients by evaluating such proposals. One of the tools used by ISS in developing its voting advice is a financial model referred to as the Shareholder Value Transfer (SVT) Model that attempts to assign a cost to each company’s equity plan. ISS’ proprietary SVT model contains numerous hidden values and algorithms a company cannot readily replicate. If the SVT Model results in an assigned cost that falls outside the boundaries of what is acceptable to ISS, ISS will submit a negative vote recommendation.

…continue reading: ISS, Share Authorizations, and New Data Verification Process

2014 Corporate Governance Review

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday October 30, 2014 at 8:54 am
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Editor’s Note: The following post comes to us from Rajeev Kumar, a senior managing director of research at Georgeson Inc, and is based on the executive summary of a Georgeson report; the full report is available here.

Shareholder activism continued to thrive in the 2014 proxy season, spurring corporate action as well as renewed engagement between issuers and investors. While the total number of shareholder proposals declined in 2014, lively activity continued with calls for independent chairs as well as burgeoning growth for social issues. And while few in number, change-in-control payout proposals were notably successful for the first time this year, while equity retention proposals continued to have a weak showing. In addition, support for proxy access proposals also grew at a rate greater than any other type of proposal.

…continue reading: 2014 Corporate Governance Review

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