Category Archives: Executive Compensation

Will pay-ratio disclosure benefit investors?

by Cydney Posner

One of the arguments that has often been used to oppose the Dodd-Frank pay-ratio provision is that the rule does not really provide information that benefits investors; instead, the argument goes, the real animus for the rule is a political effort to focus attention on inequality.  Now, an analysis of governance ratings from Bank of America Merrill Lynch, reported in the WSJ, suggests that pay-ratio information just could provide some warning signs that investors may find valuable. Continue reading

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Does the health of the economy depend on getting the role of shareholders right?

by Cydney Posner

Are shareholders really the “owners” of corporations? Even though shareholders have no responsibilities to the corporations they “own”? Should corporations be managed for the sole purpose of maximizing shareholder value?  Are shareholders even unanimous in that objective? Is shareholder centricity really the right model for good governance of corporations? What changes in corporate governance have been fueled by the shareholder primacy model?  Do those changes make sense?  What has been the adverse fallout from the current fastidious devotion to shareholder preeminence?  These are just some of the issues addressed in this terrific piece by two Harvard Business School professors, Joseph L. Bower and Lynn S. Paine, in the Harvard Business Review. In their view, the “health of the economic system depends on getting the role of shareholders right.”  Highly recommend. Continue reading

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House passes Financial Choice Act of 2017. What now?

by Cydney Posner

The Financial Choice Act of 2017 has been passed by the House (almost surreptitiously, given the unwavering focus on the Senate hearing today). According to the WSJ, the House vote was 233 to 186.  The bill, sponsored by Jeb Hensarling, Chair of the House Financial Services Committee, was framed as a Republican proposal to reform the financial regulatory system and relieve business community of the affliction of Dodd-Frank.  The subtitle on the WSJ article tells you how to think about this for now:  “Financial Choice Act is Republicans’ opening bid to loosen regulation; unlikely to become law.” Reuters  also described the approval of the bill as “a move that is expected to die in the Senate,” but relegated the sentiment to the first paragraph. Continue reading

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Pay for performance — more style than substance?

by Cydney Posner

Comp Committees appear to have gotten the message when it comes to executive pay for performance.  As discussed in this article in the WSJ, executive compensation “is increasingly linked to performance,” but investors are now asking whether the bar for performance targets is set too low to be effective. Are companies just paying lip service to the concept? Continue reading

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Are lone-insider independent boards too much of a good thing?

by Cydney Posner

At more than half of the companies in the S&P 1500, the CEO is the lone board insider, according to this study and the related article in the WSJ.  Isn’t that a good thing? Maybe not, say the authors, whose study showed that lone-insider boards can lead to lower profits, excessive CEO pay and more financial fraud.  Continue reading

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New revenue recognition standard— don’t ignore the impact on compensation

by Cydney Posner

At the recent Bloomberg BNA Conference on Revenue Recognition,  a Deloitte partner observed that, to the extent that, in awarding compensation, companies use metrics that are keyed to revenue, the new revenue recognition standard could affect compensation or bonus plans because the ways of measuring and the timing of recognition of revenue change. He reminded attendees that, “‘when those plans were put into place, whatever they were, they overlap years. You then have the question of, ‘they set up some sort of benchmark and we’re going to pay someone a bonus based on how they do against this metric’— the problem is that metric was designed based on the old rules and you basically changed how you’re going to keep score.’” (See this article in Bloomberg BNA.) Continue reading

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It’s baaaack — the Financial CHOICE Act of 2017

by Cydney Posner

A draft of the Financial CHOICE Act of 2017 (fka version 2.0), a bill to create hope and opportunity for investors, consumers, and entrepreneurs — a masterpiece of acronyming — has just been released (and weighs in at 593 pages).   The bill, sponsored by Jeb Hensarling, Chair of the House Financial Services Committee, was framed as a Republican proposal to reform the financial regulatory system and relieve the affliction of Dodd-Frank. In addition to taking aim at much of Dodd-Frank, among other things, the bill places a heavier burden on regulators and proxy advisory firms generally, eliminates a lot of studies and repeals or eases a number of regulations. A hearing in the House has been scheduled for this week. The bill never made much progress when it was originally introduced last year (as version 1.0), but with Congress and the Presidency now in Republican hands, its chances of survival in some form are immensely greater.  Of course, the Senate Dems could filibuster — assuming, that is, that the legislative filibuster survives that long — the Senate version of the bill, or threaten to do so, which could lead to some negotiation.

While the vast majority of provisions in the draft bill relate to the banking provisions of Dodd-Frank and the Consumer Financial Protection Bureau, some are related to new requirements for agency rulemaking, capital formation, compensation and corporate governance matters, and other matters of interest. Selected provisions are summarized below: Continue reading

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