Category Archives: Executive Compensation

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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Is relative TSR still the performance metric of choice?

by Cydney Posner

According to a just-released report from Equilar, an executive compensation and corporate governance data firm, “relative total shareholder return” continues to be the most common performance measure used in long-term incentive plans for CEOs among S&P 500 companies.  However, after years of increasing prevalence among companies in this group, use of rTSR flattened out in 2015 as a performance metric for CEO pay. At the same time, use of return on capital and earnings per share as performance metrics each “saw a bump,” the related press release indicated. Does this data portend a change? Continue reading

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Just as the U.S. seeks to roll back regulations, the European Parliament adopts new corporate governance rules

by Cydney Posner

Just when the U.S. is looking at how to roll back its regulations on corporations (among others) (see, e.g., this PubCo postthis PubCo post and this PubCo post), the rest of the world seems to be headed in the opposite direction.  On Tuesday, the EU Parliament approved a Shareholder Rights Directive, which introduces, among other things, the concept of binding say-on-pay votes for companies listed in EU markets (over 8,000 of them). The Directive also includes some interesting measures intended to impede short-termism.  According to the press release fact sheet issued by the European Commission, the Directive must still be adopted by the European Council (expected shortly) and, assuming adoption, will become effective two years thereafter. Continue reading

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BlackRock sets its priorities for board engagement

by Cydney Posner

Asset management firm BlackRock (reportedly the largest, with $5.1 trillion under management) has identified its “Investment Stewardship” priorities for 2017-2018, intended to help companies prepare for engaging with BlackRock. Among the hot topics are governance (including board composition and diversity), corporate strategy for long-term value creation in light of shifting assumptions, executive pay linked to long-term strategy, climate risk disclosure and human capital management.  According to BlackRock, its engagement process is designed to be constructive, and its goal is “to build mutual understanding and ask probing questions, not to tell companies what to do. Where we believe a company’s business or governance practices fall short, we explain our concerns and expectations, and then allow time for a considered response.” However, Blackrock’s approach is not limited to engagement; although, as a long-term investor, the firm will be “patient” as companies work to address concerns, in the absence of progress, BlackRock “will not hesitate to exercise our right to vote against management recommendations.” Continue reading

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Recent trends in proxy statements

by Cydney Posner

It just isn’t proxy season without some kind of account of the latest trends in proxy statements, so here’s one from CFO.com. Continue reading

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