Category: Executive Compensation
Framework developed by the Investor Stewardship Group establishes common set of investor expectations for corporate governance
The Investor Stewardship Group—a group of the largest, most prominent institutional investors and global asset managers investing, in the aggregate, over $20 trillion in the U.S. equity markets—has developed the Framework for U.S. Stewardship and Governance, a “framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.” The stewardship framework identifies fundamental responsibilities for institutional investors, and the corporate governance framework identifies six fundamental principles that “are designed to establish a foundational set of investor expectations about corporate governance practices in U.S. public companies. Generally, the principles “reflect the common corporate governance beliefs embedded in each member’s proxy voting and engagement guidelines,” although each ISG member may differ somewhat on specifics. The ISG encourages company directors to apply these basic principles—while acknowledging that they are not designed to be “prescriptive or comprehensive” and can be applied in various ways—and indicates that it will “evaluate companies’ alignment with these principles, as well as any discussion of alternative approaches that directors maintain are in a company’s best interests.” The framework does not go “into effect” until January 1, 2018, so that companies will have “time to adjust to these standards in advance of the 2018 proxy season,” the implication being that failure to “comply or explain” by that point could ultimately lead to shareholder opposition during proxy season. Check out the countdown clock at the link above!
What’s happening with those SEC proposals for Dodd-Frank clawbacks and disclosure of pay for performance and hedging? Apparently, not much.
As noted in this article from Law360, the SEC’s latest Regulatory Flexibility Agenda, which identifies those regs that the SEC intends to propose or adopt in the coming year— and those deferred for a later time—has now been posted. The Agenda shifts to the category of long-term actions most of the Dodd-Frank compensation-related items that had previously been on the short-term agenda—not really a big surprise given the deregulatory bent of the new administration. Keep in mind, however, that the Agenda has no binding effect and, in this case, could be even less prophetic than usual; the Preamble to the SEC’s Agenda indicates that it reflects “only the priorities of the Acting Chairman [Michael Piwowar], and [does] not necessarily reflect the view and priorities of any individual Commissioner.” It also indicates that information in the Agenda was accurate as of March 29, 2017. As a result, it does not necessarily reflect the views of the new SEC Chair, Jay Clayton, who was not confirmed in that post until May.
Will pay-ratio disclosure benefit investors?
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.
Does the health of the economy depend on getting the role of shareholders right?
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.
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, […]
Pay for performance — more style than substance?
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?
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 […]
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 […]
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 […]
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