In this paper, Seven Gaping Holes in Our Knowledge of Corporate Governance, from the Rock Center for Corporate Governance at Stanford, the authors observe that it “is extremely difficult to produce high-quality, fundamental insights into corporate governance.” Why is that? Well there are lots of reasons. According to the authors, instead of the theory, measurement and analysis that you might expect—given that corporate governance is a social science—the “dialogue about corporate governance is dominated by rhetoric, assertions, and opinions that—while strongly held—are not necessarily supported by either applicable theory or empirical evidence.” And even empirical work from academics has serious shortcomings, often detecting a pattern that is not amenable to specific application or making findings that are too specific to generalize. Or, studies might find correlation but not permit attribution of causation; or it may be hard to suss out key variables that may not be publicly observable. As a result, there remain “central issues where insufficient or inadequate study has left us unable to answer basic questions, and where key assumptions relied upon by experts have not been verified or validated.” The paper attempts to identify some of them and home in on potential further areas of study.
In this new study, Equilar and the Rock Center for Corporate Governance at Stanford examine how COVID-19 has affected CEO compensation. Are boards focused more on making sure that CEOs have the right incentives to continue their jobs under trying circumstances? After all, in the case of the pandemic, the trying circumstances are not of their own making. Or are boards more inclined to focus on showing the public and other stakeholders, especially employees, that CEOs are “sharing the pain”? CEO pay attracts a lot of attention in ordinary times, but in times of severe economic distress when corporate performance and stock prices plummet and companies engage in substantial layoffs, furloughs and pay cuts for employees—who likewise are not responsible for the economic crisis—CEO pay can attract intense scrutiny. In those circumstances, paying the same or greater levels of CEO comp can seem unfair to the employees and invite shareholder and public criticism. How have boards addressed this issue?
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.
by Cydney Posner As reported in the WSJ, a new study from corporate-governance research firm MSCI showed that, over the long term, there was a significant misalignment between CEO pay and stock-price performance. The study looked at CEO pay relative to total shareholder return for around 800 CEOs at more […]
by Cydney Posner Support for management on say-on-pay votes for the 2016 season so far (data as of May 18) continues at about the same level as in prior years – a median approval rate of 95% among the S&P 500, according to Compensation Advisory Partners, with only three companies […]
by Cydney Posner It goes without saying that, to many, the sine qua non of executive compensation is performance-based pay. From proxy advisory firms to institutional holders to the drafters of Dodd-Frank, the question of whether CEO compensation is aligned with performance is a key measure of whether compensation is […]
by Cydney Posner According to a new report from ISS, the structure of board leadership plays a significant role in relative levels of CEO compensation. Combining the CEO and board chair titles is still the most prevalent leadership structure among S&P 500 companies, with 51% of companies combined the roles […]
by Cydney Posner CEO Pay, Performance, and Value Sharing, a paper by academics at the Stanford Business School, discusses the disconnect between the perceptions of CEO pay among directors (who set CEO pay) and the public (who ultimately pay it). According to the paper, two 2016 surveys, by the Rock […]