Compensation Venture Group
"There'll be scary ghost stories
And tales of the glories of...
Long, long ago"
-Edward Pola and George Wyle
as performed by Andy Williams (1963)
"It's the Most Wonderful Time of the Year"
Yes, it's the most wonderful time of the year - Compensation Committee season!
As Committees gather to review 2011 and plan for 2012, we have a record number of scary ghost stories this year - with the first year of say-on-pay, several dozen failed votes, and a handful of lawsuits, all rooted in ghosts of decisions of Compensation Committee meetings past. With that comes the inevitable yearning for the glories of long, long ago. Not so long ago, really. Maybe five years since Compensation Committee decisions starting getting really complicated, with the past year attaining a new level of complexity.
These discussions typically commence with the topic of the peer group. Is the peer group still relevant? Did we lose many peers over the past year due to M&A activity? Have we considered the peer group criteria of external parties? Have we used the "right" industry codes and metrics to define the group? Did we use a defensible process for determining our peer group?
We've moved from a time of shareholders and proxy advisers merely opining on pay versus peers, to one of their opining on the peers themselves. The media have caught on to this topic, with the Tootsie Roll story in the Wall Street Journal back in 2009, and more recently the Washington Post "Cozy Relationships" article.
Thank goodness, Institutional Shareholder Services has come along with their annual holiday treat, their 2012 Policy Updates. The U.S. policy updates are a particular treat, with ISS informing us that they are going to extend their helpfulness by not only critiquing companies' peer groups as disclosed in the proxy statement, but now creating a personalized peer group for them:
"The peer group is generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for financial firms), and GICS industry group, via a process designed to select peers that are closest to the subject company, and where the subject company is close to median in revenue/asset size. The relative alignment evaluation will consider the company’s rank for both pay and TSR within the peer group (for one- and three-year periods) and the CEO’s pay relative to the median pay level in the peer group."
This will purportedly help ISS to assess "peer group alignment" for the pay-for-performance assessment. The magic number of "14-24 companies" must be a scientifically-derived improvement over the range of "15-25 companies."
We also have on our holiday wish list the proposed guidance from the SEC on clawbacks, the CEO pay ratio, and the CEO pay-for-performance analysis. They never let us down with these year-end pronouncements.
These rules will put still more pressure on the peer group process as various parties - including the media - opine on the CEO pay ratio versus other companies and the CEO pay-for-performance analysis versus other companies (and maybe yet another peer group). We'll see companies publish supplemental tables to push back on the SEC's required disclosures, all of this rooted in the peer group issue.
That is the ghost of Compensation Committee meetings future. Happy Holidays.
Wednesday, November 30, 2011
Saturday, November 19, 2011
Every week I receive a Giga Alert, pointing me to where I have been posted, cited, or referenced. Some of these represent a chain going back quite far. Today I received one citing an article published by Rutgers University in 1992 that mentions an editorial I wrote for the Sunday Los Angeles Times in 1990. I hadn't read that piece, or even thought of it, for quite some time. 21 years later, not much has changed. See the original here, or keep reading.
Saturday, November 12, 2011
Compensation Venture Group, Inc.
I was updating my website this weekend, and revisited some "old" articles I had authored. Way back in late 2007 through early 2008.
The field of equity compensation has gone through such tremendous upheaval over the past four years, I was ready to delete these links until I pondered for a moment the titles, that could have been written and be relevant just this week:
Because these were all written at the time for Salary.com (now Kenexa) where I was a Fellow, whatever that is or was, I can't update them, per se.
Then I read them, and realized they hardly need updating. In fact, the premise of each has been strengthened over the past 4 years and there are even more pressures on the three topics. Sure, the data references need to be recent and there are more inputs to the issue - primarily the new Dodd-Frank disclosures (CEO pay ratio and CEO pay-for-performance).
Consider, since 2007/2008:
- Investor, proxy adviser, and SEC scrutiny has extended from how executives are paid versus peers, to which companies are actually in the peer group and how that peer group was determined.
- Performance plans, somewhat avant garde back in 2007, are fast becoming a mandated approach in the US as we are now in the say-on-pay era - exactly the pattern we saw in the UK with the advent of say-on-pay. Now this solution has become yet another problem, as I have written and presented on.
- And cash long-term incentives, still under the radar due to compensation survey firms' and proxy data services' inadequate tracking of them, are growing in prevalence faster than reported, due to the odd combination of shareholder concerns about dilution and many companies with large amounts of cash on their balance sheet.
Taken together, these issues create chaos for trying to understand how much an executive was "paid" so that everyone can chime in on whether the number is just too big, too big relative to the average worker, and/or too big relative to company performance. When very different forms of compensation are awarded, we run into the issue of "granted" vs. "earned" vs. "realizable" vs. "realized"...and more.
Each of these three written pieces deserves an update, I mean a fresh authoring, which I will do over the next few weeks. While I'd like to pat myself on the back for being prescient on these issues, I think we all should have seen these three things coming and now we have even more to discuss.
Anyone want to predict what we'll be discussing in 2015? Yikes.