Join fellow Compensation Committee members in a closed-door, candid exchange of ideas and on-the-spot problem solving for the most pressing executive compensation issues, just in time for the 2019 proxy season. This invitation-only, complimentary session will be led by Mike Marino, a leading compensation advisor from F.W. Cook & Co. and may cover topics such as shareholder engagement on compensation, developments in director compensation and the latest pronouncements of proxy advisory services. Attendees are encouraged to raise issues from their own experience as Compensation Committee members.
To register, please call Gina Barberio at (732) 698-7771 or email firstname.lastname@example.org
Our second annual roundtable on compensation brought together committee members from a diverse group of companies to discuss current developments, share insights and probe issues facing boards and companies today. Mike Marino, Managing Director, FW Cook, served as moderator and shared a presentation on Trends and Regulatory Developments.
Highlights of just some of the topics include:
Metrics for short and long-term programs,
Suggesting a dichotomy that annual incentive plans can be viewed primarily as measuring “inputs,” such as revenue while long-term plans measure “outputs.”
Total Shareholder Return (“TSR”), has been adopted most frequently in the form of TSR relative to a comparator group, or as a modifier or adjuster to other metrics versus absolute TSR, which might be more appropriate in a recovery or turn-around situation
Institutional Shareholder Services (“ISS”) may adopt usage of Economic Value Added (“EVA”) in some way as a metric
Non-financial metrics such as ESG components (e.g., safety, environmental, diversity & inclusion) are figuring into incentive metrics by virtue of shareholder expectations and proxy advisor indices and may require of external verification of performance versus target. Sustainability Accounting Standards Board (SASB) has developed metrics by industry.
Board governance issues such as board size, the efficacy of term or age limits in board refreshment, as well as the focus on board diversity, whether mandated by law, as in some European countries and now California, or by shareholder/proxy advisor voting positions
Recent litigation in Delaware is prompting some boards to take additional steps with respect to approval of director pay, such as a separate comp consultant, prescribing pay limits in equity plans and, in rare cases, obtaining shareholder approval of director pay
How often director pay should be reviewed versus what merits a change in pay
Scrutiny by ISS of director pay that exceeds an ISS-defined index
Very high compensation of a non-executive chair may attract negative attention
Options may be appropriate for director pay but are less prevalent than restricted stock units; bonus schemes for directors are not typical and may create a conflict of interest
Equity awards practices,
Many public company practices may be applicable to private companies, including equity provided that there is a liquidity event such as an IPO or a cash settlement of shares
Some public companies are importing practices from private, such as the use of large front-loaded grants geared toward a wealth creation target versus annual grants
Among the largest companies some 60% still award options, although options represent a minority of the equity package (e.g., 20%), while performance shares have increased in prevalence from 20% to 60%, with approximately 50% of the award consisting of performance shares
In general, no more than 50% of awards based on time-vesting, whether options or restricted stock units; options can be made performance based by, e.g., granting at a premium price
Committees need to be aware that CEO transitions can create “lumpy” award history due to large inducement grants and having to match the pay of the departing CEO
Scope of the compensation committee evolving,
Some compensation committees are being tasked with oversight of pay equity and gender/diversity pay gaps, but their role is to receive information/dashboards from management, not get into the details
There is a trend toward charging the compensation committee with leadership on talent/succession planning
While culture may be a criterion for the comp committee in designing named executive officers’ metrics and assessing performance, the broader issue belongs to the full board
CEO pay ratio has been mostly a non-event, with little investor interest so far other than union pension plans, and employees more interested in comparison to the median in their own or a competitor’s company
Impact of recent SEC pronouncement and future of proposed legislation to regulate proxy advisors unclear
Need to know your shareholder base, e.g., passive investors more likely to vote against say-on-pay, who follows Glass-Lewis versus ISS, investors’ own voting policies
Governance scores not likely to spill over into ISS compensation recommendations
Mike Marino consults to organizations on all aspects of executive compensation strategy and design, including tax, accounting, and securities law implications, as well as matters of corporate governance. He joined the firm in 2009, having previously been a senior consultant at Watson Wyatt and, prior to that, an associate at Merrill Lynch.
Mike has over 21 years of combined corporate and consulting experience. He has extensive experience working with board compensation committees and generally attends or participates in over 90 committee and/or board meetings annually.
A frequent writer and speaker on emerging issues in the field, Mike has consulted with a diverse group of clients ranging from large industrial, financial and service-based companies to small public and private companies. In addition, Mike works with many private equity firms and their portfolio companies across a variety of industries.
Mike serves on the advisory board for the National Association of CorporateDirectors (NACD) New Jersey Chapter.