Tag Archives: Executive Pay

SEC Takes Back Comfort Letters Provided to Two Proxy Advisory Firms

In 2004, the Securities and Exchange Commission’s (SEC) Division of Investment Management issued letters to two proxy advisory firms, Egan-Jones Proxy Services and Institutional Shareholder Services (ISS), that assured mutual fund managers they could rely on the vote recommendations of the two firms. On September 13, 2018, the SEC Investment Management staff decided to rescind the two letters. Continue reading

IRS Issues Section 162(m) Guidance

Section 162(m) was added to the Internal Revenue Code (IRC) in 1994 in what was seen as a reaction to escalating executive pay. Commonly referred to as the “$1 million pay cap,” Section 162(m) denied subject companies the corporate tax deduction for compensation paid to the CEO (referred to as the Principal Executive Officer or PEO) and other proxy-named executive officers (NEOs) that exceeded the $1 million statutory limitation. Exceptions to the amount of covered compensation pursuant to Section 162(m) were permitted if such compensation was deemed “performance-based” under shareholder-approved plans. Continue reading

Using Incentive Plan Design to Support Strategic and Transformational Change

Incentive plans lie at the heart of the executive pay program, driving and rewarding business strategy execution. This approach has brought great economic success to the clear majority of companies. The typical annual incentive plan and long-term incentive (LTI) mix of multiple award types can capture most regular core performance metrics. A more contemporary design approach may provide significant focus and urgency regarding a company’s strategic transformation, shifting business strategy, or competitive advantage in attracting and retaining talent. Continue reading

CEO Pay As Governed by Compensation Committees: The Model Works!

Last year, two articles in the Wall Street Journal and Harvard Business Review criticized the overall CEO pay model at U.S. companies. The authors of both articles, Robert Pozen and S. P. Kothari, link their criticisms to shortfalls in executive compensation governance (e.g., poor disclosure, misleading metrics, and selecting inappropriate peer groups) that have been allowed and/or encouraged by Board Compensation Committees. In this article, we address these critiques. Continue reading

The Elimination of the Performance-Based Requirement Under Section 162(m):

Any changes to long-standing executive pay rules-regardless of whether they concern taxes, accounting, or regulations-raise questions and uncertainty about whether they will lead to wholesale changes in how executive pay is delivered. Continue reading

Optimizing the Retention Impact of the Executive Pay Program

Talent retention is one of the executive pay program’s most important objectives. In order to minimize situations when retention is an issue with the pay program-rather than one of its characteristics-it is important to ensure the core elements are well designed and operating effectively. A strong pay program foundation includes target pay opportunities at market-competitive levels, incentive plans understood by participants, and payouts commensurate with performance. Continue reading

Tax Cuts and Jobs Act Would Significantly Impact Executive Compensation Arrangements

On November 2nd, the House Ways and Means Committee introduced its tax reform bill, referred to as the ‘Tax Cuts and Jobs Act.’ Our initial review of the bill identified a few provisions which could have significant implications for organizations’ compensation and incentive programs. Continue reading

S&P 500 CEO Compensation Increase Trends

CEO pay continues to be a widely debated topic in the media, within the government, and in the boardroom among investors and proxy advisors. As the U.S. was in the heart of the financial crisis in 2008 – 2009, CEO total direct compensation (TDC = base salary + actual bonus paid + value of long-term incentives) dropped for two consecutive years. As the U.S. stock market sharply rebounded and the economy started to slowly grow again, CEO pay also rebounded. Large pay increases occurred in 2010, primarily in the form of larger long-term incentive (LTI) grants. Since then, year-over-year increases have been fairly moderate – in the 2% to 6% range for the period 2011-2015. Continue reading

We are pleased to announce: “Pay Governance has Released an Essential New Book on Executive Compensation”

Pay Governance releases an Essential New Book on Executive Compensation. Continue reading

Lower Performance for Target Pay? How Companies Address Pay-for-Performance Alignment in Times of Declining Performance

Ensuring alignment between pay and performance is challenging enough when a business is performing well. But what about during times of an industry or economic downturn, waning company performance, a shift in strategic business focus, or a period of investment when performance expectations are not as high as in recent years? Today, institutional investors and proxy advisors are hyper-focused on pay-for-performance alignment and, by extension, the rigor of performance goals. Any indication of declining incentive goals year-over-year can bring heightened scrutiny, negative commentary, and can increase the likelihood of an “against” Say-on-Pay (SOP) vote recommendation from proxy advisors. What alternatives exist for a company facing the prospect of performance expected to be lower than the prior year? What should be considered in setting incentive plan goals and what can be expected from shareholder watchdogs who closely examine performance goals and alignment with shareholders? Continue reading

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