Small business need-to-know and of-interest. Update on 2012 proxy season at its conclusion.
Excerpt: Having reached the conclusion of the 2012 proxy season, we can report that approximately:
69 percent of say-on-pay proposals passed with more than 90 percent support;
21 percent passed with between 70.1 and 90 percent support;
7 percent passed with between 50 and 70 percent support; and
3 percent (53 companies) obtained less than 50 percent support.
Read full article via Lessons Learned from the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business of-interest, news-to-watch and need-to-know — revealing the results of say on pay to date and what is next.
Excerpt: Whether the pay of a company’s CEO and other executive officers is aligned with the company’s performance has been the single most important and controversial executive pay issue for U.S. public companies since the advent of mandatory say-on-pay votes under the Dodd-Frank Act, which applied to most U.S. public companies in 2011; smaller reporting companies will face these votes and issues in 2013. As we wrote in our Director Notes “Proxy Season 2012: The Year of Pay for Performance,” 2012 was indeed the year of “pay for performance.” This has been proven by the over 2,000 say-on-pay vote results reported through September 5, 2012.
The stage for the 2012 pay-for-performance debate was set in 2011, when Institutional Shareholder Services Proxy Advisory Services (ISS), which is widely regarded as the most influential U.S. proxy adviser, applied a crude two-step test to assess pay for performance in making its say-on-pay voting recommendations.
Generally, under its 2011 test, ISS concluded that a pay-for-performance “disconnect” existed if:
Read full article via Defining Pay in Pay for Performance — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business of-interest and need-to-know. This study actually represents a study of the various studies on say on pay. However, the insights provided with this examination are of value.
Excerpt: In the paper, Ten Myths of “Say on Pay”, my co-authors (Allan McCall, Gaizka Ormazabal, and Brian Tayan) and I review many widely held misconceptions regarding the shareholder voting practice called “say on pay.” “Say on pay” is a prominent issue today, given its unique position at the intersection of executive compensation and shareholder democracy—two topics which themselves are of deep interest to investors, stakeholder, regulators, and the media. Despite this interest, several misconceptions have developed which continue to be commonly accepted. Fortunately, academics have devoted considerable effort studying “say on pay,” shareholder democracy, and executive compensation. As a result, a lengthy empirical record exists against which “say on pay” can be examined. Our intention is to review “say on pay” in light of the scientific evidence so that practitioners have a better understanding of the limits and consequences of granting shareholders the right to vote on executive compensation.
The ten myths of “say on pay” that we examine can be grouped into three general categories.
Read full article via Ten Myths of “Say on Pay” — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business and board of diretors need-to-know and takeaways. Where are we, accomplishments, needs, news-to-watch.
Excerpt: Corporate directors have adjusted to significant changes in the governance environment during the last year. On the regulatory front, the Securities and Exchange Commission (SEC) continues to implement new rules stemming from the Dodd-Frank Act, causing companies to rethink and react. The voice of shareholders has never been louder, pressuring companies to adopt structural governance changes by submitting proposals on board declassification, splitting CEO and board chair roles, and majority voting. Shareholder “say on pay” votes moved into a second year with some companies uncertain about how to respond based on their voting results. Plus, more companies had their shareholders withhold approval on their “say on pay” votes, maintaining the pressure on compensation committees.
In the summer of 2012, 860 public company directors responded to PwC’s 2012 Annual Corporate Directors Survey. Of those directors, 70% serve on the boards of companies with more than $1 billion in annual revenue. As a result, the survey’s findings reflect the practices and boardroom perspectives of many of today’s world-class companies. We structured the survey to provide pragmatic feedback directors can use to assess and improve performance in areas that are “top of mind” to today’s boards. The survey shows directors are clearly making progress and enhancing their practices. At the same time, directors acknowledge the numerous challenges they still face. The following are the highlights:
Read full article via Board Evolution: Progress Made, Yet Challenges Persist — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business need-to-know say-on-pay (compensation). As you know, when there is a court finding and ruling, that result can have a like or major impact in all other instances across the country.
Excerpt: A recent opinion of the Delaware Chancery Court, Seinfeld v. Slager,  addresses the legal standard applicable to directors’ decisions about their own pay under Delaware law, an important topic as to which there is little prior law. In an opinion by Vice Chancellor Glasscock, the Court held that a derivative claim alleging that directors breached their fiduciary duties by granting themselves excessive compensation survived a motion to dismiss.  In so concluding, the Court also found that the directors’ action did not have the protection of the business judgment rule and was instead subject to “entire fairness” review.
The Court’s decision to require “entire fairness” review means that the claim of excessive compensation could proceed to a full evidentiary trial on the merits.
Read full article via Delaware Case Raises Question About Structuring Director Compensation — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business of-interest, update on 2012 proxy season hottest topic, say on pay. A look back at past months values.
Excerpt: Say on pay was a topic of paramount concern to issuers this year and was the basis for a great deal of work both before and during the proxy season. Looking back on the past few months, two primary themes emerge: First, the importance of understanding and responding to the methodology of ISS Proxy Advisory Services (ISS), as its recommendations continue to be highly significant; and second, the importance of direct, frequent communication with shareholders and investment decision makers.
Directors who make compensation decisions that result in a negative ISS recommendation, shareholder disapproval, or other public criticism will wish to consider taking steps to minimize controversy surrounding company compensation practices. And, while, in some cases, shareholders have sued boards on the basis of a negative say on pay vote, directors can be confident that their compensation decisions, when made in good faith and in accordance with their fiduciary duties, are protected by the business judgment rule.
Read full article via “Say on Pay” in the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business takeaways, need-to-know and news-to-watch. An update.
Excerpt: As say-on-pay (SOP) resolutions were being voted on during the 2012 proxy season, management nominees to boards of directors of U.S. public companies faced less opposition by investors. This and other data from nearly 2,500 annual general meetings (AGMs) held between January 1 and June 30 at Russell 3000 companies are discussed in the new edition of Proxy Voting Fact Sheet — the periodic report issued by The Conference Board in collaboration with FactSet Research. Data discussed in the report is compared with the S&P 500 and analyzed across 20 business sectors.
The report reviews the most recent statistics
Read full article via July 2012 Proxy Voting Fact Sheet — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business news-to-watch and of-interest. UK proposal on say on pay. Discussion of current say on pay standing in US and UK.
Excerpt: The UK government has now gone one step further by proposing to reform the approval process for director remuneration, including through the introduction of a binding shareholder vote for all UK Companies that must occur not less frequently than every three years. The new UK proposal does not stem from guidelines or mandates adopted by any European or other supra-national body. Rather, the proposal was the initiative of the UK government made at the national level in consultation with companies, shareholders, institutional investors and other interested parties. The UK approach, if ultimately implemented as expected, could be a powerful example for US investors seeking to drive change in executive compensation practices.
We discuss below the current state of say-on-pay in the US and the UK reforms.
Read full article via Binding Shareholder Say-on-Pay Vote in UK — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Small business news-to-watch and of-interest study of the 2012 results in — at the top of the list is the say on pay compensation.
Excerpt: Of the first 1,656 companies to report the results of say-on-pay proposals, approximately:
70 percent have passed with more than 90 percent support;
21 percent have passed with between 70 percent and 90 percent support;
7 percent have passed with between 50 percent and 70 percent support; and
3 percent (45 companies) obtained less than 50 percent support.
While the overall proportions are generally not dissimilar to 2011 results, we have already seen more companies fail their say-on-pay votes this year than in the entire season last year
Read full study via Lessons Learned So Far During the 2012 Proxy Season — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Our friends across the big water appear to be making rules for say on pay executive compensation even tougher than those in process or proposed in US. Governance
Exerpt: The say-on-pay movement, which gives corporate shareholders a greater voice in setting executive pay, has leapfrogged the Atlantic—and the Europeans may adopt a tougher line than the Americans have.
Read full article via A Tougher ‘Say on Pay’ Migrates to the U.K. – Businessweek.
More on the Say on pay and proxy shareholders vote…….. specifically for public companies, there are takeaways for small business, need-to-know and news-to-watch.
Excerpt………It has become a challenge to understand any one company’s executive pay arrangements and an even greater challenge to understand how that company’s executive pay arrangements relate to those at competitor companies.
…… Institutional shareholders represent an overwhelming proportion of the vote at publicly traded companies.
Read full article……..via Say on Pay: Who Is Watching the Watchmen? — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
More today on cause and effect proxy advisors and shareholder votes……see preveious post. Say on pay, compensation and governance.
Excerpt……Our study is the first to examine the analysis underlying proxy advisors’ recommendations, to document stock market and firms’ reaction to the release of proxy advisors’ “routine” reports, and to provide a direct estimate of influence of management recommendations on shareholder votes. As such, it provides an important contribution to the literature on shareholder voting, and in particular, on the role of proxy advisors, at a time when policy reforms are empowering shareholder votes. Our findings are also of interest to policy-makers that are considering whether to subject proxy advisors to greater regulatory oversight.
Read full article……..via Shareholder Votes and Proxy Advisors — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Of interest….. it sounds as though say on pay was a big part of proxy votes..but do these votes actually affect compensation packages and to what degree….. also is the question of other influence and affect governance by proxy votes. See next post today.
Excerpt……..This report examines current evidence regarding the influence of third-party proxy advisory firms’ voting recommendations on shareholder proposal voting outcomes, particularly say-on-pay votes. It also presents the findings of a study, conducted by The Conference Board, NASDAQ, and the Rock Center for Corporate Governance at Stanford University, which shows that proxy advisory firms have a substantial impact on the design of executive compensation programs. However, the impact of those firms on governance quality and shareholder value is still unknown.
Read full article….via The Influence of Proxy Advisory Firm Voting Recommendations — The Harvard Law School Forum on Corporate Governance and Financial Regulation.
What has the first year of say on pay taught us? Good takeaways.
Excerpt…….One thing is for certain: Pay is unique at every company. There are as many iterations of pay as there are companies in America. This uniqueness makes our job as shareholders very challenging. For the most part, we must rely on the members of compensation committees to develop the compensation philosophy and structure in order to incentivize management and align their interests with those of shareholders. We believe that poorly structured pay packages harm shareholder value by unfairly enriching executives at the expense of owners – the shareholders. On the other hand, a well aligned compensation package motivates executives to perform at their best. This benefits all shareholders.
There have been many changes this proxy season and although the evaluation of compensation is still a challenge, we have learned a few things along the way
Read full article………via The Harvard Law School Forum on Corporate Governance and Financial Regulation.
Study gives the initial result in the United Kingdom…..the first to adopt Say on Pay …. with expectations there will be a similar result in the US adoption.
Excerpt…….Overall, our study suggests that UK investors perceived say on pay to be a value enhancing monitoring mechanism, and were successful in using say on pay votes to pressure firms to remove controversial pay practices and increase the sensitivity of pay to poor performance. Based on these findings, we expect that say on pay in the US will be similarly used to strengthen the link between pay and performance at few firms with controversial pay practices rather than to opine on pay levels across the board. Investors will try to impose certain rules of the game (e.g. use of performance conditions in equity grants) and single out questionable provisions (tax gross-ups) rather than micromanage compensation packages.
Read article and download full paper here..via Say on Pay Votes and CEO Compensation — The Harvard Law School Forum on Corporate Governance and Financial Regulation.