In The News
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December 2, 2013
Overlap Seen in Proxy Advisors’ and Companies’ Peer Groups
Despite the increase in overlap of peer groups, Peter Lupo, managing director and head of the New York office at Pearl Meyer & Partners, says many of his clients still find that the proxy advisors’ reports include comparator companies that they don’t feel are true competitors.
“I wouldn’t say the peer group is that much less of an issue this year because [while] 50% overlap [is better], it still means 50% of the companies that do not match the companies’ own peers,” Lupo says.
And when a company fails ISS’s standardized pay-for-performance test, the proxy advisor will drill down deeper and look at the pay and performance of the company’s peers, he adds.
...“ISS and Glass Lewis will always tweak their policies, so you would definitely expect to see changes down the road. They might be minor, but there will be changes,” says Lupo. He says the main problem is that proxy advisors will never be in a position to have the combined business acumen, inside knowledge and experience that a compensation committee possesses when deciding which companies are actual competitors. “They will never really be in a position to get in the primary issue, which is [that] comp committees take into account the business models of their companies and try to get [to] the heart of the business models of their competitors,” Lupo says.
Houston Business Journal
December 2, 2013
How Salaries in the C-Suite Can Affect Patient Care
PM&P Vice President Steve Sullivan blogged on the need for fair, equitable and effective compensation programs to foster cooperation and collaboration between physician executives and lay executives. An excerpt is below - the full blog is posted at http://www.bizjournals.com/houston/blog/2013/12/how-salaries-in-the-c-suite-can-affect.html.
"For hospitals to succeed under the Affordable Care Act (ACA), suitable compensation arrangements for these roles must reflect the overarching business strategy and be in line with other executives. What’s needed is a new approach to motivate and retain existing executive teams, while attracting and supporting new physicians in critical management roles.
"Such a new approach has several requirements, including:
- Driving care quality, community health and the reduction of fixed costs
- Adjusting to individual physician and lay executives’ compensation requirements
- Supporting a team concept by providing the proper motivation for the complex work ahead under ACA
- Strengthening the alignment of executive pay and performance"
November 21, 2013
Inside Track: Crystal Methodist Could Jeopardise Co-op Bank’s Rescue
Banks creating more value for investors than rival quoted companies: some mistake, surely? Yet that’s the finding of a new piece of research by Patterson Associates, the remuneration consultancy owned by Pearl Meyer & Partners of the US.
The survey of 36 major European financial services groups, which assessed shareholder returns for each pound in pay received by chief executives, paints a surprising picture for those convinced that bank bosses have been handsomely overpaid relative to their peers. Total remuneration between 2008 and 2013 for bank bosses was £8.15m, while for those running non-banks it was roughly 50 per cent higher at £13.3m. The top three companies for adding shareholder value during the same period were all banks, with HSBC by far the outstanding performer among UK-based institutions, creating more than £4,000 in value per pound paid to its chief executive.
...[T]he major UK banks are consulting investors on resolutions to put to their annual meetings next year that would allow them to navigate the planned EU bonus ratio cap. Patterson’s study may give some shareholders food for thought.
Corporate Board Member
Fourth Quarter 2013
Six Red Hot Compensation Challenges
"[Proxy advisers] don’t have anywhere near the knowledge of the compensation committee, yet they will use that to analyze a company’s pay program,” adds Peter Lupo, managing director at consultant Pearl Meyer & Partners in New York. “That is a major disconnect.”
If there’s a place for boards to make their case known, it’s the Compensation Discussion and Analysis section of the proxy statements...At the same time, the document can only go so far. Boards must balance sharing versus guarding the competitive edge a company might have with the way it pays executives. “You can’t use the CD&A to disclose every nuance of decision,” says Lupo.
November 11, 2013
Boards Rethink "Hold Until Retirement"
Peter Lupo, managing director at Pearl Meyer & Partners, says that wealthy or not, some directors have cash needs. And if a director has long tenure on a board, he questions why it’s better for those directors to meet their stock ownership guidelines over and over again.
“If you’re meeting the requirements of accepted stock ownership guidelines, why in the world is it better to expect long-tenured directors to hold two and three times that level?” Lupo says.
October 28, 2013
Dealing with M&A: What You Don’t Know Can Hurt You
The magazine asked several experts to describe what aspect of M&A transactions is least understood by Bank Boards. PM&P Managing Director Laura Hay gave the following response:
"We often find that directors are surprised at the impact golden parachute provisions have for the bank and the executive. As boards continue to eliminate gross-up provisions, they often make decisions on how to handle change-in-control severance payments that would be subject to excise tax without any financial analysis or review of the other agreement provisions. We have found situations where the aggregate cost of all severance payments could be a barrier or that payments to certain executives are far lower than intended. Digging into the change-in-control provisions and running financial scenarios can help to avoid surprises that could derail a deal."
October 25, 2013
CEO Compensation: The Sky is the Limit
“Compensation among life insurers and financial services companies generally is up this year, and I expect the numbers will keep going up,” says Peter Miterko, a managing director at Pearl Meyer & Partners, an executive compensation consulting firm. “The trend has a lot to do with share prices coming up from historic lows.”
“It’s now a big no-no for boards to exercise positive discretion and give away discretionary bonuses like Santa Claus,” says Miterko. “What is acceptable is to use a formula to calculate the bonus and for boards to exercise negative discretion over the bonus. "That’s why companies go out of their way to have zeros in the bonus column and make the bonus appear in the grants column.”
October 8, 2013
GC Compensation at Texas Companies Up Nearly 11 Percent
Executive compensation consultant Chris Earnest, a vice president at Pearl Meyers & Partners in Houston, says general counsel are generally fourth or fifth on the list of the five highest-paid executives at a company and they frequently move on and off the list. Earnest says equity compensation generally makes up 50 to 60 percent of a GC's pay package.
October 7, 2013
Bill Aims to Cap Comp Deductibility
“There’s the question of whether it’s fair to public versus private companies. Is this just another cost of being a public company? What will the impact be? It won’t be whatever they’ve planned,” said Mark Rosen, managing director and head of Pearl Meyer & Partners’ Charlotte office
“We will probably see some sort of work-around,” Rosen says. “Somehow, things always turn out differently than what’s intended.”
Journal of Accountancy
The Opaque CFO Bonus - Pay for Finance Chiefs Rises, But Lack of Clarity about Bonus Determination Rubs Some the Wrong Way
“We talk about benchmarks, but it’s really about performance,” said Mark Rosen, CPA, a managing director at compensation consultancy Pearl Meyer & Partners. “If you have high performance, people generally don’t care about what you get paid. If you perform poorly, people really care what you get paid. That message gets lost in the noise … of how pay structures are set up and how we can align. If you’re not performing, it really doesn’t matter.”
CFOs have to expect some discretion in the determination of bonuses. Some parts of a bonus may be tied to performance relative to a group of industry peers, which won’t be known until the end of the year as information about company and peer performance becomes available. Companies don’t have the foresight to predict every economic event that could affect the bottom line and, therefore, the CFO’s bonus. But that discretion should have limits, Rosen said.
“When an organization says to the CFO or any plan participant, ‘Eighty percent of your bonus is on operating income, and the other 20% is discretionary,’ the question is: ‘What does that really mean?’ ” Rosen said.
“Is it based on individual performance, how clean the audit is, how fast the books are closed, how well we finance our debt? What is it going to be?" Rosen said.“If the [CEO or compensation committee] says, ‘I’ll know it when I see it and pay based on how well you do,’ you can expect a CFO to say, ‘What the heck does that mean?’ ”
September 10, 2013
Companies Lavishing Fewer Goodies on Top Executives
The increased scrutiny from governance firms like ISS and Glass Lewis also has had an effect on the level of perks awarded to senior execs, says Deborah Lifshey, managing director with compensation consultants Pearl Meyer & Partners. “They've said that excess perks will result in a ‘no' recommendation,” to shareholders casting “say-on-pay” votes regarding executive compensation, Lifshey says. “It's been a really strong influence.”
As companies have become more discriminating in the perks they provide, more executives have come to realize that it doesn't make sense to argue for them, Lifshey says, although they may ask for a larger overall compensation package. “It's a matter of optics,” she says. That is, highly paid executives also receiving additional benefits can seem over-the-top to other employees and investors.
August 9, 2013
Stumped on How to Pay the CEO?
Vice President Greg Swanson of PM&P's San Francisco office was among the consultants asked to respond to the question, "What’s the most innovative CEO or employee compensation package you have seen?"
"Pearl Meyer & Partners worked with a compensation committee that, on the heels of the financial crisis, needed a more rigorous set of annual incentive goals. The committee members elected to remove some of the usual guess work in establishing annual incentive plan goals by taking a new approach to the concept of plan funding triggers.
"Rather than the common approach of using a single earnings-based trigger to determine whether the entire plan gets funded, they revised their plan to include “gatekeepers” based on performance relative to a peer group for each of the plan's four corporate financial goals. Meeting the gatekeeper for a specific metric would then trigger a potential incentive payout if the bank also meets its budgeted goal for that metric.
"This approach promotes a more balanced assessment of performance relative to peers as well as to the bank’s budget. The result: a higher level of confidence by Directors and investors that pay will be directly aligned with performance."
July 24, 2013
Expert Panel: What Mistakes Do Banks Commonly Make?
Managing Director Laura Hay of PM&P's Charlotte office was among those invited to weigh in on the question, "If you could correct one mistake you see banks commonly make, what would it be?
"Conversations about compensation often begin with the question, 'What are other banks doing?' rather than, 'Given our specific strategy and goals, how can we best structure our programs to motivate the right behaviors and drive performance?' Our firm encourages clients to look to their compensation strategy first. High-performing banks are often characterized by clear, straightforward compensation programs based on a strong compensation philosophy that drives business results. Knowing what other banks are doing through competitive data then helps to generate ideas, establish pay levels and provides a reference point for ensuring your pay designs are within the bounds of market practices."
July 24, 2013
Pay-for-Performance Moves Beyond the Basics at Most Food Companies
[Compensation Committees] are taking pay-for-performance to heart and being tougher on executives," says Sanford Godwin, managing director at Pearl Meyer & Partners in Atlanta.
"This is the third year companies have been required to have Say-on-Pay. It definitely has made an impact on compensation committees. It has intensified their focus on establishing and maintaining a link between [business performance and the CEO's total compensation package]," Godwin says.
...........Most companies have adopted clawback policies that would enable them to recoup bonuses or other incentives in the event their financial results need to be restated or the company determines funds were inappropriately paid, Godwin says. "The point being, if we have a clawback policy, we have the ability to recapture funds we feel we should not have paid," he says.
"We like to say compliance is sort of a minimum performance standard," Godwin says. "We may be moving into an era where companies can focus on the important things instead of compliance."
Directors Grill Comp Advisors on Pay Issues
Managing Director Steve Van Putten was among a group of compensation consultants asked by the magazine, "What are some of the best attributes that you see in successful directors?"
"The most effective compensation committee chair knows how to ask the right questions of their compensation consultant, in terms of “don’t just tell me what the best practice is or what other companies are doing, but rather identify specifically what the implications are for my company.
"Of equal importance is asking the right questions of management. For example, “I understand what we measure now in our incentive program, but what haven’t we measured and why, and what are the key indicators of success that aren’t part of the current compensation program?” And finally, asking the right questions of your fellow compensation committee members. For example, “Would you feel comfortable standing up in front of shareholders and defending our pay program, being able to explain how it works and how it supports our business strategy and organizational imperatives?”
July 15, 2013
CEOs at Omics Tools, MDx Firms See Compensation Rise an Average 7 Percent in 2012
According to Susan Stemper, managing director at executive compensation consulting firm Pearl Meyer & Partners, investors need to focus on how executive compensation levels are designed. “I’d say, ‘Don’t look at the numbers, look at the design,’” she told GenomeWeb Daily News, adding that, in particular, it is important to focus on achievements made in the past year and how they compare to the company’s goals and objectives.
“The challenge is when you’re looking at these sectors where the return from the research and development — if it follows at all — perhaps only follow quarters or years after that initial investment has been made,” Stemper said. “The conundrum that we face is trying to look at this year’s pay and trying to align it with this year’s financial performance of the business.”
...In the omics/MDx sector, “you need a lot of shots on goal” before a target is hit, and “you can’t count on all those shots on goal happening in a given year,” Stemper said. “So does it really make sense not to grant the stock, or not award the stock, because we didn’t make the shot on goals, when we recognize that it is just part of how we do business?”
June 24, 2013
Fees for Special Committees Shift to Retainers
Board compensation experts say the shift away from paying on a per-meeting basis in the context of special committees follows the same logic that it does when it comes to full board and committee meeting fees: Boards prefer to pay directors for their expertise and not for attendance at meetings.
“I personally am a fan of paying board members for their brains rather than their brawn,” says Jan Koors, managing director and head of the Chicago office of Pearl Meyer & Partners. “In other words, directors should be paid for the value they add, not for their activities.”