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The Atlanta Journal-Constitution
May 26, 2013
Shareholders Flexing Muscles Over Executive Compensation
“As you put more pay for performance in the system, it will result in more variability” because pay is tied to how each company does that year, said Joe Mallin, managing director in Atlanta for executive-compensation consultant Pearl Meyer & Partners. “That’s what everyone wants.”
May 15, 2013
Transferring Military Skills to Director Service
Jannice L. Koors, a managing director and head of Pearl Meyer & Partners’ Chicago office, suggested that a good place for aspiring public company directors to begin their search for a board seat is by examining a company’s proxy statement.
“One of the recent proxy disclosure requirements for public companies—in addition to listing the biographies of directors up for reelection—is there must also be a paragraph about why that person is an asset to the board,” Koors said. “If you are looking for those who have gone before you, look up the proxy statements and see what the companies have written about what those people bring to the table to help craft your elevator speech.”
New York World
May 14, 2013
Cuomo Cure for Nonprofit Excess Exempts High-Paid Health Execs
"I think one reason we are seeing some growth [in compensation] over the past couple years, believe it or not, is health care reform,” said Terry Brown, managing director of the Los Angeles office for Pearl Meyer and Partners, a compensation consulting firm.
Executives who formerly got flashy perquisites like luxury cars and club memberships are now instead receiving higher salaries, retirement packages and bonuses for improving quality of care, as hospitals are judged by how successfully they treat their patients. “Organizations are afraid of losing executives before going into the new health care world that we’re going to enter,” said Brown. “There has been a lot of activity of putting programs in place to make sure those executives stay around for a couple of years.”
Houston Business Journal
May 10, 2013
Houston Hospitals Say Doctors Can Lead the Way to Cheaper Health Care
Currently, health care systems have a financial interest in performing more CT scans and blood work or filling more beds. That model of health care is not sustainable, said Steven Sullivan, vice president of Pearl Meyer & Partners LLC, an executive compensation consulting firm in Houston.
“Between 10 and 20 percent of the (gross domestic product) goes to health care services,” said Sullivan, who is researching trends in health care leadership. Some of that can be blamed on redundancy within health care systems, he said. As a result, there will be an infusion of physicians into the C-suite as systems strive to reduce redundancies and improve the patient experience.
“How will someone with an MBA know how to streamline acute clinical care services?” he asked. “I’m not saying we’ll eliminate the lay person as a leader. We still need people with business expertise. There will be a transition to teams with a higher prevalence of physicians as executives.”
May 3, 2013
Heinz Shareholders Reject Golden Parachute, But Sale Will Go On
Far fewer companies are bought and sold each year, noted a report by compensation consulting firm Pearl Meyer & Partners that said shareholder advisory firms such as Institutional Shareholder Services are still fine-tuning how they judge golden parachute packages.
"To some extent, we're all getting used to being in the new environment," said Dan Wetzel, a managing director in Pearl Meyer's Los Angeles office, who noted ISS has said it expects to recommend against more golden parachute packages this year.
That doesn't mean companies aren't considering the golden parachute issue, but that discussion may come as they structure executive pay and negotiate deals, said Mr. Wetzel.
They want to structure contracts that are fair, that don't give executives incentives to sell at inappropriate times, yet also don't create roadblocks to transactions that would benefit shareholders. Boards are well aware that such deals may face potential lawsuits, which are common around such transactions, Mr. Wetzel said. In addition, few want to develop a reputation as having been excessively generous.
Human Resource Executive Online
April 30, 2013
Some Cool Philly-isms at Total Rewards
At WorldatWork’s 2013 Total Rewards Conference in Philadephia, Managing Director Jim Heim interpreted “Benjamin Franklin’s Roadmap for Success” for executive pay:
- “When in doubt, don’t.” Do not implement a performance-share program if it is not administratively possible to do so.
- “Be slow in choosing a friend, slower in changing.” Beware how far down you want to drive performance and be very careful in considering eligibility.
- “Well done is better than well said.” Select performance metrics that are demonstrably correlated with long-term shareholder value creation. It’s better to have measures that drive value than measures that are easily explained.
- “We must, indeed, all hang together or, most assuredly, we shall all hang separately.” Compare your proposal to industry prevalence data — is it different because it’s better or is it just different? And if it’s better, then don’t be afraid to follow your own lead.
- “Being ignorant is not so much a shame as being unwilling to learn.” Model your proposed executive-compensation plan under a variety of scenarios — both proactive and reactive — to better understand the impact of your proposal across a variety of performance scenarios.
- “How few there are who have courage enough to own their faults, or resolution enough to mend.” Revisit your plan periodically, and fix it when it needs fixing.
April 30, 2013
Banks Tying Exec Pay More Tightly to Long-Term Results
Stock that vests when executives reach a certain number of years with a company have fallen out of favor because "they feel like a giveaway, where [executives] just have to sit in their jobs and wait," says Susan O'Donnell, a managing director at compensation consulting firm Pearl Meyer & Partners.
Regulators generally dislike traditional stock options because they can encourage banks to take undue risks with the sole intention of driving up the stock price, O'Donnell says. Think Enron and Lehman Brothers. Performance shares are typically tied to measures other than a company's stock price. The thinking is that if certain profitability or other metrics are met, the stock price will rise accordingly, says O'Donnell.
In tough times, as during the recent financial crisis, peer comparisons can be problematic because even a marginal performance can look good when measured against rival banks that might be struggling with credit quality. In good times, "regulators are afraid that if you're chasing peers it will encourage more risk-taking," O'Donnell says.
Another concern with peer group benchmarking is the criticism that they've contributed to outsized pay gains because each board tends to set its CEO's pay near the high end of the range, putting continuous upward pressure on the averages. In contrast, O'Donnell says many shareholders like peer comparisons because they worry absolute targets will be set so low that they're relatively easy to achieve. That's especially a concern these days, with interest rates hovering near historic lows and loan demand remaining relatively weak.
"I don't recommend setting absolute targets because it's not in the best interests of shareholders," O'Donnell says. "With absolute [targets] you can just put a fluff goal out there."
April 29, 2013
Executive Pay Comes Under Greater Scrutiny
Simon Patterson at Pearl Meyer & Partners, a remuneration adviser, says of these directors’ roles: “I really don’t think it’s a very easy job. Just recently I had in the head of the board for a FT 30 committee that is looking to change the chairman of its committee.
“And it is extremely difficult to find someone to fill that role. Being the chairman of a remuneration committee is one of the most unattractive jobs in the UK at this point in time.”
Last year, Mr Patterson’s company launched an index describing the relationship between pay and performance at British companies by calculating a ratio of every pound paid to a chief executive – including cash bonuses, share awards as long-term incentives and golden handshakes and umbrellas – to total shareholder return. It found that directors at big companies were doing a better job of linking pay and performance than those at smaller companies. That is not, he says, simply a matter of bigger companies being at the receiving end of greater public scrutiny.
In fact, Mr Patterson is concerned that a change to UK law giving shareholders a binding vote on pay will discourage the sort of creativity on remuneration committees that leads to strong links between shareholder returns and managers’ rewards. “I’m in favour of shareholders having a very active role in how management teams are incentivised. But you can’t have a one-size-fits-all programme, and the likelihood of the binding vote is that there will be a kind of cooling effect around incentive programmes.
March 18, 2013
Equity Drives Board Pay Increases
Companies have long delivered a healthy percentage of equity to directors in pay plans, and statistics show the proportion of equity to cash continues to rise. The prevalence of large companies that deliver at least half of their pay in equity has risen from 65% in 2006–07 to 78% in 2012–13, according to a forthcoming study by the National Association of Corporate Directors and Pearl Meyer & Partners.
While pay increases for boards last year were relatively modest (6% at the top 200 companies), the lion’s share came in the form of equity, say consultants...As a result, more boards are paying at least 50% of their pay in equity than in previous years, while some boards now pay two or three times more equity than cash in director pay plans. Disclosures in proxy statements show that boards at such companies as Adobe Systems, Coca-Cola, EQT, Lexmark International and Rowan Companies pay directors equity compensation with a value at least twice that of the cash retainer.
“It’s more digestible for shareholders when pay increases are delivered to boards in equity [rather] than in cash,” says Brett Herand, a vice president with Pearl Meyer & Partners in the firm’s Chicago office. “Shareholders like to see a majority of board pay delivered in equity.”
March 14, 2013
Board Pay Normalizes as Economy Recovers
Median director compensation increased 6 percent to $244,637 at the 200 largest U.S. companies in 2012, while total committee pay decreased by 16 percent, signaling a shift toward all directors earning equal pay with no extra given for committee service, finds the 2012–2013 NACD Director Compensation Report, produced in collaboration with Pearl Meyer & Partners (PM&P) and using data provided in part by Equilar.
“When we came out of the downturn, there was a big spike in director compensation in 2010 as companies rebounded, and boards that hadn’t increased their compensation began to do so. The demand has worked its way through the system back to the low- and mid-single-digit increases in the last year, and I expect that to continue going forward,” said Jannice Koors, managing director at PM&P and head of the firm’s Chicago office, who oversaw the report’s development.
…Median direct compensation was lowest in the banking ($95,015), insurance ($124,979), and media ($126,106) sectors. ... The banking sector’s last-place showing, said Koors, reflects both optics and the industry’s typically larger boards. “Those companies were hardest hit in the financial downturn, and where executives and employees took a pay hit, directors often did too,” she noted. “Those companies have been hesitant to bring compensation back to regular levels, and a lot of the financial services companies aren’t out of the woods yet.” Directors tend to pass on positive results first to shareholders, then employees, then back to themselves and the management teams, she said, adding, “Financial services directors are still waiting for their turn.”
...“One thing that’s almost universal is that when you look at companies that have relatively high total compensation, it’s more heavily weighted to equity, not cash, and often can’t be sold for a period of time,” Koors said. “High director compensation levels aren’t an ‘affordability’ issue for a company,” she added. The biggest risk in providing very high levels of compensation is that directors’ independence may be called into question if they are too reliant on their pay to ask tough questions or present opinions contrary to the full board or the chief executive.
March 14, 2013
[L]inking executive compensation to sustainability has not exactly spread like wildfire. “Certainly companies are becoming more conscious regarding sustainability in terms of how they run their businesses and make decisions, but in general, that hasn’t really translated into a specific focus in incentive plans,” says Jannice Koors, managing director and head of Pearl Meyer & Partners’ Chicago office. “That said, you might find aspects of sustainability rise to the level of an incentive consideration in specific industries—for example, environmental metrics at companies that use natural resources such as timber, mining, or oil and gas exploration.”
March 8, 2013
What Every Investor Should Know About Executive Pay
Say on Pay may also have inhibited runaway salary hikes. A survey by Pearl Meyer & Partners, an executive compensation consulting firm, of 167 organizations ranging from Fortune 500 members to not-for-profits and emerging high-growth companies, showed that nearly one out of three participants expects to either cut or freeze CEO base salaries in the coming year.
March 8, 2013
Big vs. Little Debate Has Legs Yet
Simon Patterson, head and founder of Patterson Associates, a Pearl Meyer & Partners practice, has produced his own index to show that FTSE 100 chief executives offer more value than FTSE 250 bosses. His Patterson Index works out the shareholder value that a chief executive offers in share appreciation, dividends and buybacks for every £1 that the chief executive is paid in salary, bonus and long-term incentives.
...Mr. Patterson says often "big is best" because the largest organizations attract the most talented individuals. Mr. Patterson found that Peter Voser and his predecessor Jeroen van der Veer at Royal Dutch Shell, who were at the top of the FTSE 100 league table, providing £3,631 in value between June 2008 and June 2012, outshone bosses in the FTSE 250.
January 28, 2013
Outlook Souring In Corporate Boardrooms
“Directors believe management has met its performance objectives for the year,” said David Swinford, President and CEO of Pearl Meyer & Partners, a compensation consulting firm headquartered in New York. “Now, they must focus on explaining to shareholders how those incentive plan objectives were set, why they will create long-value, and how the payouts align with sustained performance."
January 25, 2013
Let the CEO Pay Cuts Continue
Meanwhile, some companies are pondering the issue of CEO pay given the upcoming proxy season and the certainty that activist investors will continue to rail about pay versus performance. In November, compensation governance consultant Pearl Meyer & Partners released survey results showing significant numbers of the 167 respondents aiming for "moderation" in their company's compensation programs, and even cutting or freezing CEO pay.
January 21, 2013
Pay 2013: Making a Little Go a Long Way
The findings of an online poll of 150 companies conducted by WorldatWork and compensation consultants Pearl Meyer & Partners reinforce [projections of modest pay growth], with most respondents expecting the modest salary budget increase projections to hold true this year. Pearl Meyer & Partners managing director Jim Hudner calls this situation the “new normal” that features “very modest salary increase budgets, more use of variable pay, and compensation dollars focused on key roles, functions and high performers.”
January 16, 2013
SandRidge CEO's Pay is Among Highest in Energy Industry
Pearl Meyer & Partners Managing Director Ed McGaughey has not worked with SandRidge and said he cannot address the company specifically. But in general, he said it is important for companies to set proper benchmarks. "The company's revenue should fall within the 25th and 75th percentile," of those it compares itself with, he said.
There are some exceptions, such as a situation when a smaller company is a direct competitor with larger companies for employees. "For some clients, their compensation peers are so much different that we need to regress the data," McGaughey said. "But you can't benchmark against companies that are 20 times bigger."
McGaughey also typically compares his exploration and production clients to a more comprehensive list of energy companies, which he breaks down by revenue level. Companies should fall within the 25th to 75th percentile of its revenue category, he said…"For small companies that have not been performing optimally, it's not good optics to pay out big bonuses or rewards of stock," McGaughey said. "What's 'big' depends on benchmarking."
January 13, 2013
FTSE 100 Chiefs Offer Best Investor Value
Simon Patterson, head and founder of Patterson Associates, a London-based Pearl Meyer & Partners practice, who developed the Patterson Index to measure CEO performance, said: “Our research shows clearly that chief executives of FTSE 100 companies deliver more value than those of FTSE 250 companies.”
The Patterson data seems to back shareholders who say big companies tend to recruit the best and most talented bosses. Big companies also tend to have a large chunk of the market, making it difficult for smaller groups to compete.
December 27, 2012
Pay Raises Are in Short Supply for Coming Year
“Predominantly it’s the economy and the uneven nature of the recovery,” said Jim Hudner, managing director of Pearl Meyer and Partners, a compensation consulting firm that conducted the poll. “While the employment rate has improved over the last 12 months, there are still some ups and downs in the economy. Employers are still anxious about expanding their payroll.”
December 13, 2012
10 Questions For Your Compensation Consultant
Pearl Meyer & Partners was invited to participate in a Q&A around what qualities Compensation Committees should seek out when retaining an outside compensation consultancy.
“Executive committees and management should look for people senior enough and self-reliant enough that they’ll tell you what they really think,” says David Swinford, president and CEO of Pearl Meyer & Partners.
There are no certification standards for compensation consultants, so compensation committees should request a list of the consultant’s prior clients in addition to references. Ask, “What happened with the last client you lost?” Swinford says.
Look to hire “someone who is able to do the best job they can to allow the company to prosper for a long time,” says Swinford. A well-designed compensation strategy will help your company retain talent and attract new execs.