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The Washington Post
March 26, 2014
Dismantling CEOs’ Golden Parachutes
Companies that give executives extra money to cover excise taxes they might be hit with from their golden parachutes (known as a tax "gross-up") are becoming an endangered species. Executive pay consultants Pearl Meyer & Partners recently found that among the 50 largest public companies in the Fortune 500, the prevalence of tax gross-ups has fallen from 41 percent in 2006 to just 14 percent at the end of 2012.
The cash portion of many severance packages - which is typically two to three times an executive's average combined salary and bonus - appears to be declining, too. Fewer boards are choosing multiples of three or more when setting these rewards. "From an optics perspective, companies have reconsidered whether they need to offer" such big multiples, says Dan Wetzel, an executive pay consultant with Pearl Meyer. "Some have really pulled back from that."
March 10, 2014
The Insiders or the Outsiders?
Executive compensation consultancy Pearl Meyer & Partners surveyed 153 Fortune 100 companies and nonprofits in 2011. Of those that had changed CEOs within five years, 32 percent said key internal candidates left the firm to work for another organization or retired after being passed over. Another 31 percent said they adjusted the pay or position of those internal candidates so they would stay.
February 19, 2014
More Companies Taking Extreme Measures to Tie Pay to Performance
What proxy advisory firms expect when it comes to pay-for-performance doesn't always align with what companies should be doing. For example, investors prefer to see relative total shareholder return (TSR) in long-term incentive programs. “As a result, relative TSR has soared in prevalence as a long-term incentive metric,” says Steven Van Putten, a managing director with Pearl Meyer & Partners.
According to Van Putten, TSR is “not really an incentive metric; it's more of an accountability metric, because TSR really is an outcome of the company's execution of its business strategy and how investors perceive that,” says Van Putten. “TSR is not something an executive can necessarily influence, or control, through their actions.”
Also, a well-designed executive incentive program shouldn't necessarily be built on the basis of what other companies are doing, or what proxy advisory groups prefer, says Van Putten. Rather, it should “align with, and support, a company's business and leadership strategy,” he says.
February 18, 2014
Boards Clean Up Director Pay Packages
According to research conducted by Pearl Meyer & Partners for the National Association of Corporate Directors’ forthcoming 2013–2014 Director Pay Study, the prevalence of companies that pay directors for service on board committees among the largest 200 public companies has been declining for the past two years…
Jan Koors, managing director and head of the Chicago office at Pearl Meyer & Partners, says pay plans that have been sheared of meeting fees and committee member retainers look similar to pay plans before the Sarbanes-Oxley Act was adopted. Before 2002, board members were all paid the same amount of money in the form of a cash retainer, meeting fees and an equity component.
After Sarbanes-Oxley heaped work on audit committees, boards boosted pay for audit committee chairs and members because of the increased time and work involved. Then, after the financial crisis resulted in additional scrutiny on executive compensation and Dodd-Frank subsequently called for mandatory say-on-pay votes, compensation committee chairs and members got a raise.
But now, some boards have rethought that philosophy and have determined that they’re done with different tiers of pay for directors based on committee service, explains Koors. “The point is, you get to a philosophy that says, we think everybody’s pulling equal weight and doing equal work and will be equally liable for the decisions we collectively make, and we don’t need committee fees and meeting fees,” Koors says.
February 14, 2014
Top 50 Companies Ditching Tax Gross-Ups in Compensation Agreements, Speakers Say
Margaret H. Black, a managing director in the Los Angeles office of Pearl Meyer & Partners LLC, said during the [firm’s] Feb. 12 Webcast that excise tax gross-ups “have been the poster child of problematic pay practices in the press and also with institutional shareholders.”
Daniel M. Wetzel, a Pearl Meyer & Partners managing director and head of the consulting firm’s Los Angeles and San Francisco offices, said that in the “more performance-focused, post-gross-up environment,” there have been significant changes in the way boards and management design and communicate executive compensation programs. Although tax gross-up provisions are contingent programs that only occur during a change-in-control, they involve significant dollars and have tax implications, depending on plan design, he said. Wetzel said change-in-control is less likely among the top 50, so that their programs may be more conservative and the pay mix may differ from that of other companies. Nevertheless, the top 50 companies are trendsetters in compensation design and their programs are worth studying, he said.
“We have dual Internal Revenue Code regulations, Sections 280G and 4999, which are technically extremely complex, and the outcome of that is the value provided to executives can be significantly different than what was intended by the board when the program was initiated,” Wetzel said, referring to tax code sections on golden parachute payments.
Wetzel said that companies should consider how often they will review change-in-control provisions, how they will be implemented, and what flexibility the company has to make changes when it is “in the throes of a real deal.”
February 3, 2014
“Say on Parachute” Requires Early Board Attention
“It’s a best practice for companies to understand where they stand on the golden parachute issue, so they don’t get themselves boxed into making last-minute adjustments,” says Margaret Black, a managing director at Pearl Meyer & Partners, who co-authored a recent white paper on the votes with fellow managing director Dan Wetzel.
…According to their research, which goes through October 31, median support for the mergers themselves was near-unanimous: roughly 99%. Where approval for the deal was less overwhelming, approval for the parachutes tended to be lower, too. And shareholders were more likely to abstain from the parachute votes than from the merger votes.
The parachute vote result partly reflects how well the board has conveyed the value of change-in-control payouts to shareholders, Wetzel says. “From a director’s standpoint, it’s ‘Are we spending an adequate amount of time communicating incentives effectively to shareholders?’” he explains.
According to Pearl Meyer & Partners, Coventry Health Care and Warner Chilcott disclosed the lowest support in parachute votes, with just 35% approving. (Coventry was acquired by Aetna, and Warner Chilcott was acquired by Actavis.) Coventry’s now-former compensation committee chair, Dale Randall, declined to comment, while Warner Chilcott’s now-former comp chair, Stephen Murray, was unavailable for comment prior to deadline.
When it comes to directors and parachute votes, says Pearl Meyer & Partners’ Black, “They should have some level of concern, but it probably shouldn’t be keeping them up at night.”
Wall Street Journal
December 30, 2013
Approval on Golden Parachutes Rose in 2013
ISS advised shareholders to vote against 28% of golden parachute proposals between February and the end of October, according to compensation consultants Pearl Meyer & Partners. That was a big jump from negative recommendations in 20% of all votes held through the end of 2012.
Pearl Meyer & Partners reported in a study this month that the median support for merger transactions was about 99% in 298 votes since the say on golden parachute rules took effect in 2011. That contrasted with the much lower 88% median support for the golden parachutes. The firm also concluded the non-binding nature of the votes caused many shareholders to lose interest in the results of the votes. The Pearl Meyer & Partners study noted there are generally few abstentions on merger votes, but more than 5% of shareholders abstained from golden parachute votes at about 18% of the companies.
Baltimore Business Journal
December 17, 2013
Jos. A. Bank CEO in Line for Payday if Retailer Is Acquired
Change-in-control agreements awarding a severance payment usually do not cover a company’s chairman, said Dan Wetzel, a managing director at Pearl Meyer & Partners, an executive compensation consulting firm.
They are common for CEOs of publicly traded companies. The so-called “golden parachutes” are used to help attract CEOs. They also keep the CEO from jumping ship and give them an incentive for sticking around to help steer the company through what can be a challenging time, said Margaret Black, a managing director at Pearl Meyer & Partners. “They are meant to help insure the continuity of management,” she said.
Wall Street Journal
December 12, 2013
Companies Grapple With Passed-Over CEO Candidates
Few employers try to keep failed aspirants after they pick a new CEO. About 60% lack a plan for retaining them, according to a 2011 survey of 153 executives and board members by executive-pay consulting firm Pearl Meyer & Partners. As a result, key insiders often quit to work elsewhere or retire.
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 22, 2013
Business Spells COO a New Way: MIA
Across Chicago and the rest of the U.S., chief operating officers are being erased from the org chart. The disappearing act is part of the evolution toward flatter business structures as well as get-lean pressures that have companies looking twice at any personnel expense.
...But cutting the COO won't save company owners as much as they think if they're only turning around and paying more for other executives, warns Jan Koors, managing director at Pearl Meyer & Partners, an executive compensation consulting firm.
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.”