Why There Is No Science in Your Salary

By: Lauren Weber

Here is the truth about your salary: When it comes to pay, most companies are making things up as they go.

Only 38% of employers have a formal compensation structure or philosophy guiding their pay decisions, according to PayScale Inc., which examined data from some 7,600 firms, mainly from the U.S., Canada and United Kingdom. The issue is especially acute in salaried roles, say compensation experts, because managers have more leeway to put a figure on an employee’s skill, experience and performance than they do with hourly positions.

Yet as the labor market improves, and as fair-pay laws in California and elsewhere put a spotlight on corporate pay practices, firms are starting to rethink the way they set salaries. Among employers with no formal strategy in place, PayScale found that 34% are developing one. Read More

Time To Rethink CEO Compensation: Those With Higher Pay And Equity Lead Worse-Performing Companies

By: Monica Wang

Three decades ago, company shareholders and investors decided that CEOs should receive their primary compensation not from base salaries but from equity incentives — longer-term stock options that would give these top executives a stake in the company and its performance. This way, investors thought, CEOs would have a personal interest in growing the company.

But according to a recent study by MSCI MSCI +%, an investment and corporate governance research firm, companies that paid their CEOs above the median have performed poorly in comparison with those that compensated their chief executives at or below the median (even though equity accounts for 70% or more of the typical annual pay package). This finding has held true especially in the long run. Ric Marshall, executive director of MSCI’s corporate governance research team and a co-author of the report, said researchers looked at 10 years of data for more than 800 CEOs at 429 large public companies to measure the relationship between pay and performance. He explained that MSCI approached the topic from the perspective of the long-time investor. And what researchers found was that $100 invested in the top quintile of companies led by the highest-paid CEOs yielded $264.76 from 2006 to 2015, while the same amount put into the bottom quintile became $367.17 over the decade. The difference between their respective average 10-year total shareholder returns, including both capital gains and dividends, was a significant 39%. Read More

Section 409A: Top 10 Rules For Compliant Non-Qualified Deferred Compensation

Article by: Lori Jones, Thompson Coburn LLP

Internal Revenue Code Section 409A regulates nonqualified deferred compensation (NQDC) plans and arrangements, which are commonly used to provide supplemental compensation to key executives. Complying with Section 409A is critically important because noncompliance will result in an executive being subject to income tax in the year NQDC becomes vested, regardless of when the NQDC is scheduled to be paid. In addition, an executive must pay a 20% excise tax on noncompliant NQDC, as well as interest on any late payment of income taxes. Employers may be subject to penalties and interest for failure to timely report and withhold income taxes with respect to NQDC that does not comply with Section 409A.

Given the draconian consequences of violating Section 409A, it is critical that HR professionals, as well as executives, understand basic elements of Section 409A and the impact Section 409A has on the design of NQDC plans and arrangements. Read More

Why It Is Time to Reform Compensation for Federal Employees

The federal government pays its employees more than they would earn in the private sector. Economic studies consistently find that federal employees enjoy both higher pay and substantially higher benefits than comparable private-sector workers.

Alan Krueger, the former Chairman of President Barack Obama’s Council of Economic Advisers, documented this pay premium in the 1980s.[1] Academic researchers have repeatedly found similar results.[2] More recently, researchers at the Congressional Budget Office (CBO),[3] The Heritage Foundation,[4] and the American Enterprise Institute (AEI)[5] re-examined this question. These studies examined different data sources and used different econometric models. They all concluded that the federal pay premium remains considerable—particularly when including employee benefits. Table 1 highlights their results. Read More

Sales Leadership Dysfunction — Dysfunctional Compensation Plans

By: Dave Brock

My last post in this series was “Super Hero Sales Managers.”  I hesitated for a moment discussing this topic–sales compensation plans.  In many ways, it’s a No-Win discussion.  I can barely scratch the surface on this topic, sales people, sales executives, and non sales executives involved in compensation are likely to be unhappy.

Any time we talk about money, someone is likely to be unhappy, there will always be people on each side of the argument with persuasive arguments for their point of view–even if the argument is an “entitlement” argument.  Since this series focuses on sales leadership, I’ll focus on it from a management point of view, hopefully helping sales professionals understand some of the issues that drive thinking around compensation. Read More

Marissa Mayer's 9-figure compensation put in perspective

Marissa Mayer has millions of reasons to celebrate her job at Yahoo. The CEO's future may be in question, but she's already earned over $100 million in reported compensation from the search giant over the past four years at the helm. (And that doesn't include the $55 million she's due if she steps down.)

But is "earned" the right word? Verizon's purchase of Yahoo offers a good opportunity to see how Mayer's tenure as CEO compared on a pay-for-performance basis to past Yahoo chiefs. Read More

Top CEOs, Money Managers Want 'Commonsense' at Public Companies

A group of business leaders this week signed an open letter calling for reforms in how publicly-traded companies are run.  JPMorgan Asset Management CEO Mary Callahan Erdoes weighed in on the key principles the group is rallying behind.

“This all started with the heightened debate around short-termism, and short-termism really goes against the grain of what all Americans are looking for…. when they think about investing their profits, their savings for the future so that they can have a proper nest egg for retirement,” Erdoes told the FOX Business Network’s Maria Bartiromo. Read More

ABA Proposes Improvements to Executive Compensation Proposal

In a comment letter to six federal financial regulatory agencies today, ABA raised numerous concerns about the agencies’ proposed incentive-based compensation rule. Mandated by the Dodd-Frank Act, the proposed rule would prohibit incentive-based compensation arrangements for executives that the regulators believe could encourage excessive risk-taking behavior.

The proposed rule would apply to banks with more than $1 billion in assets, dividing banks into three “tiers” based on asset size, with the largest banks subject to the most stringent requirements. Banks with more than $50 billion in assets would be required to defer a percentage of qualifying incentive-based compensation for executives and significant risk takers for a specified amount of time. Regulators would have discretion over requirements for firms with less than $50 billion in assets. Read More

SEC PROPOSAL: THE END OF EQUITY COMPENSATION PLAN DISCLOSURE?

The Securities and Exchange Commission’s recent flurry of regulatory activities shows progress with the agency’s evaluation of disclosure requirements. As part of a larger regulatory revamp of Regulation S-K and related filings, the SEC proposes to eliminate the now obsolete disclosure requirements regarding equity compensation plans.

Regulation S-K governs the disclosure requirements for various SEC filings by public companies. The SEC issued proposed rules to amend Regulation S-K on Jul. 13, including a demonstration version of the proposed amendments, which provides nearly 200-pages of proposed additions and deletions to the Regulations. A concept release soliciting comments from the public was previously issued on Apr. 13.  Read More

Equity Compensation

Although defined contribution (DC) plans are the most popular way for employees to store up money for retirement, savings in these plans is severely limited for high-earning executives, notes Marc McDonough, vice president of Schwab Stock Plan Services in Denver. Due to statutory limits on defined contribution plan deferrals, “an executive making $250,000 can put only about 7% of compensation in a DC plan,” he says.
 
Corporations use equity compensation plans—granting company stock to employees or giving them the option to purchase company stock—to attract and retain the best talent. Whether it is to fill in the retirement savings gap or increase overall financial well-being, these plans are a big driver for attracting executives, who see them as an opportunity to save more than they can in a defined contribution plan, McDonough says.  Read More

Did I just get a raw deal from my deferred-compensation plan?

Deferred compensation plans can be a tremendous tax saver but when things don't go as planned, they can cause greater taxation to increase substantially.

Q. I've been participating in my company's deferred-compensation plan. "Unfortunately" my company was just sold and all funds from my deferred-compensation plan have been paid out as income in a lump sum (so much for distributions dragged out over years in a lower tax bracket). I'm a bit miffed for two reasons: 1) I'm worried that this and other income garnered from my company's sale will put me in a higher tax bracket such that had I never participated in the deferred-compensation plan I'd have been better off (understanding hindsight and all) and 2) I moved to GA a year ago, but prior to that I lived in FL where the majority of my deferred compensation was earned. Since I was paid out in GA, state taxes were withheld from the full amount. Do I have to pay GA state tax on my FL deferred income (at least the basis amount)? Thanks, BeckyRead More

Reasonable Compensation Issues Remain On the IRS Radar Part II: S-Corporation Concerns

Our May 26, 2016 article, Reasonable Compensation Issues Remain on the IRS Radar ("Part I"), discussed how the IRS scrutinizes the reasonableness of compensation payments made to C-corporation shareholder-employees.  As indicated in Part I, when a C-corporation is involved, the IRS often argues that the compensation is unreasonably high and paid to avoid the double tax on corporate profits.  However, the IRS also challenges compensation payments made to S-corporation shareholder-employees.  As discussed below, when an S-corporation is involved, there is a risk the IRS will take the opposite approach and argue that the compensation is unreasonably low. 

Income Tax Issue

Unlike a C-corporation, an S-corporation's earnings are not typically subject to double tax because its earnings are not taxed at the corporate level.  Instead, the S-corporation's earnings "pass through" to the shareholders and are taxed at the shareholder level regardless of whether the earnings are actually distributed to the shareholders (for ease of reference, the distribution of earnings will be referred to in this article as "dividends").  The shareholders generally receive the dividends tax free because the shareholders have already paid tax on the earnings. Read More   

Compensation for outside corporate directors increased moderately in 2015

ARLINGTON, Va., July 19, 2016 (GLOBE NEWSWIRE) -- Total pay for outside directors at the nation's largest corporations increased by a modest 3% in 2015, driven by increases in both cash and stock compensation, according to a new analysis by Willis Towers Watson (NASDAQ:WLTW), a leading global advisory, broking and solutions company. The study also found the annual cash retainer for board service reached $100,000 for the first time as companies continue to push toward a fixed approach to director pay.

Read more: http://www.nasdaq.com/press-release/compensation-for-outside-corporate-directors-increased-moderately-in-2015-20160719-00587#ixzz4ExMk2E5K

Let’s do the numbers: CEOs still make way more money than you - By Donna Tam

CEOs on average made $15.5 million last year, which is 276 times more than a typical worker did, according to a study released Tuesday

These figures actually show a smaller gap than the previous year. In 2014, that ratio was 302-to-1, with CEOs earning $16.3 million.

Employee Benefits and Executive Compensation Alert - Venable LLP

The IRS recently issued proposed regulations under Internal Revenue Code Section 409A for deferred compensation arrangements that apply to all employers. The IRS also recently proposed regulations under Internal Revenue Code Section 457 for deferred compensation plans of tax-exempts and governmental entities. In addition to traditional deferred compensation arrangements, certain employment agreement provisions, severance arrangements, equity grants and expense reimbursement arrangements, and other similar arrangements, may be impacted.

Proposed regulations under Section 409A

There are extensive existing final regulations and proposed regulations under 409A, and the recently issued proposed regulations modify both and clarify specific issues.

How One Company Put Its Team’s Compensation On The Line-And Sparked 10X > Growth

Ten years ago, LEAP Legal Software had grown slowly to only 27 employees its first 14 years in business. Today it has a team of 300 and generates $50 million in annual revenue. LEAP accelerated its growth dramatically by tying its team’s pay to achievement of its quarterly goals.

At LEAP legal software, Executive Chairman Richard Hugo-Hamman doesn’t worry about the Millennials on his team getting bored and jumping ship. They change jobs frequently, because the company has been growing so quickly.

The median compensation of CIOs in U.S. medical groups was $170,314 in 2015, according to the Medical Group Management Association

The median total compensation of CIOS in U.S. medical groups was $170,314 in 2015, according to executives at the Englewood, Colorado-based Medical Group Management Association. MGMA executives released that figure to Healthcare Informatics upon the release of broader statistics on June 27 around medical group CEO and group practice executive compensation, based on that association’s recent surveying of executives about what they earned.

MGMA’s compensation survey found that those executives who work for large practices and for hospital-owned group practices, are earning the highest salaries, with non-physician CEOs of medical group practices owned by hospitals having median compensation of $305,000, versus $242,000 being the median for non-physician CEOs at physician-owned practices. Meanwhile, the $170,314 figure that MGMA released exclusively to HCI detailing the median compensation for CIOs of medical group practices, places medical group CIO salaries somewhat lower on average than those of CIOs in hospitals, yet probably comparable with regard to organizational size.

Bank Of America Executive Compensation History Compared With Other Large Banks

William Darusmont

A friend, Graef "Bud" S. Crystal, wrote a book in 1992 titled In Search of Excess, an obvious parody on the Tom Peters, Robert Waterman Jr, book In Search of Excellence. I had conversations with Bud but never read the book till recently. What is amazing is that a book could have been published 24 years ago and investors not learn from it: they are giving away the store.

Crystal is no academic; he spent 25 years as a compensation analyst with Towers, Perrin, but seeing his suggestions to rein in compensation being ignored drove him to leave the business. Why didn't anyone object to the obvious? First, it wasn't in anyone's interest, except a few dissident shareholders. After all, why would a Wall Street firm support taking away money from the CEO of a client company? Frustrated, he went to U.C. Berkeley's Haas School of Business to teach and then wrote for both Forbes and later Bloomberg News.

How to Fix Wall Street’s Flawed System of Compensation

When a professor emeritus at the London School of Economics, who also spent many years as an adviser at the Bank of England, publicly endorses a much-needed – but generally overlooked – overhaul of Wall Street, that is an occasion for celebration.

The distinguished economist in question is Charles Goodhart, who, speaking with considerable gravitas and wit last week at a European Central Bank forum in Sintra, Portugal, wondered aloud why prudential regulators of the world’s financial system had spent so much time in recent years worrying about capital ratios and liquidity and so little time worrying about Wall Street governance and pay practices. These issues, he said, “much more fundamentally influence personal incentives and therefore business decisions.”

Growth Options and CEO Compensation

It is that time of year when CEO compensation is revealed and debated.  The Los Angeles Times just published its list of the 100 highest paid executives in California for 2015.  At the top of this list were co-CEOs Mark Hurd and Safra Catz of Oracle, each of whom received total compensation of $53.25 million.  A lot of money to be sure, but as most compensation analysts note, unreasonable given the impact their decisions can have on Oracle shareholders.  But if shareholder benefits are to be the basis for evaluating CEO compensation, how are shareholder benefits to be measured?