EpiPen Executive Pay Skyrocketed Too; Should It Be Tax Deductible?

Companies are in business to make money, but some price hikes can have a backlash. The skyrocketing prices for Mylan EpiPens is that way. As the public and Congress have reacted, perhaps the taxman should too. After all, it appears that Mylan’s CEO saw a pay raise of over 600% while EpiPen prices rose 400%. The market isn’t exactly happy that as lifesaving EpiPens were increasingly being priced out of reach, the EpiPen maker was dispensing outsize pay.

In fact, the company had the second-highest executive compensation among all U.S. drug and biotech firms over the past five years. According to a Wall Street Journal analysis, Mylan paid a staggering $292.1 million in pay for its top five executives over the five years ended last December. That outpaced industry rivals several times its size, including Johnson & Johnson, Pfizer Inc., Bristol-Myers Squibb Co. and Eli Lilly & Co. Since tax laws are often used to alter behavior, you might wonder where the tax law is in all of this. Read More

Should Wells Fargo Bankers Give Back Their Pay?

When lawmakers confront Wells Fargo & Co.’s top executive over sales practices Tuesday, they will zoom in on one topic that could have broad implications for the financial industry: whether banks should do more to take back executive pay tied to profits derived from illicit actions.

Gearing up for a congressional hearing, five Democratic senators last week pressed the bank to “claw back” some pay in a compensation package promised to a departing Wells Fargo executive.

The hearing could stoke political momentum for new rules governing pay practices at the nation’s biggest banks, one of the remaining aspects of the Wall Street regulatory overhaul that President Barack Obama aims to complete before leaving office in January. Read More

Senators push Wells Fargo CEO on pay clawbacks after bogus accounts

U.S. Senate lawmakers excoriated Wells Fargo & Co’s chief on Tuesday for his oversight of the bank as it opened 2 million bogus customer accounts, potentially laying the groundwork for new rules and reviving questions of whether banks are “too big to fail.”

Chief Executive Officer John Stumpf told the Senate Banking Committee on Tuesday that customers who had bogus accounts opened in their name will be made whole and compensated for any damage to their credit rating, but some Democratic senators called for his resignation.

Under fire, Stumpf said he has told his managers to do “whatever it takes” to make customers whole, refunding fees or compensating them for damage to their credit ratings. But he stood behind the former executive who ran the unit that oversaw many of the practices, and at times downplayed the scope of the affair. Read More

Stop Paying Executives for Performance

For chief executives and other senior leaders, it is not unusual for 60-80% of their pay to be tied to performance – whether performance is measured by quarterly earnings, stock prices, or something else. And yet from a review of the research on incentives and motivation, it is wholly unclear why such a large proportion of these executives’ compensation packages would need to be variable. First, the nature of their work is unsuited to performance-based pay. As the incoming Chief Executive of Deutsche Bank, John Cryan, recently said in an interview: “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.”

But moreover, as we will show, performance-based pay can actually have dangerous outcomes for companies that implement it.

Following the global economic crisis of 2008, large bonuses and stock options have been held responsible for overly risky behavior and short-term strategies. This has led to arguments that executive compensation needs to be organized differently so that the variable component motivates the right behaviors. Particularly in business schools, various Finance and Accounting professors have argued for including more long-term incentives, and for replacing variable pay packages that largely consist of stock options with a mix of bonds and stocks. Read More

Evolving Best Practices in Director Compensation

Wednesday’s Blog Settlement of Lawsuit over Director Compensation Offers Useful Guidance triggered several questions on best practices for setting director compensation. By coincidence, this month we officially begin to prepare for setting 2017 compensation and the 2017 proxy season, including board and compensation committee meetings. During one of these meetings, executive compensation professionals should consider discussing the evolving best practices in director compensation (if such discussion has not already occurred). Your directors are almost certainly reading about these issues in publications and articles targeted to directors. And, as this Blog has been discussing for years, plaintiffs’ lawyers have found litigation over directors’ compensation to be much more profitable than litigation over executives’ pay (because the board’s decisions over executive pay are protected by the business judgment rule, which may not be available to “interested” directors setting their own pay).

Among the evolving best practices we have in mind are as follows:

Independent Review. If the board has not done so recently, it should request—or have the company request—a review the boards’ compensation by a consultant not retained by the board. Independent review should alert the board to any anomalies and make it easier to defend the board compensation levels. Read More

Why Basing Executive Compensation on a Formula Doesn’t Work

“Pay for performance” is a topic du jour in corporate boardrooms. Not that anyone is questioning whether companies should recognize and reward superior performance; rather, the debate is how to do it.

Goaded by proxy advisory firms, public companies have adopted formulas for executive compensation that are largely based on financial metrics and total shareholder return (TSR). We may now be seeing an emerging trend toward less adherence to a strictly formulaic approach and more room for boards to make discretionary judgments, which used to be more the norm.

In theory, a formula makes a lot of sense: A company establishes targets for quantitative metrics that drive shareholder value – such as revenue, earnings per share, return on capital or free cash flow – and then objectively computes executive compensation based on the results achieved against those targets. Read More

Wells Fargo CEO denies orchestrated fraud in accounts scandal

Wells Fargo CEO John Stumpf apologized to customers for more than 2 million fake accounts opened in their names, but denied any orchestrated fraud by bank management.

In testimony to the Senate Banking Committee Tuesday, Stumpf also said the bank plans to expand the internal review of accounts and refund process by two years, starting in 2009 now.

He addressed the outrage over Carrie Tolstedt, the head of the division where the fake accounts were created who is set to walk away with $124 million in stocks and options, when she retires later this year. Stump indicated Tolstedt was pushed out after the bank determined she "did not do enough" to fix issues in the retail bank. Read More

Demand for ‘clawback’ of Wells Fargo executives’ multimillion-dollar pay expected at Senate hearing

When the Senate Banking Committee grills Wells Fargo & Co.’s chairman Tuesday about the banking giant’s sales scandal, look for the word “clawback” to come up more than once.

That’s a reference to rescinding, or clawing back, part of an executive’s previously granted compensation, and critics in Congress and elsewhere are demanding Wells Fargo take back at least part of the multimillion-dollar compensation awarded to one or more top executives.

But such clawbacks are unusual and it’s unlikely Wells Fargo will take that step, compensation experts said. Read More

In Wells Fargo Scandal, the Buck Stopped Well Short

Wells Fargo is trying to clean up the mess created by its high-pressure sales culture, which drove employees to open millions of unauthorized accounts in the names of customers. Pledging accountability, the bank is paying restitution to customers who were charged for these sham accounts, reviewing its process controls, and — as it announced Tuesday — eliminating sales goals for its retail bank products.

In connection with the “widespread illegal practices,” Wells Fargo has also fired 5,300 employees and managers, with one notable exception: the executive in charge.

Instead of bearing any responsibility for this scandal, Carrie Tolstedt, the divisional senior vice president for community banking who supervised the 6,000 retail branches where the wrongdoing took place, is retiring, taking with her millions in stock and options. Read More

Corporate Executives Are Making Way More Money Than Anybody Reports

There are two methods for measuring compensation. One appears everywhere. The other is correct.

On its website, the AFL-CIO, the largest federation of labor unions in the United States, has a page called Executive Paywatch that is meant to demonstrate just how much corporate executives’ pay dwarfs the compensation of the average worker. On this page, the AFL-CIO reports that the total pay of the CEOs of America’s largest corporations was, on average, 373 times larger than the earnings of an average American worker in 2014, and 335 times larger in 2015. These are striking ratios that are meant to bolster the AFL-CIO’s message: The top executives of America’s corporations are vastly overpaid, and most American workers are woefully underpaid.

For that reason, it may come as a surprise that the AFL-CIO’s calculations grossly understate just how much money executives make. While the AFL-CIO’s calculations are for CEOs at S&P 500 companies, our analysis of data for the 500 highest-paid senior executives (not all of whom are CEOs) from the ExecuComp database, which is maintained by Standard & Poor’s, suggests that the Executive Paywatch ratios are far too low. Data on these executives’ actual take-home pay, which is published, as required by law, in companies’ annual filings with the Securities and Exchange Commission (SEC), show that in 2014, senior executives made 949 times as much money as the average worker, far higher than the AFL-CIO’s ratio of 373:1. Read More

EpiPen Maker Dispenses Outsize Pay

The drugmaker buffeted by the furor over hefty price increases on its lifesaving EpiPen had the second-highest executive compensation among all U.S. drug and biotech firms over the past five years, paying its top five managers a total of nearly $300 million, according to a Wall Street Journal analysis.

The big pay packages are unusual because of Mylan NV’s relatively small size in the U.S. drug industry, where it is No. 11 by revenue and No. 16 by market capitalization.

Companies generally set their executive pay targets relative to peers in their own industry, with larger companies typically offering more generous pay than smaller ones. Pay also varies somewhat with corporate performance. Read More

FINRA’s Proposed Rules on Gifts, Gratuities, and Non-Cash Compensation

If adopted as proposed, the rules will largely expand supervisory resources needed to oversee compliance.

After a two-year silence, the Financial Industry Regulatory Authority (FINRA) has proposed amendments to Rule 3220 (Influencing or Rewarding the Employees of Others) (Gifts Rule) and Rule 3221 (Restrictions on Non-Cash Compensation) (Non-Cash Compensation Rule) and issued a new Proposed Rule 3222 (Business Entertainment) (Business Entertainment Rule) following its retrospective[1] rule review on gifts, gratuities, and non-cash compensation.[2] The comment period expires on September 23, 2016.

These proposed amendments and new rule codify past guidance and interpretation, reorganize and consolidate existing rules, and include several new concepts that would significantly affect current practice for many FINRA member broker-dealers.[3] Of particular note are the new limitations on non-cash compensation and sales contests, the annual limit on gift’s increase from $100 to $175 per person, and a lowered threshold for promotional items to $50 per person. Read More

Time Inc. staffers upset over Joe Ripp’s compensation package

Time Inc. staffers — who have seen dozens of colleagues pink-slipped in a series of recent downsizings — are up in arms over the hefty compensation package being doled out to exiting CEO Joe Ripp.

Ripp, who had a five-year deal but is leaving after only three, will collect on his base salary through the contract’s expiration in 2018, according to an SEC filing.

He will also collect a bonus of not less than $1,420,000 annually. Read More

GuideStar Issues New Nonprofit Compensation Report

It’s not bedtime reading. It’s 4,297 pages long and costs $374 to download a single-user copy in PDF. The 16th edition of the GuideStar Nonprofit Compensation Report analyzes Form 990 return information for 96,000 nonprofit organizations. Compensation information for 135,000 staff positions is aggregated by national, state, metropolitan statistical area, gender, and NTEE (National Taxonomy of Exempt Entities) classification.

If you’re a nonprofit executive, board member, consultant, or researcher, the report is a valuable independent reference tool in determining how nonprofit sector executives and managers are paid. With the requirement that nonprofits be able to substantiate new and incumbent executive compensation based on board-led processes, boards can use the report to support consultant recommendations and anecdotal observations. It can also be referenced by executives themselves to see how they compare to their peers. Read More

Senators Question Wells Fargo CEO About Getting Some Manager Compensation Back

Arguing that committing a massive fraud that creates millions of phony consumer accounts should not be the sort of thing that banking executives should be allowed to get rich doing — lawmakers are beginning to ask Wells Fargo CEO John Stumpf some tough questions about just what exactly it intends to do about all those executives it bonused extravagantly for cheating people.

Specifically, they would really like to know if Strumpf has any interesting plans for clawing some of those funds back.

Led by consumer protection advocate Senator Elizabeth Warren, a group of Democratic Senators has asked Wells’ Chairman and CEO whether or not the bank intends to take some of that compensation back from executives and managers who allegedly suborned and supported the opening of two million fraudulent accounts. Specifically, the lawmakers referred to Carrie Tolstedt, who led the unit where the alleged misconduct occurred. Read More

Why Wells Fargo isn’t likely to claw back compensation from top executive

Wells Fargo is not likely to take back any of the millions in annual pay and share and cash bonuses paid to Carrie Tolstedt, until recently the executive in charge of its banking unit where thousands of employees allegedly cheated customers over the last five years.

On Thursday, Wells Fargo agreed to pay $185 million to regulators, including $100 million to the Consumer Financial Protection Bureau, to settle claims that it defrauded millions of customers since at least 2011 by opening millions of unauthorized deposit, debit and credit card accounts.

Tolstedt, Wells Fargo’s highest ranking female executive, led the bank’s community banking division from the bank’s merger in 2008 with Wachovia until her retirement in July. Regulators alleged the frauds in the businesses she managed have been going on since at least 2011. Tolstedt earned $9.05 million in annual pay and $7.3 million more in cash and stock bonuses in 2015,  Read More

Parties battle over Johnson's deferred compensation deal

The political fight continued to flare Thursday over the $10 million deferred compensation deal Republican U.S. Sen. Ron Johnson received more than five years ago from the firm he ran before joining the senate.

Johnson, who helped build Oshkosh-based plastics manufacturer Pacur, is in a heated rematch with Democrat Russ Feingold.

In a complaint filed Monday with the U.S. Senate Ethics Committee, Democrats claimed Johnson violated campaign finance law by using corporate money to reimburse himself for the $9 million he poured into the 2010 race against Feingold. Read More

From Monetization to Compensation: Refocusing on What’s Important

Ben Barokas, Co-Founder and CEO, Sourcepoint

Since the early days of online advertising, no conversation about the state of the industry, or the plight of digital publishers specifically, has been complete without a reference to monetization. The word “monetization” is central to the digital media ecosystem and – like the mythical Midas Touch – it evokes the concept of transforming objects to gold, resources to revenue. 

But – as King Midas himself discovered – the ability to turn resources, including digital materials and online content to riches, does have its downsides. As publishers have emphasized monetization, online audiences have grown increasingly disillusioned with a user experience that seems to place maximizing advertising revenues above consumer preference, and users are turning to ad blockers in frustration.

The words we choose can be highly impactful and as a result, sometimes, with a simple change in terminology, conversation and attitudes can be shifted and dialogue elevated to a higher level. Read More

Scandal-ridden Wells Fargo completely revamps compensation plan

Wells Fargo just announced it is totally revamping its compensation model for retail banking beginning January 1, 2017.

“We believe this decision is both good for our customers and good for our business,” Wells Fargo CEO John Stumpf said. “We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers.”

This change comes just after the Consumer Financial Protection Bureau levied the largest fine in its history — $100 million — against Wells Fargo Thursday for the "widespread unlawful" practices of employees who opened more than 2 million fake accounts to get sales bonuses. Read More