Investors Could Lose Influence Over Executive Pay

Donald Trump, who was elected U.S president last week largely on support from working-class voters, could scrap rules designed to make pay in corporate America more egalitarian if the Republican follows through on a promise to dismantle the Dodd-Frank Act.

Crafted in the aftermath of the 2008 financial crisis, the law contains provisions that strengthen investors’ ability to restrain outsized pay packages for company chiefs. The bill requires clawback provisions, advisory votes on executive compensation and mandated disclosure of a CEO-to-worker pay ratio.

Trump soared to victory on promises of returning economic power to “forgotten Americans,” criticizing chief executive officer pay along the way. “You see these guys making these enormous amounts of money,” Trump told CBS in a 2015 interview. “It’s a total and complete joke.”  Read More

Theranos Whistleblower Shook the Company—And His Family

After working at Theranos Inc. for eight months, Tyler Shultz decided he had seen enough. On April 11, 2014, he emailed company founder Elizabeth Holmes to complain that Theranos had doctored research and ignored failed quality-control checks.

The reply was withering. Ms. Holmes forwarded the email to Theranos President Sunny Balwani, who belittled Mr. Shultz’s grasp of basic mathematics and his knowledge of laboratory science, and then took a swipe at his relationship with George Shultz, the former secretary of state and a Theranos director.

“The only reason I have taken so much time away from work to address this personally is because you are Mr. Shultz’s grandson,” wrote Mr. Balwani to his employee in an email, a copy of which was reviewed by The Wall Street Journal. Read More

The Best and Worst Countries to Be a Rich CEO

If your life’s goal is to be a highly paid chief executive officer, the U.S. is the place. But if your dream is just to be richer than society, South Africa and India are great bets too.

In either case, probably best to avoid Thailand, Poland and China.

A Bloomberg ranking of CEO compensation at companies filling benchmark indexes in 25 of the world’s largest economies shows the biggest paychecks -- by far -- are written in the U.S. Heads of S&P 500 businesses get pay packages averaging $16.9 million, about 2.6 times more than what their counterparts reap abroad. In second-place Switzerland, CEOs get 1.6 times the average. Read More

Apple fails to stop bid for executive compensation reform

Apple must allow shareholders to vote on whether the firm should hire outside experts to reform its executive compensation, the Securities Exchange Commission has ruled.

Investor Jing Zhao, a critic of inflated executive pay, in June presented a proposal he wants Apple to include in proxy materials for its 2017 annual shareholders meeting. Zhao wants shareholders to make the company bring in “multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices.”

Apple’s “failure” on executive compensation is showcased by the equal compensation given to five top Apple executives, who each received $25 million in 2015, Zhao said in a statement submitted with his proposal. Read More

Keep It Simple for Sales Compensation Success

The economic environment is driving sales compensation plans toward higher payouts for overachievers and increasing the role of incentives in the pay mix, according to a new study.

The report, Sales Compensation Programs and Practices, draws from a survey conducted in July and August by WorldatWork, a nonprofit association of total rewards professionals, and consultancy OpenSymmetry. Responses were received from 246 WorldatWork members, mostly from large North American companies, earlier this year.

Clear and Focused Metrics

The survey revealed that 71 percent of responding organizations use three or fewer performance measures in their sales compensation plans, such as total revenue and key sales objectives or milestones showing across-the-board importance for all of the salesforce. Read More

Total Rewards & Business Changes Expected in New Administration

Nov. 9, 2016 — Updated at 1 p.m. ET — Washington, D.C. — In an unpredictable and unprecedented night, flamboyant businessman Donald J. Trump has been elected the 45th president of the United States.

"WorldatWork offers its congratulations to President-elect Donald Trump," said Cara Woodson Welch, vice president of external affairs and practice leadership. "Now that the election results are final, it's time for our leaders in Washington, D.C. to focus on governing and improving our economy. There are numerous issues pending that will affect HR and total rewards professionals. These should be bipartisan issues and policy solutions should aim to benefit employees and employers alike."

Trump won his historic victory with a 289-218 Electoral College vote. Trump's positions on total rewards issues include a mix of traditional pro-business positions and some novel approaches to policy changes: Read More

The Two Words That Earn CEOs a Pay Raise

For chief executives, two words can lead to a pay raise: shareholder value.

A newly published study of shareholder letters and executive compensation finds that CEOs who name shareholder value as their primary objective in investor letters received larger increases in their annual pay packages than chiefs who cited other priorities, such as improving customer loyalty or increasing market share.

The study, recently published in the Journal of Management Studies, examined 2,373 letters to shareholders from 590 CEOs of S&P 500 companies between 1998 and 2005. Authors Taekjin Shin of San Diego State University and Jihae You of Louisiana State University determined that corporate leaders who explicitly communicated their interest in maximizing shareholder value received higher annual compensation increases. The pay packages included salaries, bonuses, the value of stock-option grants, restricted stock grants and long-term incentive plans. Read More

Top Sales Compensation Challenges of 2016

High performing sales organizations know the importance of their sales incentive plans and work diligently throughout the year to design, communicate, tweak, and evaluate those plans. Here are the top three sales compensation challenges for 2016 from a recent survey conducted by SalesGlobe.

#1. Setting Effective Quotas

While arguably not completely part of sales compensation design, setting effective quotas tops the list of challenges year after year. In my experience, about 30 percent of companies do not have quotas ready at the beginning of the year. This is alarming. For compensation to be a good communication tool, sales reps need clear direction on what the company wants them to do.  Read More

Learning to Live with Clawbacks

Existing rules in Europe require, and proposed rules in the U.S. would require, companies and financial institutions to have in place effective clawback policies.  Under such policies, employers have the ability to recover compensation paid to employees when certain events occur or information comes to light that could have an adverse effect on the employer.  The aim, of course, is to create a direct link between reward and conduct so as to promote good corporate behavior and ensure effective risk management.

Clawback provisions have been around for a number of years and they are now a fairly well-known feature in a variety of different bonus and equity incentive programs. They often complement other measures that employers can deploy to address adverse events and circumstances, the most common of which is the ability to forfeit or downward adjust unvested compensation. With executive scrutiny and accountability on the rise, the significance of these policies and their effectiveness will undoubtedly be put to the test.  This article looks briefly at the legal and practical challenges companies face at each stage of a clawback policy – from design and implementation to operation and enforcement. Read More

How to Navigate the Compensation Options in 401(k) Plans

With the IRS's release of the 2017 401(k) contribution limits and the annual compensation cap for calculating deferral and matching contributions, plan sponsors may want to revisit how their plan documents' define "compensation"—and how that definition (or definitions) affects employee participation and savings rates.

Sponsors of 401(k) plans have some leeway in selecting which kinds of employee compensation to use for determining employee-deferral and employer-matching contributions, said Martha M. Sadler, executive vice president at Newport Group, a retirement plan and executive benefits consultancy in New Bern, N.C.

"Internal Revenue Code [IRC] section 415 provides three alternative definitions of compensation in qualified retirement plans," said Sadler, who spoke on Oct. 23 at the annual conference of the American Society of Pension Professionals & Actuaries (ASPPA) in National Harbor, Md. Those options are: Read More

A Short History of Golden Parachutes

Golden parachutes can’t seem to stay out of the news. Last year, Jeff Smisek, the former CEO of United Airlines, received a separation payment of $4.875 million in cash along with additional equity awards and other benefits for a total of close to $37 million after being ousted from his company. FOX News Chairman Roger Ailes was reported to have received an exit package worth $40 million after being ousted from his job amid sexual harassment claims. And Wells Fargo CEO John Stumpf, already under fire for a fraudulent bank account scheme, has faced tough questions about his salary and the multimillion-dollar retirement package of Carrie Tolstedt, a key executive tied to the scandal. Both Stumpf and Tolstedt have been forced to forfeit millions in stock options and other compensation.

Golden parachutes like these are hardly novel in American business. What’s changed, however, is what can trigger such paydays. Golden parachutes such are now paid out even when executives leave amid scandal. And while many now contain “clawback” provisions, those tend to be inconsistently applied. Smisek, for example, resigned in the scandal of a federal investigation into whether United Airlines had unduly influenced David Samson, the chairman of the Port Authority of New York and New Jersey (Samson eventually pleaded guilty to a bribery charge this year). Ailes’s reported payout came after a raft of sexual harassment allegations and a lawsuit by former Fox News anchor Gretchen Carlson (who received a $20 million settlement). Read More

Mylan Execs Probably Won't Lose Any Money Over the Massive EpiPen Settlement

Pharma giant Mylan has gotten considerable flak for raising the price of the life-saving EpiPen device more than 500% over the course of a decade. It even settled a lawsuit with the U.S. government for $465 million over overcharging Medicaid, the public health program for low-income individuals. But it doesn’t look like the massive legal payout will affect the company’s top executives.

Had the cost of the settlement been incorporated into Mylan’s adjusted earnings, officials like CEO Heather Bresch would have taken big haircuts in their bonuses, according to the Wall Street Journal. But Mylan’s way of reporting earnings doesn’t actually take such costs into account. Read More

The Extremely Painful Stock-Based Compensation Line

Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) surprised me. I expected a relatively bad quarter because it guided earlier in the year towards ramping up investments. The numbers came out looking strong likely because the company curtailed some of its spending on other bets like Fiber and Nest.

The market already anticipated this as Alphabet's shares have been quite strong in the run up to the quarter. Alphabet looks like it will be up once the market opens, but keep in mind some of it has been priced in.

It does start to look more and more like the hiring of Porat marked a change in how management thinks about capital allocation. I don't just mean the ex-banker brings a lot of financial discipline to the company, but that hiring Porat by itself is a sign Page and Brin are taking capital allocation to another level. Read More

Compensation Budgets Expected to Stay Flat in 2017

Despite competition for top talent heating up, new research from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc, shows U.S. employers aren’t planning to spend more on compensation budgets for 2017 — which may likely create a stumbling block for employers when it comes to attracting and retaining high performers.

As noted in a press release, Aon Hewitt’s 2016 U.S. Salary Increase Survey of 1,074 U.S. companies projects base pay is expected to be 3.0% in 2017, up slightly from 2.8% in 2016. Spending on variable pay is expected to be 12.8% of payroll—unchanged from 2016.

“Challenging business conditions and strong global competition this year means many companies are holding the line on compensation spending in the year ahead,” explained Ken Abosch, broad-based compensation leader at Aon Hewitt. “However, as the job market continues to improve, stagnant compensation spending could leave many companies in a difficult position in the war for top talent. Organizations may need to either re-think their compensation strategy, or emphasize the other benefits and perks they provide as a way to attract and retain the best workers.” Read More

Twitter Will Need Even More Layoffs To Address Stock-Based Compensation

Twitter looks like they may be finally accepting the reality that they're going to have to go it alone as a public company for the time being.

Yesterday it was announced that the company was going to be moving its earnings report to Thursday morning. The company stated that this change was "in response to analyst requests, to avoid overlapping with several other earnings announcements in the Internet sector scheduled for Thursday afternoon."

It then crossed the wires late in the day on Monday that Twitter would be laying off approximately 8% of its workforce. Bloomberg had the scoop: Read More

Internal Audit Chiefs Gain in Compensation

Top watchdogs inside many companies bark louder these days.

They are known as chief audit executives, or CAEs, and they assess the effectiveness of corporate controls, risk management and governance processes. As boards worry more about cyberattacks, regulatory compliance and personal liability, these executives are gaining clout and commanding higher pay.

CAEs are becoming more visible in part because directors are playing a bigger roles in selecting, evaluating and rewarding internal audit chiefs. In North America, about 83% of those executives report to their employer’s full board or audit committee, according to a 2016 report by the Institute of Internal Auditors, a professional association. That’s up from 76% in 2013. Read More

Compensation Up for Top-Earning CIOs

The highest paid chief information officers at public companies saw 3% to 5% gains in total compensation last year, reflecting both the growing importance of IT in the emerging digital marketplace, and the broader role CIOs now play in front-office decision-making, according to a report by consulting firm Janco Associates, Inc.

Based on its analysis of public records, average total compensation for the top 35 highest paid CIOs at these firms was $3.6 million in 2015, the report said.

That includes an average base salary of $510,417, an average bonus of $962,857, average stock options valued at $1.8 million, and other benefits. Read More

SEC Clarifies New Rules on Executive Pay

The U.S. Securities and Exchange Commission has clarified what data companies can use to comply with its new rule requiring disclosure of the relationship between executive pay and performance.

The pay-for-performance proposal is part of the Dodd-Frank law’s disclosure package involving executive pay. It requires, among other things, that public companies disclose the ratio of the CEO’s annual total compensation to the median annual total compensation of all other employees.

In a recent compliance update, the SEC’s Division of Corporation Finance said registrants can use any reasonable “consistently applied compensation measure” (CACM) to identify the annual compensation of employees. Read More

Worker demand driving shift in benefit-related compensation

Data correlating job satisfaction with employee benefits are rife. Insurance companies regularly show that workers with leaner packages tend to think less of their employers; those with a wider range of available core and voluntary products think more of their employers.

But research from Glassdoor.com finds that workers may hold benefits in even higher esteem than data from carriers and other sources suggest.

According to Glassdoor’s research, workers so value benefit offerings that four out of five said would actually choose additional or enhanced plans options over a pay raise. Read More