Determining executive compensation

Executive compensation has always been a delicate and contentious issue, but it has come under more intense scrutiny in the years following the financial crisis.

Wealth inequality is growing at a rapid pace. According to the Economic Policy Institute, CEO pay climbed 997 percent between 1978 and 2014, while worker compensation increased by just 11 percent. Furthermore, in 2015, CEOs in the US were paid 276 times more than the typical worker. Shareholders and the general public are often critical of executive compensation packages and feel there is a disconnect between executives and the rest of the workforce. Issues are brought into even sharper focus when executives are seemingly ‘rewarded’ for company underperformance or failures. READ MORE

So Many Options: An Overview of Equity Compensation and Incentives

This article examines common forms of equity compensation, specifically option plans, restricted share unit ("RSU") plans and deferred share unit ("DSU") plans. These plans use a company's equity to compensate and incentivize employees. Each type of plan involves the issuance of new shares or the payment of amount of cash equivalent to the fair market value of such shares (cashin-lieu of shares).

These equity-based plans vary in their suitability to remunerate (i.e. compensation for work already performed) and to provide incentives (i.e. motivating future work) for consultants, employees, officers and directors. READ MORE

The 6 Vital Elements Of Effective Performance Management Systems

Occasionally when I’m with a large group I ask two questions. The first, “Who had a performance review last year?” will result in most hands going up. I follow up by asking, “Who had a really positive experience in that performance review?” Unexpectedly, only a few hands will go up.

What’s wrong with performance management?

Performance reviews tend to focus on the past. They are a look in the rear view mirror instead of through the windshield and planning for a brighter future. Research has shown this results in negative outcomes over 30% of the time and can also damage people’s self-esteem. Employees lament that these reviews focus primarily on recent events rather than performance over time. They note that managers will often carry a bias, as well. Indeed, other research shows that often immediate colleagues have a more accurate view of a person’s performance than does the manager. Finally, results have shown these reviews will rarely improve performance, although the process is a huge investment of managers’ time, besides being an emotional drain for many. READ MORE

Four HR Roles That Matter Most

Chief executives increasingly recognize the positive impact that HR can have on talent attraction and retention, setting company culture, and defending the bottom line. Consequently, they are demanding more and more from their top C-suite HR leaders, particularly chief talent officers and CHROs, who are responding by elevating their functional performance to deliver more for the business. 

What can CHROs do to set themselves — and their teams — up for success and deliver on the promise of an engaged, responsive, and strategic HR function?

According to a report by Heidrick & Struggles’ alumnus Brian Bark and managing partner Daniel Kaplan, the CHRO’s first priority must be to ensure that he or she has a skilled “top team” in four core areas: talent, total rewards, shared services, and business partners. Assembling this team requires CHROs to embrace expanded leadership within the department to establish a culture of performance excellence as well as identify and mentor promising candidates. READ MORE

Five Ways to End CEO Pay Subsidies

1. Close the "Performance Pay" Loophole

The more corporations pay their executives, the less they pay in federal taxes, thanks to a tax code loophole that lets corporations deduct unlimited amounts of executive compensation from their taxable income -- as long as they label the pay "performance-based." This loophole stems from a 1993 Clinton administration reform meant to address widespread public outrage over runaway CEO pay. The reform -- Section 162(m) of the federal tax code -- placed a $1 million cap on the deductibility of executive compensation. But by exempting "performance pay," the reform invited an explosion of executive compensation in the form of deductible stock options, performance shares, and other bonuses designed to meet the exemption criteria.

A recent Institute for Policy Studies analysis has found that America's top 20 banks paid out more than $2 billion in fully deductible performance bonuses to their top five executives between 2012 and 2015, a windfall that translates into a taxpayer subsidy worth more than $725 million, or $1.7 million per executive per year.

Senators Jack Reed and Richard Blumenthal and Rep. Lloyd Doggett have recently introduced the Stop Subsidizing Multimillion Dollar Corporate Bonuses Act (S. 82 and HR 399), which would eliminate the "performance pay" loophole. The Joint Committee on Taxation estimates this legislation would generate $50 billion over 10 years. READ MORE

Wells Fargo whistle-blower finds vindication after 15 years

It was late September last year. Minto had just heard that then-CEO John Stumpf apologized in front of a Senate panel for a major scandal that rocked Wells Fargo. Employees had created up to 2 million fraudulent accounts in the names of real consumers. Senator after senator blasted Stumpf, many expressing disbelief that the San Francisco bank could do such a thing.

If only they had met Minto 15 years earlier.

In 2001, Minto was an assistant branch manager in San Rafael when he started to notice troubling behavior: Some employees were signing up unusually large numbers of customers. One particular banker recruited more than two dozen customers in a single day. READ MORE

Optimizing NQDC Distribution Flexibility

It’s somewhat shocking that it has already been 12 years since IRC §409A was effective on January 1, 2005. Maybe it seems so quick because I’ve only completed reading roughly 1,955 of the 58,000 pages of legislation that was enacted, in large part, because of the perceived abuses by Enron executives as their empire was crumbling (really, it was only about 450 pages…but give it a shot sometime and tell me that it doesn’t feel like 58,000 after about 10 minutes). 

All in all, as a Consultant in the executive benefit space that spends every day living in the 409A world, the legislation, while odd in certain respects, isn’t all that bad. In fact, many in my world have learned to appreciate the path or guide that 409A provides with respect to plan design and management. Really, it was the lack of structure that existed with Non-Qualified Deferred Compensation (NQDC) Plans that got us into this situation in the first place. READ MORE

Job-Changing Executives Saw Big Pay Increases Last Year

Senior executives who changed jobs last year received double-digit compensation increases, as they increased their cash compensation by 21.1 percent, on average, over what they earned at their previous organizations.

This increase applied to every industry and every functional area, according to executive search firm Salveson Stetson Group, which analyzed compensation data from a representative sample of the firm's senior executive placements among a variety of organizations in 2016. The compensation packages analyzed included base salary and incentive pay awarded last year.

The average compensation increase for a senior-level candidate accepting a new job in 2016 was up slightly from the 18.44 percent increase notched for 2015. READ MORE

Pay Ratio Rule That CEOs Hate Is Getting a Fresh Look at the SEC

A Dodd-Frank Act requirement that companies disclose how top executives’ compensation compares with pay for rank-and-file employees will get fresh scrutiny at the U.S. Securities and Exchange Commission after the agency’s acting chairman requested a review Monday.

Michael Piwowar, who as a commissioner opposed the rule when it was approved in 2015, said he was re-opening public comment on the pay-ratio rule in response to complaints that some companies “have begun to encounter unanticipated compliance difficulties.” The move offers no immediate relief for firms required to comply starting this year, but it could be a first step to ultimately changing the rule, which was included in Dodd-Frank amid claims that executive pay incentives fueled excessive risk before the 2008 financial crisis. READ MORE

Compensation: Is it Becoming Employers’ Greatest Vulnerability?

A few weeks ago, a jury in New Jersey federal court found that Lockheed Martin discriminated against a former employee. The employee claimed that Lockheed violated federal and state laws by discriminating against him on the basis of age, including by paying him less than his younger co-workers. The jury’s award: $51.5 million ($1.5 million in compensatory damages and $50 million in punitive damages).  Although the claim was only partially based on unequal pay, and although the punitive damages award is constitutionally suspect (U.S. Supreme Court precedent holds that punitive damages should generally not be more than ten times the amount of compensatory damages), the award is indicative of an ever-emerging emphasis on pay equity. READ MORE

Bank of America Misses a Big Options Payday, Goldman Cashes In

Bank of America Corp.’s top executives were sitting on the right to buy 400,000 shares of the bank’s stock at $53.85, a perk handed out by its board a decade ago.

The problem is, the stock trades at $24.58.

Those stock options expired worthless on Wednesday, a sign of the lingering effects of the financial crisis and the huge gap between banks that have recovered fully from that era and those still far from the targets set during Wall Street’s better times. READ MORE

Google’s Unusual Compensation May Have Stunted Its Self-Driving Car Project

The spectacle of Google’s self-driving car effort (now known as Waymo) losing so many top employees over the past few years has been hard to figure out (excepting the fact that Apple’s car project seemed to be having even more problems). This is especially the case when one considers that the company’s program had seemingly been making good progress and was/is something of a leader in the field.

The explanation put forward in the recent Bloomberg article seems to do a good job of explaining the situation, though — Google simply put too much money on the table, and utilized a compensation system that was (seemingly) not well thought out. READ MORE

7 New Trends Top Companies Use to Separate Performance from Compensation

Awarding higher pay and bonuses to top performers seems like the straightforward way to incentivize and retain great employees. The most popular format being performance-based bonuses, which keep base pay manageable and provide incentives for better performance. However, research shows us that this may not be as simple as it seems.

A study by Willis Towers Watson found that only 20% of employers in North America actually believe merit pay is effective in driving high performance. READ MORE

The Future Of Performance Management

Today, there’s somewhat of a crisis of confidence in the way that industry evaluates employee performance. One piece of recent research showed that only 6% of organizations think their performance management processes are worthwhile.

Many companies have undergone a move away from traditional, metric-based performance assessment in recent years. Sometimes this is because they have been found limiting. Sometimes because it was found that employers and managers are too easily inclined to simply ignore them, if their findings don’t line up with their personal “gut feeling” on who they like or dislike.

The fact is that as the nature of work has changed, the behavior of workforces has shifted to match this. Organizations have become larger and more complex, and smaller operations are more likely to work with networks of partners. The efficiency or inefficiency of a worker in today’s knowledge economy simply is difficult to assess using in traditional, metric-based assessments. READ MORE

Snap’s IPO Investors Will Have No Say on Executive Pay

Investors buying into Snap Inc.’s much-anticipated initial public offering won’t have any say on how much the company pays its executives.

Snap will not be subject to the say-on-pay provisions of the Dodd-Frank Act, the company said in an updated deal prospectus Thursday. The act was put in place after the 2008 financial crisis to help investors throttle outsized pay packages by requiring advisory votes on pay plans. READ MORE

Wells Fargo Likely to Withhold Bonuses for Top Executives

Wells Fargo & Co. will probably withhold 2016 bonuses for senior leaders including Chief Executive Officer Tim Sloan after the bank’s business and stock were slammed by a bogus-account scandal, according to a person briefed on the talks.

The company’s board discussed the move in late January and is likely to make a decision by the end of this month, potentially eliminating annual incentive awards paid in cash or equity, the person said, asking not to be identified because the talks are confidential. The measure, which also could affect finance chief John Shrewsberry and other top executives, is meant to hold management accountable but doesn’t reflect findings of specific wrongdoing.  READ MORE

Snap Inc. Amends Compensation Filing of Its Lone Female Director

Last week, the parent of Snapchat took heat for appearing to pay its only female director, Joanna Coles, far less than her male peers on the company’s board.

Now Snap Inc., as the company is formally known, would like to correct the record. In a footnote to an amended regulatory filing on Thursday, Snap clarifies that Ms. Coles’s previously reported compensation left out a new four-year contract that she signed last month, giving her more stock. READ MORE

Is It Time For Investors To Tie Executive Compensation To Diversity Goals?

The tech industry has poured an estimated $1.2 billion into diversity initiatives over the past five years, according to Intel and Dalberg’s 2016 Decoding Diversity study, yet the investment has barely moved the needle. Racial and ethnic minorities today secure only 1% to 2% more available jobs in the industry than they did 15 years ago, according to the same report. There are a wide variety of theories as to why this is the case, ranging from a lack of diversity in executive leadership teams to an exclusionary corporate culture, but the bottom line remains the same.

In fact, the industry known for propelling the world forward continues to lag behind the rest of the American private sector’s workforce when it comes to diversity—by about 16-18 percentage points, according to the Decoding Diversity study—and some are beginning to question whether there’s more that can be done. READ MORE

Meredith and investor group push effort to acquire Time Inc.

Meredith Corp. and an investor group led by Edgar Bronfman Jr. have advanced in their pursuit of Time Inc. as the publisher explores a possible sale, according to people familiar with the situation.

Meredith, which publishes such magazines as Family Circle, Shape and Better Homes & Gardens, in recent days signed a nondisclosure agreement with Time Inc. TIME, +0.80%  and is expected in coming weeks to get a look at some of the company’s data and meet with its senior management, one of the people said.

The group led by Mr. Bronfman and Len Blavatnik’s Access Industries, whose earlier overtures to Time Inc. were rejected, has also signed a nondisclosure agreement and has already met with senior Time Inc. executives, one of the people said. A follow-up meeting is being scheduled. READ MORE