Executive and Director Compensation Trends November 6, 2014

Transcription

1 Executive and Director Compensation Trends November 6, 2014

2 Key Topics Trends in CEO Compensation Trends in Non-Employee Director Compensation Say on Pay Trends Dodd-Frank Update 1

3 CEO Compensation Among Top 200 Companies Since fiscal year 2007, average CEO compensation has been flat Average CEO Total Direct Compensation Among "Top 200" Companies ($000s) 2008 Proxies (2007 Compensation) 2010 Proxies (2009 Compensation) 2012 Proxies (2011 Compensation) 2014 Proxies (2013 Compensation) 27% 1 9% $13.5mm 27% 25% 28% 13% 11% $11.6mm 28% 20% 28% 15% 10% $13.1mm 23% 24% 36% 10% $13.1mm 1 20% 2 2

4 CEO Compensation Among Top 200 Companies Median total direct compensation over the same time period was also flat but showed more fluctuation year-to-year Median CEO Total Direct Compensation Among "Top 200" Companies ($000s) 2008 Proxies (2007 Compensation) 2010 Proxies (2009 Compensation) 2012 Proxies (2011 Compensation) 2014 Proxies (2013 Compensation) 44% Median TDC = $11.4mm 19% 37% 3 Median TDC = $9.9mm 29% 15% 24% 31% 13% 1 Median TDC = $11.9mm 21% 23% 45% 1 Median TDC = $12.0mm 18% 25% 3

5 CEO Compensation Among Top 200 Companies However, the mix of long term incentive compensation has changed Performance based stock increased in prevalence declined in prevalence Restricted stock continues to be a retention element in the portfolio, albeit a small one The equity trend is consistent with the increasing influence of proxy advisory firms since 2007 and the start of Say on Pay Companies may struggle with the retention power within compensation programs Average CEO Long-Term Incentive Compensation Mix Among "Top 200" Companies ($000s) 2008 Proxies (2007 Compensation) 2010 Proxies (2009 Compensation) 2012 Proxies (2011 Compensation) 2014 Proxies (2013 Compensation) 40% 19% 41% 40% 19% 41% 4 23% 35% 53% 29% 18% 4

6 Prevalence of Performance Measures Among the Top 200 Performance measures used for annual incentive plans differ from those used for longterm incentive ( LTI ) plans Total shareholder return ( TSR ) is the most prevalent measure used in performance based LTI but it is rarely used as a measure for annual incentive plans Conversely, many annual incentive plans include non-financial measures (e.g., individual performance, achievement of strategic goals) that are almost never used in LTI plans There is an emerging trend of measuring the effective use of capital (e.g., ROIC) to balance earnings measures Other Non-Financial Revenues Operating Income/Margin EPS Cash Flow Cost/Cost Ratio Net Income Division Performance Other Financial ROC/ROIC ROE TSR EBIT/EBITDA ROA EVA Price Working Capital Market Cap Prevalence of Short-term Performance Measures Top 200 Companies (n=168) 7% 7% 5% 3% 1% 0% 15% 14% 14% 2 21% 29% 36% 45% 4-5% 5% 15% 25% 35% 45% 55% 55% TSR EPS ROC/ROIC Revenues Cash Flow Operating Income/Margin ROE Other Non-Financial Other Financial ROA Division Performance Price EBIT/EBITDA Cost/Cost Ratio EVA Market Share Prevalence of Long-term Performance Measures Top 200 Companies (n=179) 5% 4% 3% 1% 8% 16% 14% 11% 11% 21% 31% 29% -5% 5% 15% 25% 35% 45% 55% 50% 5

7 Impact of Revenue Size on CEO Compensation CEOs of companies with $1-$3B in revenues earn substantially less than CEOs from the 200 largest companies ($25B median revenues) Mid-sized companies pay roughly half of compensation in cash while the Top 200 companies pay 1/3 of compensation in cash and the majority of compensation in equity Average CEO Total Direct Compensation in 2013 Proxies (2012 Compensation) ($000s) Mid-Sized Companies ($1-$3B Revenues) "Top 200" Companies 26% $3.8mm 2 29% 10% $13.2mm 2 16% 1 24% 17% 2 6

8 Impact of Revenue Size on CEO Compensation However, mid-sized companies experienced the same equity trend as the Top 200 companies Performance based stock increased in prevalence declined in prevalence Restricted stock continues to be a retention element in the portfolio Restricted stock is also larger component in the portfolio for mid-sized companies Average CEO Long-Term Incentive Compensation Mix Among Mid-Sized Companies 2010 Proxies (2009 Compensation) 2013 Proxies (2012 Compensation 35% 31% 47% 20% 34% 33% 7

9 Non-Employee Director Compensation by Revenue Size Director compensation is linked to company revenue size and, in some cases, industry Largest companies provide more equity compensation than smaller companies Smallest companies more often pay for meeting attendance and differentiate pay by committee Key trends in director compensation: Decreasing prevalence of Board and Committee meeting fees across all industries Continued shift from stock option grants to restricted stock or restricted stock units Increasing prevalence of premium compensation for Lead Directors or Non-Executive COB» Non-executive Chairs continue to receive a larger compensation premium relative to Lead or Presiding Directors 2014 Median Non-Employee Director Compensation* Top 2008 Companies Proxies (2007 Compensation) Medium 2010 Proxies Companies (2009 ($1-$2.5B Compensation) Revenues) Micro Companies ($50-$500mm Revenues) 40% Award 57% Cmte 4% MedianTDC = $253,474 19% Board Retainer 37% 41% Meeting 40% Award 53% Cmte 10% MedianTDC = $172,259 19% Board Retainer 34% 41% Meeting 3% Award 39% Cmte 11% MedianTDC = $101,484 Meeting 9% Board Retainer 41% * Source: 2013/14 NACD Director Compensation Report 8

10 Say on Pay Results ( ) Say-on-Pay results are generally consistent year-over-year For example, ISS continues to vote against about 11% of all companies and about fail However, the percentage of companies failing seems to be declining after a slight peak in 2012 Also, the impact of a negative ISS vote recommendation appears to have stabilized at about 25% of the vote (93% for positive ISS vs. 67% for negative ISS recommendation) Say-on-Pay Results and Impact of ISS (through 10/10/2014) 2014 Top 200 # of companies disclosing SOP results 3,293 2,683 3,375 3, Shareholder Support: Overall average shareholder support 90% 89% 90% 90% 9 % of companies receiving less than 50% shareholder support 1.50% 2.40% 2.10% 1.93% 1.10% ISS Vote Recommendations: % of companies ISS recommended "For 89% 88% 88% 88% 96% % of companies ISS recommended "Against 11% 1 11% 11% 7% Impact of ISS Vote Recommendations: Average shareholder support with positive ISS recommendation 93% 93% 93% 93% 93% Average shareholder support with negative ISS recommendation 69% 65% 68% 67% 69% Average shareholder support for companies issuing rebuttal after negative ISS recommendation Average support for companies that ISS recommended For in prior year and Against in current year 61% 63% 6 74% 63% 65% 64% 64% 9

11 Dodd-Frank Act (DFA) Update No final SEC rules for four of seven compensation-related provisions. CEO pay ratio: Timing up in the air but no sooner than 2016 for 2015 pay All other provisions: 2015? Despite the lack of final rules, most companies have voluntarily disclosed clawback and anti-hedging policies, and enhanced disclosure about the relationship between pay and performance In contrast, companies are not providing voluntary advance disclosure of the CEO pay ratio CEO pay ratio implications Negative media attention is possible Potential HR issue: Resentment from employees below median pay level Provision Current Known Status or Scheduled Action Internal Equity Ratio Disclosure (also known as the CEO Pay Ratio ) Clawback Policy Pay-for-Performance Disclosure Disclosure of Hedging Final Rules pending per SEC; ProposedRules released 9/18/13 Likely not effective until 2016 proxyfiling based on 2015 data Final and Proposed Rules pending per SEC Effective 2015? Final and Proposed Rules pending per SEC Effective 2015? Final and Proposed Rules pending per SEC Effective 2015? 10