Our Approach to Executive Compensation

Transcription

1 Our Apprach t Executive Cmpensatin March 2015 Title page date (9 pt Arial)

2 Our Apprach t Executive Cmpensatin We describe herein ur beliefs and expectatins related t executive cmpensatin 1 practices, ur Say n Pay 2 analysis framewrk, and ur typical apprach t engagement and vting n Say n Pay. We prvide ur views n this issue in smewhat mre detail than ther issues cvered in ur varius reginal prxy vting guidelines because f the particular fcus n executive cmpensatin matters fllwing the adptin f Say n Pay regulatins in a number f markets. This apprach is generally meant t be glbal in scpe, althugh we acknwledge that Say n Pay and relevant disclsures are nt applicable t every jurisdictin. Althugh we expect prxy disclsures t be the primary mechanism fr cmpanies t explain their executive cmpensatin practices, we may engage with cmpanies, preferably independent members f the cmpensatin cmmittee f the bard, where cncerns are identified r where we seek t better understand a cmpany s apprach t executive cmpensatin. We may als decline pprtunities t engage with cmpanies where we d nt have any questins r cncerns r believe that these published views already cver the issues at hand. Mrever, we believe engagement is mst likely t be meaningful and mutually beneficial if the cmpany is already advanced in its remuneratin setting prcess, i.e. it brings t the discussin a final r nearly final prpsal and accmpanying ratinale as t why the prpsal is in sharehlders best lng-term ecnmic interests. We d nt think it is apprpriate r useful fr cmpanies t engage with us primarily fr the purpse f gaging ur supprt in advance f the general meeting. Beliefs and Expectatins Related t Executive Cmpensatin Practices We believe that cmpensatin cmmittees are in the best psitin t make cmpensatin decisins and shuld maintain significant flexibility in administering cmpensatin prgrams, given their knwledge f the strategic plans fr the cmpany, the industry in which the cmpany perates, the apprpriate perfrmance measures fr the cmpany, and ther issues internal and/r unique t the cmpany. Cmpanies shuld explicitly disclse hw incentive plans reflect strategy and incrprate lng-term sharehlder value drivers; this discussin shuld include the cmmensurate metrics and timeframes by which sharehlders shuld assess perfrmance. We supprt incentive plans that fster the sustainable achievement f results. Althugh we believe that cmpanies shuld identify thse perfrmance measures mst directly tied t sharehlder value creatin, we als believe that emphasis shuld be n thse factrs within management s cntrl t create ecnmic value ver the lng-term, which shuld ultimately lead t sustained sharehlder returns ver the lng-term. Similarly, the vesting timeframes assciated with incentive plans shuld facilitate a fcus n lng-term value creatin, as apprpriate t that particular cmpany. We expect full disclsure f the perfrmance measures selected and the ratinale fr the selectin f such perfrmance measures. While we d supprt the cncept f cmpensatin frmulas that allw sharehlders t clearly understand the ratinale fr cmpensatin decisins, we d nt believe that a slely frmulaic apprach t executive cmpensatin necessarily drives sharehlder value. BlackRck believes that cmpensatin cmmittees shuld use their discretin in designing incentive plans, establishing pay quanta, and finalizing cmpensatin decisins, and shuld demnstrate hw decisins are aligned with sharehlder interests. Where a cmpensatin cmmittee has used its discretin in determining the utcme f any cmpensatin structure we expect transparency with respect t hw and why discretin was used. BlackRck des nt discurage cmpensatin structures that differ frm market practice. Hwever, where cmpensatin practices differ substantially frm market practice, e.g. in the event f uncnventinal incentive plan design r extrardinary decisins made in the cntext f transfrmatinal crprate events r turnarund situatins, we expect clear disclsure explaining hw the decisins are in sharehlders best interests. We understand that cmpensatin cmmittees are undertaking their analysis in the cntext f a cmpetitive marketplace fr executive talent. We acknwledge that the use f peer grup evaluatin by cmpensatin cmmittees can help ensure cmpetitive pay; hwever we are cncerned abut the ptential ratchet effect f explicit benchmarking t peers. We therefre believe that cmpanies shuld use peer grups t maintain an awareness f peer pay levels and practices s that pay is market cmpetitive, while mitigating ptential ratcheting f pay that is discnnected frm actual perfrmance. 1 The term cmpensatin is used as an equivalent t the wrds remuneratin r pay. 2 The terminlgy can vary depending n markets but Say n Pay is the generic expressin referring t the ability f sharehlders t vte n the cmpensatin f executives. The vte can be advisry r binding, as well as prspective r retrspective. 1 Crprate Gvernance and Respnsible Investment Our Apprach t Executive Cmpensatin The pinins expressed are as f March 31, 2015 and may change as subsequent cnditins vary.

3 We expect cmpanies t select peers that are bradly cmparable t the cmpany in questin, based n bjective criteria that are directly relevant t setting cmpetitive cmpensatin; we evaluate peer grup selectin based n factrs including, but nt limited t, business size, relevance, cmplexity, risk prfile, and/r gegraphy. We d nt believe that arbitrary limits n ptential cmpensatin are necessarily in sharehlders best interests if thse limits have the ptential t cap perfrmance. Hwever, we expect cmpensatin cmmittees t ensure that incentive plans d nt incentivize excessive risk taking beynd the cmpany s determined risk appetite and that rewards are reasnable in light f returns t sharehlders. We d nt set frth a preference between cash, restricted stck, perfrmance based equity awards, and stck ptins, amngst ther cmpensatin vehicles. We acknwledge that each may have an apprpriate rle in recruiting and retaining executives, in incentivizing behaviur and perfrmance, and in aligning sharehlders and executives interests. Cmpensatin cmmittees shuld clearly disclse the ratinale behind their selectin f pay vehicles and hw these fit with intended incentives. We als bserve that different types f awards exhibit varying risk prfiles, and the risks assciated with pay plan design shuld be in line with the cmpany s stated strategy and risk appetite. We expect cmpensatin cmmittees t cnsider and respnd t the sharehlder vting results f relevant prpsals at previus years annual meetings, and ther feedback received frm sharehlders, as they evaluate cmpensatin plans. At the same time, cmpensatin cmmittees shuld ultimately be fcused n incentivizing lng-term sharehlder value creatin and nt necessarily n achieving a certain level f supprt n Say n Pay at any particular sharehlder meeting. Say n Pay Analysis Framewrk We analyse the cmpensatin practices in the cntext f the cmpany s stated strategy and identified value drivers and seek t understand the link between strategy, value drivers and incentive plan design. We examine bth target and realizable cmpensatin in rder t understand the cmpensatin cmmittee s intended utcmes, t judge the apprpriateness and rigr f perfrmance measures and hurdles, and t assess the pay plan s sensitivity t the perfrmance f the cmpany. We make an assessment f the relevance f the cmpany s stated peers and the ptential impact the cmpany s peer selectin may have n pay decisins. We cnduct ur analysis ver varius time hrizns, with an emphasis n a sustained perid, generally 3-5 years; hwever we cnsider cmpany-specific factrs, including the timeframe the cmpany uses fr perfrmance evaluatin, the nature f the industry, and the typical business cycle, in rder t identify an apprpriate timeframe fr evaluatin. We review key changes t pay cmpnents frm previus years and cnsider the cmpensatin cmmittee s ratinale fr thse changes. We examine extrardinary pay items (including but nt limited t actual r cntractual severance payments, inducement grants, ne-time bnus and/r retentin awards) t understand the cmpensatin cmmittee s ratinale and alignment with sharehlder interests. We may engage with cmpanies, preferably independent members f the cmpensatin cmmittee f the bard, where cncerns are identified r where we seek t better understand a cmpany s apprach t executive cmpensatin. We cnsider BlackRck s histrical vting decisins (including whether a cncern that led t a previus vte against management has been addressed, r whether we determined t supprt management at previus sharehlder meetings with the expectatin f future change), engagement activity, ther crprate gvernance cncerns at the cmpany, and the views f ur prtfli managers. We assess the bard s respnsiveness t sharehlder vting results f relevant prpsals at previus years annual meetings, and ther feedback received frm sharehlders. 2 Crprate Gvernance and Respnsible Investment Our Apprach t Executive Cmpensatin The pinins expressed are as f March 31, 2015 and may change as subsequent cnditins vary.

4 Engagement and Vting n Say n Pay In many instances, we believe that direct discussin with issuers, in particular with the members f the cmpensatin cmmittee, can be an effective mechanism fr building mutual understanding n executive cmpensatin issues and fr cmmunicating any cncerns we may have n executive cmpensatin. In the event that we determine engagement is nt expected t lead t reslutin f ur cncerns abut executive cmpensatin, we may cnsider vting against members f the cmpensatin cmmittee, cnsistent with ur preferred apprach t hld members f the relevant key cmmittee f the bard accuntable fr gvernance cncerns. We may determine t vte against the electin f cmpensatin cmmittee members and/r Say n Pay prpsals in certain instances, including but nt limited t when: We identify a misalignment ver time between target pay and/r realizable cmpensatin and cmpany perfrmance as reflected in financial and peratinal perfrmance and/r sharehlder returns; We determine that a cmpany has nt persuasively demnstrated the cnnectin between strategy, lng-term sharehlder value creatin and incentive plan design; We determine that cmpensatin is excessive relative t peers withut apprpriate ratinale r explanatin, including the apprpriateness f the cmpany s selected peers; We bserve an verreliance n discretin r extrardinary pay decisins t reward executives, withut clearly demnstrating hw these decisins are aligned with sharehlders interests; We determine that cmpany disclsure is insufficient t undertake ur pay analysis; and/r We bserve a lack f bard respnsiveness t significant investr cncern n executive cmpensatin issues. 3 Crprate Gvernance and Respnsible Investment Our Apprach t Executive Cmpensatin The pinins expressed are as f March 31, 2015 and may change as subsequent cnditins vary.

5 Disclaimer This dcument cntains general infrmatin nly and is nt intended t be relied upn as a frecast, research, investment advice, r a recmmendatin, ffer r slicitatin t buy r sell any securities r t adpt any investment strategy. The pinins expressed are as f April 1, 2015 and may change as subsequent cnditins vary. The infrmatin and pinins cntained in this material are derived frm prprietary and nnprprietary surces deemed by BlackRck, Inc. and/r its subsidiaries (tgether, BlackRck ) t be reliable, are nt necessarily all inclusive and are nt guaranteed as t accuracy. There is n guarantee that any frecasts made will cme t pass. Any investments named within this material may nt necessarily be held in any accunts managed by BlackRck. Reliance upn infrmatin in this material is at the sle discretin f the reader. The infrmatin des nt take int accunt individual financial circumstances. 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All ther marks are the prperty f their respective wners. CG Crprate Gvernance and Respnsible Investment Our Apprach t Executive Cmpensatin The pinins expressed are as f March 31, 2015 and may change as subsequent cnditins vary.