NASPP Chapter Meetings
Here’s what’s happening at your local NASPP chapter this week:
Los Angeles: Emily Cervino of Fidelity presents “Data Analytics for Stock Plan Decision Makers.” (Wednesday, September 9, 11:30 AM)
San Diego: Emily Cervino of Fidelity presents “Building a ‘Data Depository’ for Stock Plan Decision Makers” (Thursday, September 10, 11:30 AM).
Read All About It: Global Equity Incentives Survey
The NASPP and PwC have just published the executive summary for our 2015 Global Equity Incentives Survey. Check it out today and don’t miss our webcast highlighting the results on September 22.
NASPP To Do List
Here’s your NASPP To Do List for the week:
Our Executive Director, Barbara Baksa, has dedicated a couple of blogs (“CEO Pay Ratio Disclosure Rules” and “More on the CEO Pay Ratio Disclosure Rules“) to helping all of us understand the new CEO Pay Ratio disclosure rules that were adopted by the SEC last month. Although the new disclosures aren’t imminent, companies still need to prepare. The mechanics of that has already been covered here in the NASPP Blog, so today I’m going to cover some of the more philosophical aspects of the new CEO pay ratio disclosure rules.
Another in a Long Line of Changes?
We’ve seen a lot of changes to executive compensation requirements and related disclosures over the past several years. Dodd-Frank’s Say-on-Pay gave shareholders a stronger voice when it comes to executive compensation matters. Last month the SEC adopted final CEO Pay Ratio disclosure rules that essentially require public companies to disclose the ratio of CEO pay relative to the pay of a median employee. Some are wondering – is this yet another attempt to reign in executive compensation?
The Real Impact?
One question that arises from all these changes – what has the true impact been on executive compensation? Have oversized, outsized, CEO packages become a distant memory? Many experts don’t seem to think so as of yet. The question then becomes, will the new CEO pay ratio disclosure rules really do anything to right-size executive pay? One of my favorite assessments of the situation came from a New York Times article (“Why Putting a Number to C.E.O. Pay Might Bring Change“) on the subject, which quoted Charles Elson, professor of finance and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware as saying,“The pay ratio was designed to inflame the employees. When they read that number, employees are going to say, ‘Why is this person getting paid so much more than me?’ I think the serious discontent will force boards to reconsider their organizations’ pay schemes.”
Shareholders have had more of a say for a while now. The latest approach seems to be to give shareholders (but really employees) a very simple number to explain how the CEO’s pay relates to that of the “median” employee – which in the employee’s case would undoubtedly cause them to compare their own pay to not only the CEO, but that of their median peer. I can see where this may lead – it’s quite possible many organizations will have incensed employees, especially those who realize their pay is below that of the median employee. In addition to preparing for the mechanics of the disclosures, companies should be thinking about how to handle the optics of the disclosure with their employees. It may be time to consider some changes to compensation programs now, in advance of the disclosure. If companies do anticipate some delicate situations as a result of the disclosure, they should craft a communication strategy well in advance. The earlier you get ahead of the curve on this one, the better. The last thing needed is a hit to employee morale.
There are no pay ratio disclosures yet, so it’s hard to tell just how large the pay ratios will be. According to the same New York Times article cited above, a 2014 study by Alyssa Davis and Lawrence Mishel at the Economic Policy Institute, a left-leaning advocacy group in Washington, showed that chief executive pay as a multiple of the typical worker’s earnings zoomed from an average of 20 times in 1965 to almost 300 in 2013.
For Some CEOs, Pay is Not the Most Important Thing
Not all CEOs need the optics of a pay ratio disclosure to evaluate the appropriateness of their compensation. Earlier this week, the CompensationStandards.com blog shared the story of a CEO who actually returned his RSU to the company, saying that “he does not believe that he should receive such an award unless Plum Creek’s stockholders see an increase in their investment return.” The estimated value of the RSU shares that were handed back to the company was about $1.85 million. From the appearance of it, the company’s board awarded the CEO a retention RSU grant. Several months later, facing tough economic times and lower than hoped company performance, the CEO approached the board and basically said he’s giving back the award because he didn’t deserve it. So clearly there are great examples of CEOs who are really focused on making sure their pay truly aligns with performance. I’d be interested to see the CEO pay ratio disclosure for that company, but we’ve still got quite a while for that – until the 2018 proxy season.
It’s not too early to start planning for the disclosure and evaluate current compensation practices and communication opportunities.
And the Winners Are…
We have three winners! Three of our Family Feud candidates in last week’s contest turned out to be very popular with voters. We happened to have an extra spot so we decided to include all three of them in our “families” for the game. Our winners are (in alphabetical order):
Terry Adamson of Aon Hewitt
Emily Cervino of Fidelity
Elizabeth Dodge of Stock & Option Solutions
Congratulations to our winners and a big thank-you to all of our candidates for putting themselves out there and being good sports.
Take Our Poll and Win an Amazon.com Gift Certificate
You know you’ve always wanted to participate in a Family Feud survey! Now is your chance. Complete our survey by this Friday, September 4, and you’ll be entered in a raffle for a $100 Amazon.com gift certificate (and you’ll be able to cross “Family Feud survey” off your bucket list)!
Read All About It: Global Equity Incentives Survey
The NASPP and PwC have just published the executive summary for our 2015 Global Equity Incentives Survey. Check it out today and don’t miss our webcast highlighting the results on September 22.
NASPP To Do List
Here’s your NASPP To Do List for the week:
Here are the results to my random questions in last week’s blog entry.
Terminated Employees & Black-out Periods
Two-thirds of respondents (37 out of 54) do not subject terminated employees to black-out periods.
For those respondents that do subject employees to black-out periods, the majority (11 out 16 respondents), don’t make any accommodation for them. The terminated employees are simply expected to finance their exercises in a way that doesn’t involve an open market sale.
Two respondents noted in the comments that they would automatically exercise the options if they aren’t exercised by the end of the exercise period. One person noted that their black-out period is shorter than their post-termination exercise period, so this hasn’t been a concern for them.
Evaluating Stock Plan Administration
The majority of respondents don’t have any specific metrics that they use to evaluate the performance of the stock plan administration team (which probably explains why no one has responded to this question in the NASPP Discussion Forum).
Of the metrics suggested in the question, the most popular choices were:
Accuracy of reports produced for tax/financial purposes (7 respondents)
Total time spend on various tasks (e.g., employee inquiries, processing transactions, reporting) (4 respondents)
One respondent indicated that they are evaluated on their average time to resolve employee inquires/escalations and one respondent indicated that they are evaluated on the processing and direct costs per participant.
Some of the metrics suggested in the other comments were:
Timeliness and accuracy of all transactions, participant communications, and tax/financial reporting
Demonstration of increasing knowledge and ability to take on more complex tasks
Quality of response to employee inquiries/escalations
ESPP participation
Responsiveness to plan managers and various company contacts in addition to participants
Personally, I think that having at least a rough idea of how much time you spend on various tasks is an important and valuable metric to be aware of. It can be very helpful when trying to prioritize various initiatives and projects. For example, if tax reporting takes a huge amount of time compared to everything else you are doing at year-end, that might be an indication that you need to invest in improving your tax reporting processes.
I’m also a big fan of the ESPP participation metric, but only if you have the proper tools and resources to impact this (e.g., education budget, attractive plan, etc.)
Grant Conversion
Close to 90% (38 out of 43 respondents) don’t convert grant values into foreign currency before determining grant sizes for non-US participants.