Renault Shareholders Narrowly Pass CEO Pay Over Government Opposition

Renault SA shareholders approved Carlos Ghosn’s 7 million-euro ($7.8 million) compensation for last year over the objections of the French government, which argued that the automaker’s chief executive officer is overpaid.

Shareholders voted 53 percent in favor of the CEO’s 2016 pay in an advisory decision at the company’s annual meeting on Thursday in Paris. The French state, which owns 19.7 percent of Renault, opposed Ghosn’s remuneration for the fourth time, a spokeswoman for the state’s participation agency said. In July last year, Renault’s board cut the variable component of Ghosn’s pay package by 20 percent, which wasn’t enough to satisfy the French government.

Source: Renault Shareholders Narrowly Pass CEO Pay Amid Controversy – Bloomberg

How Badly Must a C.E.O. Behave Before His Pay Is Clawed Back? – The New York Times

[There is] a lawsuit unfolding in Delaware Chancery Court…that involves the former chief executive of United and a prime figure in the Bridgegate scandal that has dogged Gov. Chris Christie of New Jersey. The facts of the case reflect a similar disdain for United’s shareholders by the corporate board members who are supposed to serve them.

At the heart of the lawsuit is the refusal by United’s directors to retrieve any of the $28.6 million received by Jeffery A. Smisek, United’s former chief executive, when he was defenestrated in 2015 amid a federal corruption investigation….In a litigation demand, [The City of Tamarac, Fla., Firefighters Pension Trust Fund] requested that the company’s board claw back the severance pay given to the executives who took part in the bribery scandal. By doing so, United’s board would correct its breach of fiduciary duty and prevent “the unjust enrichment” of company executives.

Seems fair enough. But United’s board has refused. Its justification for not recouping the pay is, well, pretty rich.

In a letter to the pension fund, a lawyer for United explained that it would harm the company to give the board “unfettered discretion to recoup compensation” in cases involving wrongdoing. “Where such discretion is out of step with industry norms,” the letter said, it would “make it difficult for United to recruit and retain top talent, particularly at the senior management level.”

In other words, clawing back severance awarded to executives amid a bribery investigation is not industry practice. And if United pursued such a recovery, the airline would be an outlier and unable to hire good people.

Pension Funds Vote “No” on Mylan Directors

Frank Glassner’s Compensation in Context newsletter reports:

Four large pension funds have asked shareholders of the drug company Mylan NV to vote against six directors, including the company’s chairman, who have been nominated for re-election at the company’s annual meeting June 22.
“We believe the time has come to hold Mylan’s board accountable for its costly record of compensation, risk and compliance failures,” said the letter to shareholders, a copy of which was filed recently with the Securities and Exchange Commission.


The letter was signed by Scott Stringer, the New York City comptroller, on behalf of the $170.6 billion New York City Retirement Systems for which he is fiduciary to the five funds within the system; Thomas DiNapoli, the New York state comptroller and sole trustee of the $192 billion New York State Common Retirement Fund, Albany; Anne Sheehan, director of corporate governance for the $206.5 billion California State Teachers’ Retirement System, West Sacramento; and Margriet Stavast-Groothuis, adviser, responsible investment, for the €205.8 billion ($230 billion) Dutch pension provider PGGM, which manages the assets of the €185 billion Pensioenfonds Zorg en Welzijn, Zeist, Netherlands.


Collectively, the pension funds own approximately 4.3 million shares of Mylan stock, worth about $170 million, said the letter to shareholders.

Perk Disclosures: Reminders for Executives and Directors

The lesson from this: If you’re going to have your corporation underwrite your cosmetic surgery, remember to declare it as a perk and part of your executive compensation.

The investigation into the perks, personal expense reimbursements and other items of value received by Mr. [Miles] Nadal [of MDC Partners, Inc.] or his management company from 2009-2014 ultimately revealed that Mr. Nadal received far more benefits than were disclosed in MDC’s proxy statements—ranging from sports car and yacht expenses to cosmetic surgery to charitable donations in his name—totaling nearly $11.285 million, which Mr. Nadal also repaid to MDC. On May 11, 2017, without admitting or denying the SEC’s findings of securities law violations, Mr. Nadal consented to an SEC cease-and-desist order and he agreed to pay $1.85 million in disgorgement, $150,000 in interest and a $3.5 million penalty. Mr. Nadal also agreed to be barred from serving as an officer or director of a public company for five years.

Source: Perk Disclosures: Reminders for Executives and Directors

Paper: An Activist View of CEO Compensation

A new paper from Stanford University’s Rock Center presents a formula that improves on the “static” disclosures about CEO pay on proxies because it reveals a more important metric: variability with performance. The factors:

1. Calculate the “minimum” payout that a CEO is expected to receive in a given year. One might expect that the minimum payment a CEO receives is equal to his or her salary. Typically, however, this is not the case. A CEO will retain time-vested restricted stock without regard to performance. Furthermore, CEOs almost always receive some portion of their annual bonus. Targets are set low enough to be achievable, and a zero payout almost never occurs in practice. Most plans set a lower threshold (hurdle amount) equal to 50% of the target, and we include this figure in the minimum payout. Taking this all together, we assume the “minimum” payout to a CEO as equal to the CEO’s salary, plus restricted stock, plus 50% of the target value of the annual bonus.
2. Calculate how much incremental pay the CEO will receive if he or she achieves target-level performance. This amount equals the incremental compensation assuming the annual bonus and long-term incentive plans are paid out at the target level. (We assume no change in stock price, so that all of this incremental compensation comes from additional payments and not change in value of equity awards due to stock price change).
3. Calculate incremental pay if maximum bonuses are paid. This amount equals the incremental compensation for achieving the high end of the annual bonus and the high end of the long-term incentive plan. (Again, we assume no change in stock price).
Steps 2 and 3 highlight how much upside potential is available to the CEO for achieving performance milestones, even if shareholders see no appreciable return. They also illustrate the potential disconnect that can occur between the financial outcomes of shareholders and the CEO.
4. Add the incremental compensation the CEO will receive assuming some reasonable stock-price appreciation. We assume a 50 percent increase, although higher or lower return scenarios are equally valid. This calculation adds the incremental payout from stock options and the appreciation of restricted stock and performance shares. Treating stock-price appreciation as an independent analytical variable allows us to see how equity awards add leverage to the pay package and the degree to which CEO pay outcomes and shareholder interests are aligned.
Taken together, this framework provides a foundation for analyzing the scale and structure of CEO pay. It provides a rigorous and systematic method for evaluating critical issues, such as:
  • The degree to which pay is “guaranteed” or “at-risk”;
  • The degree to which payouts are driven by operating versus stock-price performance;
  • The sensitivity of CEO compensation to stock-price returns;
  • The importance and rigor of performance metrics;
  • The potential risk embedded in the CEO pay package.

The paper can be downloaded here.

CEOs of big companies get the biggest raises in 3 years – LA Times

The typical big-company chief executive raked in $11.5 million last year in salary, stock and other compensation, according to a study by executive data firm Equilar for the Associated Press. That’s an 8.5% raise from a year earlier, the biggest in three years.The bump reflects how well stocks have done under these CEOs’ watch. Boards of directors increasingly require that CEOs push their stock price higher to collect their maximum possible payout, and the Standard & Poor’s 500 index returned 12% last year.

Over the last five years, median CEO pay in the survey has jumped 19.6%, not accounting for inflation. That’s nearly double the 10.9% rise in the typical weekly paycheck for full-time employees across the country.

The top-paid CEO last year was Thomas Rutledge of Charter Communications Inc., at $98 million. The vast majority of that came from stock and option awards included as part of a new five-year employment agreement, and Charter’s stock will need to more than double for Rutledge to collect the full amount.

No. 2 on the compensation list last year was Leslie Moonves of CBS Corp., who earned $68.6 million.

No. 3 was Walt Disney’s Robert Iger, who made $41 million….CEO pay did fall for one group of companies last year: those where investors complained the loudest about executive pay. Compensation dropped for nine of the 10 companies scoring the lowest on “Say on Pay” votes, where shareholders give thumbs up or down on top executives’ earnings.

At Exelon, for example, the majority of voting shares were against how much executives made in 2015, particularly when the stock lost 22% that year. After the vote, Exelon made several changes, including capping how much executives can receive in incentive payments if the stock loses money over the year.

Auto supplier BorgWarner had last year’s second-lowest passing rate in the survey on “Say on Pay,” with 60% of voting shares saying no or abstaining. The company made changes to its compensation program and cut a 2016 incentive award by $2.4 million to $950,000 for CEO James Verrier. His total compensation dropped 29% to $12.3 million last year.

Source: CEOs of big companies get the biggest raises in 3 years – LA Times

10 top CEOs who earn salaries of less than $50,000

Taking only $1 in compensation has become something of a point of pride in Silicon Valley.”The dollar salary really for them is meant to signify that they have large stakes in their company. The value they’re going to receive — the compensation they’ll earn — is coming solely from their stock,” Aaron Boyd, director of governance for Equilar, a company that researches executive compensation, explains to Forbes.”

You’re not going to question whether or not Larry Page is interested in growing a company’s stock as a shareholder. As one of the largest shareholders, he’s all in.”

Source: 10 top CEOs who earn salaries of less than $50,000

Bloomberg Pay Index: Highest-Paid Executives for 2016

In a year when technology leaders again seized the top spots among America’s highest-paid executives, a scion of Goldman Sachs Group Inc. stood out.John S. Weinberg, 60, whose surname had been synonymous with the bank for decades, left as co-vice chairman in 2015. A year later he joined Evercore Partners Inc., reaping sign-on awards worth $124 million as of Dec. 31. That placed him third on the Bloomberg Pay Index, a ranking of the best-compensated U.S. executives for 2016.

He joins an exclusive club increasingly dominated by bosses at companies that are, at best, just a few decades old. He’s surpassed only by Jet.com Inc. co-founder Marc Lore, whose $236.9 million in awarded compensation last year was largely composed of money Wal-Mart Stores Inc. paid to buy his company, and Apple Inc. Chief Executive Officer Tim Cook, who received $150 million. Google CEO Sundar Pichai, 44, and Tesla Inc.’s Elon Musk, 45, round out the top five.

Source: Bloomberg Pay Index: Highest-Paid Executives for 2016

Are Fund Managers Pushing Back on CEO Pay?

Financial Times notes:

[T]here are tangible signs that a growing number of investors are taking action to rein in excessive pay for company bosses. The consensus is that pressure from the public, politicians and clients have combined to put pressure on the investment industry to prove it is willing to push back on egregious pay packages.

Graeme Griffiths, a director at Principles for Responsible Investment, a UN­backed organisation whose members oversee a collective $62tn of assets, says: “Society is calling on fund managers to be more engaged. The public is now more aware of [wealth inequalities] than they were before.

“There has been a lot of academic research, news coverage and changes in the political landscape that have increased scrutiny of the differentials between those in well [paid] positions in the corporate arena versus those in more typical jobs. [Asset managers] are certainly partly responsible for this divergence over a long period of time.”

BlackRock, which was urged to toughen its voting approachurged to toughen its voting approach after approving 97 per cent of US pay resolutions in the 12 months to the end of June 2015, this year urged the CEOs of the UK’s largest companies to ensure salary increases for executives did not outpace those for average workers.

The world’s largest asset manager was also slightly less lenient on pay in the US last year, approving 96 per cent of remuneration reports in the 12 months to the end of June 2016, according to figures compiled for the FT by Proxy Insight, the data provider.

BlackRock chief executive Larry Fink additionally wroteLarry Fink additionally wrote to the heads of large global companies this year warning them that BlackRock would not “hesitate to exercise our right to vote against . . . misaligned executive compensation”.

Ralph Lauren – CEO Pay Updates: 2017 Proxy Season

At As You Sow, Rosanna Weaver writes about pay for the eponymous Ralph Lauren:

While once common, employment agreements with excessive guarantees have grown rarer. Many shareholders vote against pay when packages are of even three years. On March 31, 2017, the board of Ralph Lauren signed an agreement with Ralph Lauren that will last for five years, through April 2, 2022. “His annual base salary will continue to be $1.75 million, and he will continue to have a target bonus opportunity in the amount of $6 million for each fiscal year.” These are extraordinarily generous guarantees, particularly given that the company also pays for a CEO.

However, the most alarming things in the agreement is what happens if Lauren – who is currently 77 years old — leaves employment for any reason, including disability. In terms of salary and bonus, the treatment is routine, though still generous. Much more problematic is treatment of unvested restricted performance share units (“RPSUs”) and PSUs which “will vest at target in their entirety on the date of his termination of employment.” Similar vesting will occur if the company fails to extend the contract after in 2022.

Source: Ralph Lauren – CEO Pay Updates: 2017 Proxy Season