Principal Shaun Bisman was quoted in an Agenda article this week discussing the updated 2022 proxy voting guidelines published by proxy advisory firm Glass Lewis. Glass Lewis wants companies to offer more robust disclosure about the use of environmental and social incentive metrics and while they won’t require the actual use of these metrics, they will consider them in their say-on-pay analyses. Shaun Bisman explains that companies must be able to identify not only where they are today but where they want to be in the future before they start incorporating these types of metrics in their incentive plans. He also explains how we should expect to see more robust rationale in the upcoming 2022 proxy season regarding these incentive metrics.
Partner Kelly Malafis discusses financial planning perks for NEOs. Although executive perks overall are declining, the more common perk being offered to NEOs is financial planning services. According to Main Data Group, around just under thirty percent of companies in the S&P 500 provided some form of financial planning perquisite. Kelly Malafis explained that although perk allowances may make sense to some companies, there are benefits to carving out explicit financial planning benefits in their disclosures as it makes it easier to explain the rationale to shareholders.
Partner Dan Laddin, Partner Matt Vnuk, and Associate Whitney Cook discuss a rise in the percentage of companies that have put a limit in place on the total amount of cash and equity paid to individual board members. They reveal that this is the first year the prevalence of cash and equity became a majority practice. Other findings are that caps on pay help board of directors mitigate risk and that limits put on director compensation plans are typically found within long-term incentive plans, which are periodically approved by shareholders.
BlackRock, the world’s largest asset manager and one of many companies’ largest investors, has voted against compensation plans at several large companies this proxy season, including General Electric last week. Partner Matt Vnuk believes that the practices that investors and proxy advisors are being most critical of this year are not new — it’s just that there were more of them this past year. Senior Associate Ryan Colucci adds that some companies may still opt to adjust mid-cycle long-term plans if they were affected although these types of adjustments are drawing the most fire from investors.
On the subject of pay ratio disclosures at companies that furloughed employees, Senior Associate Ryan Colucci cautions that the timing of furloughs and their duration will matter when it comes to deciding whether to include or exclude furloughed employees from the median calculation. He adds that it is perfectly reasonable to back up the determination date to later in the year if that makes it easier to calculate the median as long as a rationale is disclosed.
Principal Lauren Peek says moves to consider reputational risk in comp plans have been “building” over the past few years. She believes reputation risk really started to gain traction in the height of the MeToo movement, when companies started to think about reputational risk just beyond financial risk to companies. She notes that 2020 was a year that had very similar themes when looking at the racial injustice protests seen over the summer.
Principal Lauren Peek discusses the disparate impact the pandemic had on different companies based on CAP’s review of 50 companies with fiscal year-ends between August and October 2020. Despite an across-the-board dip in median financial performance, total direct compensation at median for CEOs among early filers in 2020 rose 8% over 2019 comp. Peek explains that the increase is deceptive given the disparate impact the pandemic had on different companies.