Partner Matt Vnuk and Principal Bonnie Schindler were quoted in a recent Agenda article discussing how bankers expect a big drop in bonuses this year. Schindler explains how 2021 was a record year for investment banking compensation so there will be quite a shift for this year. Vnuk explains how boards may need to allocate more time to discussing a range of pay-related matters in light of new regulations and guidance from the SEC and Department of Justice that should affect design compensation plans. Going forward, directors may want to have advance conversations with executives and top performers to convey some of the changes and the expected impact on compensation.
Partner Kelly Malafis and Principal Roman Beleuta were quoted in the recent Agenda article discussing increased CFO salaries in the past year. A CAP report showed how 7% more CFOs received base salary increases at the largest companies compared to the prior year. Malafis shares that the trend isn’t unusual and that salary increases are about remaining competitive in the market so that salary doesn’t become a distraction. Beleuta explains how median total compensation for CFO’s increased by 17% year over year and the increase was driven by higher bonuses and long-term incentive payouts. The large total compensation increases are not expected to continue in 2022 but retaining key finance talent will require more than just a focus on compensation.
Partner Dan Laddin was quoted in an Agenda article that discussed the SEC’s new Pay-for-Performance Rule that you can read more about here. In the article Dan goes into detail about the company-selected measure (CSM). He explains that for this measure companies should consider using whichever metric is the most heavily weighted in their annual incentive plan. These tend to be metrics tied to profitability such as EBITDA, adjusted net income, or adjusted earnings per share. Companies should then use the narrative section to discuss how pay tracks with the CSM performance, and why pay may or may not track as well with GAAP net income. Dan goes on to explain that firms typically do not use GAAP net income to make compensation decisions. It can make it appear that the CEO is being paid for underperformance.
Partner Matt Vnuk was quoted in an Agenda article that CAP provided research for that discussed the rise in lead independent director retainers. CAP analyzed the 100 largest publicly traded U.S. companies. CAP found that in 2021 there was a substantial increase in the additional compensation that is paid to lead independent directors. Matt Vnuk mentioned that the rise is correlated to increased time commitments. Lead Directors have had a lot of shareholder outreach responsibilities in the past few years for reasons such as COVID-19, broader human capital initiatives, and ESG.
Partners Dan Laddin and Matt Vnuk were quoted in Agenda’s article regarding recent precision raises for non-employee directors. Vnuk explains how boards are reviewing the time commitment aspect and certain changes during the pandemic such as a shift to virtual or hybrid meetings. Boards are continuing to consider whether more frequent meetings will persist and whether the elevated workload will continue. Laddin explains that nom-gov committees may experience increased workloads as they focus on recruitment and board composition aligning with strategic plans. He also revealed that determining whether ESG work will be delegated to a board committee could potentially impact compensation given the lift for the committee chair and members.
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.