July 20, 2009

New Treasury and SEC Regulations and ARRA: Executive Compensation Restrictions

Things are moving fast on the legislative front as Rep. Barney Frank circulated a “discussion draft” on Friday of his “Corporate and Financial Institution Compensation Fairness Act of 2009” to the House Financial Services Committee. This bill is the House version of what Treasury sent to the Hill last Thursday.

Tune into tomorrow’s webcast – “New Treasury Regulations and the American Recovery Act: Executive Compensation Restrictions” – to hear these experts analyze the latest on the proposals coming out of Congress, Treasury and the SEC:

Dave Lynn, Partner, Morrison & Foerster and Editor,
Mark Borges, Principal, Compensia
Jeremy Goldstein, Partner, Wachtell Lipton Rosen & Katz
Jannice Koors, Managing Director, Pearl Meyer & Ptrs
Mark Trevino, Partner, Sullivan & Cromwell LLP

Our “6th Annual Executive Compensation Conference“: Now that we have a sense of what Congress will likely pass before next year kicks off, you need to register now to attend our popular conferences and get prepared for a wild proxy season:
4th Annual Proxy Disclosure Conference” & “6th Annual Executive Compensation Conference.” You automatically get to attend both Conferences for the price of one; they will be held November 9-10th in San Francisco and via Live Nationwide Video Webcast. Here is the agenda for the Proxy Disclosure Conference. Register now.

Executive Pay Surveys

In this podcast, Susan Wolf of Schering-Plough describes her company’s experience with using a survey to canvas shareholders about their executive pay practices, including:

– Why did the company decide to try a survey?
– What was the reaction of shareholders?
– Were there any surprises? What would you change if you did it again?

Consultant Market Shares: An Analysis of Fortune 1000 Companies

For those that may not be aware of it, “The Advisors’ Blog” on is populated with new thoughts from compensation experts daily. For example, below is a blog from Equilar that was posted last week:

With executive compensation issues firmly in the public spotlight, the SEC is once again considering expanded CD&A disclosure requirements. The SEC’s most recent proposals include improved disclosure on the connection between compensation and risk, greater detail on overall compensation philosophy and design, and further insight into potential conflicts of interests between compensation consultants and the companies they advise.

With these developments in mind, Equilar recently used its “Compensation Consultant League Table” database to complete an analysis of executive compensation consultant market share at Fortune 1000 companies. In 2008, boards at 90.7% of Fortune 1000 companies retained the services of at least one compensation consulting firm.

The following table lists the Top 10 consulting firms, by executive compensation consulting market share during ’08, at Fortune 1000 companies:

1. Towers Perrin – 19.3%

2. Frederic W. Cook & Co. – 17.5%

3. Hewitt Associates – 14.5%

4. Mercer Human Resources Consulting – 11.4%

5. Watson Wyatt Worldwide – 7.5%

6. Pearl Meyer & Partners – 5.4%

7. Semler Brossy Consulting Group – 3.8%

8. Hay Group – 2.3%

T-9. Exequity – 1.6%

T-9. Deloitte Consulting – 1.6%

Note: FY 2008 market share percentages are based on a total of 867 engagements with boards of directors at 824 of 908 Fortune 1000 companies studied. See methodology statement below for more information. Also note that Towers Perrin and Watson Wyatt announced plans to merge into a new firm called Towers Watson on June 29, 2009. The combined firm would have a market share of 26.8 percent.

Additional Key Findings:

Top 10 Firms Lose Overall Market Share as Smaller Firms Proliferate – In 2008, Fortune 1000 companies listed a total of 53 executive compensation consulting firms as advisors to their boards of directors. Among these firms, the Top 10 consulting firms held a combined market share of 84.9 percent. In contrast, Fortune 1000 companies listed only 42 executive compensation consulting firms as advisors in 2006, when the Top 10 consulting firms held a combined market share of 93.8 percent.

Independent Firms Gain Market Share – In 2008, independent executive compensation consultants held 39.3 percent of engagements with boards of directors at Fortune 1000 firms, up from 37.4 percent of engagements in 2007. Market share for independent firms had increased from 35.0 percent to 37.4 percent between 2006 and 2007. Independent firms are defined by Equilar as companies that focus primarily on executive compensation consulting.

Full-Service Firms Maintain Market Share Above 60% – Full-service firms, which are defined by Equilar as companies that offer accounting, broad-based HR, retirement and/or benefits consulting in addition to executive compensation services (though not necessarily to the same client), held 60.7 percent of engagements with boards of directors at Fortune 1000 firms in 2008.

Readers of this analysis should take the following methodology notes into consideration:

– To study trends on the use of executive compensation consulting firms at public companies, Equilar reviewed disclosures at 908 firms listed in the Fortune 1000 index. Each firm covered by the study has an updated CD&A statement for fiscal year 2008.

– Among the companies included in this analysis, 824 firms (or 90.7 percent) retained an executive compensation consultant to advise their board of directors on executive pay. The remaining firms either have no consultant or a consultant retained by management. For the purposes of tracking market share at Fortune 1000 companies, Equilar only considers direct engagements between a board of directors and a consulting firm.

– In some cases, a board of directors may engage multiple executive compensation consulting firms during the course of a single year. Equilar counts these cases as a full engagement for all consulting firms involved. As such, the 824 companies with an executive compensation consultant for their board of directors produced a total of 867 engagements in fiscal year 2008.

Here is an extended version of Equilar’s compensation consultant market share analysis, including data on year-over-year changes in market share. Equilar is an information services firm specializing in executive compensation research.

– Broc Romanek