October 23, 2013

Say-on-Pay: Now 64 Failures – 1st Company to Receive No Support!

Last week, Andrea Electronics became the 62nd company to fail its say-on-pay in ’13 – see the Form 8-K – with 41% support. Hemispherx Biopharma became the 63rd with just 43% support (Form 8-K), a microcap that voluntarily put up its SOP for a vote the past 3 years (failing in both 2010 and 2011 but passing last year).

And the 64th failure is LookSmart, which received ZERO votes in support of its say-on-pay. You say “bull”? Take a look at the company’s Form 8-K. The company is a former search engine from the era that is now an online ad enterprise. As gleaned from the company’s proxy statement, the NEOs don’t own any stock in the company. Here’s the analysis:

Apparently, there was a complete board turnover in early 2013 (following a tender offer takeover), with the proxy explicitly stating that the former directors and executives were “terminated for cause or removed for cause or otherwise ceased to hold any office or position with the Company” (wow) – and the new board actually recommended AGAINST the company’s say on pay proposal. The proxy actually states “The current directors of the Company and the current compensation committee members believe that the executive compensation and the related practices of the former directors and former executive officers were ineffective and inappropriate and that the former directors and former executive officers consistently awarded themselves excessive compensation without regard to performance or what was in the best interests of the stockholders.” (double wow)

With 64 failures, this year now surpasses last year’s 61 failures. And we had three failures later in the year than at this time in 2012, so stay tuned. Thanks to Karla Bos of ING for the heads up on these!

Tomorrow’s Webcast: “Drilling Down: Statistical Sampling for Pay Ratios”

Tune in tomorrow, Thursday, October 24th for the webcast – “Drilling Down: Statistical Sampling for Pay Ratios” – so you can hear Pearl Meyer’s Jan Koors, Towers Watson’s Rich Luss and Frederic Cook’s Mike Marino get into the nitty gritty about how to conduct statistical sampling under the SEC’s pay ratio proposal. This program will not be an overview of the SEC’s new proposal on pay ratio disclosures; we have posted plenty of memos to get you up-to-speed. Among other topics, this program will cover:

1. When sampling makes sense (large dispersed workforce, multiple pay databases, etc.)

2. What might be unintended consequences of identifying a “median employee” using pay definition different than ultimate SCT-based calculation of that person’s compensation for use in ratio

3. Selecting a sampling technique, which is best
– Random sampling? Stratified sampling? Other?
– Ability to provide explanation of process chosen and implications of decisions (eg. stratified sampling may produce more reliable or valid answers but may also involve quite a few decisions of where/who to oversample)

4. Determining sample size, how much precision is required
– The square root of n+1? Other?
– Data availability or comparability issues for global firms?

5. Reliability & validity, how are they relevant
– Constant results
– Accurate results

Transcript Posted: “Doing Your Pay Ratio Homework Now: A Roadmap”

I have posted the transcript for the recent webcast: “Doing Your Pay Ratio Homework Now: A Roadmap.”

ISS Releases Draft 2014 Policy Updates for Comment

Yesterday, ISS posted its draft 2014 Policy Updates, with a comment deadline of November 4th. That’s just two weeks – so no time to procrastinate. There are two proposed changes – changes to the pay-for-performance quantitative screen and board responsiveness to majority-supported shareholder proposals, as noted in Ning Chiu’s blog.

– Broc Romanek