July 7, 2016

Pay Ratio: Makes It Onto “Jeopardy”!

The SEC’s pay ratio rule continues to pierce the consciousness of the general public. It was an answer on the game show – “Jeopardy!” – back on November 11th (there’s a fan-created database of archived Q&As from the show):

RULE OF LAW for $800: A 2015 SEC rule says companies must disclose the pay gap between workers & this 3-letter boss

And here’s another executive pay one from 1997:

A “GOLDEN” TREASURY for $600: It’s a big payment made to a prematurely terminated executive…

And the SEC made it on June 17th of last year too!

GOVERNMENT AGENCIES for $800: Leaving Wall St. & heading to Washington D.C., a lawyer never has to go outside, as D.C.’s Union Station connects directly to this regulatory commission on F Street

Don’t forget that you need to be gearing up to begin implementing the pay ratio rules this Fall as you need to consider what your pay ratio disclosures will look like well before you actually make them. Pay ratio will be a hot topic during our “Proxy Disclosure Conference” that annually draws 2000 of your peers. Register now and obtain a 10% discount!

House’s Proxy Advisor Bill: A Critic

Here’s a note from Sarah Wilson, CEO of Manifest (a proxy advisor in the UK) about the proxy advisor reform bill pending in the House that I have blogged about several times (here’s the latest):

Remember that so few companies have failed to earn majority support for say-on-pay in the United Kingdom because the proxy advisors there drive the process in a way that companies know what likely will pass – and what won’t.

The issue is that “yes, the investor group guidelines are largely public – but not everyone thinks they are good and have their own views.” But more importantly in the UK, we don’t need to resort to voting ‘against’ because (even though we have a very pro-shareholder legal framework):

– Voting isn’t mandatory per ERISA
– Most votes are binding and so therefore very robust – we CAN get rid of a director with a single AGM vote rather than wonder why after four votes nobody is doing much about it
– Company law rights haven’t been watered down by the securities regulators because our “company law” is a separate branch and firmly embedded with common law
– Investors would rather solve problems through engagement
– In the UK, we have 2 vendors who are non-recommendations focused: Manifest and IVIS.

Then there is the concern about: “We should at least worry that their advice might fail, just like the advice of the credit ratings agencies failed.” Well, if the law passes, then you effectively get issuer control over research – which is exactly why credit rating agencies DID fail.

Oh, the irony. Citizens United gives corporations free speech – but not the critics of the corporations. But the biggest question mark that I have is just where do companies get off with interfering with asset owners & managers freedom to choose and contract. And, as we have with common law, the freedom of quiet enjoyment of property rights? (Voting is a property right under UK common law). This is an infringement of an investor’s human rights (yes, investors have human rights as well as humans).

The proxy advisor reform bill is a truly ill-considered SLAPP suit and deserves to be exposed for what it is – a cowardly piece of lobbying by the Chamber of Commerce which daren’t criticize asset owners and managers, the providers of their capital.

Also see this blog from the CFA Institute railing against this House bill…

Study: CEO Golfing Harms Corporate Performance

As reported in this CNBC article (also see this Business Insider article) – a study investigated the relationship between CEO leisure time & company performance. Using golf as a proxy for leisure time activity, this study examined the US Golf Association records of 363 S&P 1500 CEOs over a four-year period. The study claims that more time spent on the golf course leads to lower performance & market valuations. Here’s an excerpt from the “Business Insider” article:

– Companies with CEOs in the top quartile of golf play (22 rounds or more per year) have lower operating performance and firm values

– Some CEOs in the database played more than 100 rounds in a year! (There are 365 days in a year)

– “While some golf rounds may serve a valid business purpose, it is unlikely that the amount of golf played by the most frequent golfers is necessary for a CEO to support her firm”

– CEOs play more golf the longer they are the CEO

– The number of golf rounds a CEO plays is negatively correlated with changes in firm profitability

– Overall, higher golf play is associated with a higher probability of CEO turnover

– One CEO played 146 rounds of golf in a year

Broc Romanek