National Association of Corporate Directors, December 6, 2018
Uncertain Regulatory and Economic Climate Tops List of Corporate Directors’ Concerns for 2019
The NACD’s annual “Public Company Governance Survey” reveals important trends and insights for board governance of public companies across the country. The most recently published report indicates changes in the regulatory climate, the prospect of an economic slowdown, and worsening geopolitical volatility top the list of concerns for 2019, while artificial intelligence is ranked as the biggest technology disruptor but also the biggest business enabler.
In addition to survey responses from more than 500 public company directors, Main Data Group provided additional board-governance analysis based on proxy data from the Russell 3000, including:
- Gender diversity on boards of companies in the Russell 3000 index is strongly correlated with company size. On average, only 16.5 percent of directors of companies in the Russell 3000 index are women.
- Larger public companies tend to have larger boards and more seats occupied by women. Notwithstanding their size, these organizations also give a larger percentage of board seats to women. An organization with $10 billion or more in revenue is likely to have 12 or more board seats, 2 or 3 of which will be occupied by women. Contrast this with organizations under $2 billion in market capitalization, which on average have a board size of nine individuals with one seat occupied by a woman.
NACD President and CEO Peter Gleason noted, “The trends and insights highlighted with this survey can help boards assess priorities, explore emerging business themes, and evaluate the effectiveness of their governance.”
Agenda, April 13, 2018
Alternative Pay Ratios Rare
Companies are shying away from a pay ratio option that could lessen the blow of a big number. Just 10.3% of companies have opted to include an alternative pay ratio in their proxy statements this year.
Companies that include the alternate information are likely not targeting investors with the additional disclosure, especially since proxy advisors and large investors have said they don’t plan to use the disclosures for proxy voting this year. They are more likely coming into play as additional context for communications with other stakeholders, such as employees or the media.
Relatively few companies are using cost of living adjustments (COLAs) or statistical sampling to identify their median employee, according to research by Main Data Group into ratios filed as of April 10. Only 1% have disclosed ratios using COLAs, while only 3% used statistical sampling to identify their median employee.
Agenda, April 9, 2018
Three Lessons From Early Pay Ratios
As companies continue to disclose the ratio of their median worker’s pay to their CEO’s pay, experts are noting that the added flexibility the SEC has allowed companies to employ in their calculations is making the ratios even more unique to each company.
While compensation experts have said all along that the pay ratios would be difficult to compare across industries or business structures, the stark differences so far between companies in the same industries have prompted investors and other groups to raise their eyebrows about median pay calculations and the terse explanations companies have provided along with their pay ratios.
A Main Data Group report on the first 500 pay ratios filed shows that base pay is by far the most common element in companies’ consistently applied compensation measure (CACM). While 90% of the disclosures reported using base pay in the calculation, 55% also included bonus or incentive pay, while 21% also included overtime. Some 18% included equity grants.
Agenda, November 27, 2017
Cutting Pay Complexity by Bucking the Performance Share Trend
Several U.K. companies are slashing long-term incentive plans and replacing them with grants of restricted stock with long vesting periods.
Proponents of the shift say it would tamp down swelling executive comp packages while also cutting complexity and focusing CEOs and other executives on the long term. Opponents warn that the move away from performance-based pay would cause misalignment between the interests of shareholders and executives.
The changes could appeal to companies in the U.S. that are concerned about the complexity of LTIPs, and RSUs with longer holding periods and extended vesting are already being used heavily in the broader technology and life sciences industries.
Research by Main Data Group, shows that 4% of companies in the Main Data Group database granted only time-based restricted stock to NEOs during fiscal year 2016, while 7% of companies with more than $20 billion in revenues averaged 100% restricted stock to NEOs over the past three years. These companies include Alphabet, Altria Group, Amazon, AstraZeneca, ExxonMobil, Facebook and Sears.
Additionally, roughly 15% of companies with revenues over $20 billion made no performance-based grants to NEOs over the past three years.