Revamping 2010 Shareholder Proxy Statements
October 14, 2009
"Compensation committees in recent years have tried to balance company, shareholder and executive interests with varying degrees of success," says Myrna Hellerman, senior vice president in the Chicago office of Sibson Consulting.
"Recent investor activism supported by legislative and regulatory actions means that committees must disproportionately focus on investor needs and interests. A more investor-righteous focus radically impacts how companies evaluate both compensation decisions and decision-making as well as disclosure appearing in proxy Compensation Discussion and Analysis statements (CD&As)," she adds.
She sees six key disclosure themes and challenges for 2010 and beyond:
- Compensation architecture defensibility
- Peer group and metrics selection
- Entitlement vs. pay-for-performance
- Risk management
- Corporate governance and pay decision-making
- Disclosure vs. optics
Ms. Hellerman advocates a two-part approach:
- An outside-in audit and assessment based on publicly-available documents identifies the outsider's perspective of a company's business strategy, financials and leadership as well as the outsider's view of executive pay program's design, payouts and governance.
- This outside-in review should be complemented by an inside-out audit and assessment. This audit and assessment examines outsiders' opinions and perspectives in the light of data and facts that generally are not publicly available.
Ms. Hellerman offers a checklist of Sibson Consulting's top ten poor pay practices to be included in the committee's review and addressed explicitly in the CD&A:
- Change-in-control and perquisite gross-ups
- SERP sweeteners
- Egregious perquisites
- Deferred compensation sweeteners
- Egregious differentials between CEO pay and that of other proxy officers
- Incentive payouts not aligned with performance
- Irresponsible equity practices
- Misaligned compensation decisions for 2009
- Opaque or misleading disclosure
- Other company's specific practices criticized by the company's outsiders