Thursday
Jul032014

The Director Compensation Project: CITIGROUP INC.

The Director Compensation Project: CITIGROUP INC.

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” See NYSE Rule 303A.02(a).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1.  See 17 C.F.R. §240.10A-3 & 10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Citigroup (NYSE: C) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Duncan P. Hennes

17,857

21,428

0

0

39,285

Franz B. Humer

125,000

150,000

0

0

275,000

Robert L. Joss*

175,000

150,000

0

350,000

675,000

Michael E. O’Neill**

500,000

0

0

0

500,000

Gary M. Reiner

62,500

75,000

0

0

137,500

Lawrence R. Ricciardi***

87,500

37,500

0

0

125,000

Judith Rodin

75,000

150,000

0

0

225,000

Robert L. Ryan

175,000

150,000

0

0

325,000

Anthony M. Santomero

236,250

150,000

0

0

386,250

Joan E. Spero

125,000

150,000

0

0

275,000

Diana L. Taylor

206,250

150,000

0

0

356,250

William S. Thompson

101,250

150,000

0

0

251,250

James S. Turley

62,500

75,000

0

0

137,500

Ernesto Zedillo Ponce de Leon

83,750

150,000

0

0

233,750

*Mr. Joss earned $350,000 for consulting services provided to Citigroup in 2013 but remains an independent director.

**Mr. O’Neill receives $500,000 annually for his service as Chairman of the Board.

***Mr. Ricciardi retired from the Board on April 24, 2013 and the amounts provided reflect pro-rated compensation for 2013. 

Director Compensation. The Board of Directors met 19 times and the Audit Committee met 16 times, the Personnel and Compensation Committee, 10 times, the Nomination, Governance and Public Affairs Committee, 11 times, the Risk Management and Finance Committee, eight times, and the Executive Committee met four times for a total of 49 committee meeting. Each director attended at least 75% of the total number of meetings of the Board and the committees on which he or she was a member. In addition, Ms. Spero and Ms. Taylor, and Mr. Joss, Mr. Reiner, Mr. Ryan, Mr. Thompson, and Mr. Zedillo served on several “ad hoc” committees, reviewing such topics as technology, compliance, and operational matters. 

Director Tenure. Ms. Rodin holds the longest tenure with Citigroup, serving as a Director since 2004.  Mr. Ryan holds the second longest tenure, serving as a Director since 2007, and Mr. Thompson, Ms. Taylor, Mr. Santomero, Mr. O’Neill, and Mr. Joss have all been Directors since 2009.  Several of the directors also sit on other boards. Mr. Santomero is a director of RenaissanceRe Holdings, Ltd., Penn Mutual Life Insurance Company and Columbia Funds. Mr. Zedillo Ponce de Leon is a director of Alcoa Inc., Procter & Gamble Company, and Grupo Prisa.

Executive Compensation. Michael Corbat, Chief Executive Officer, earned a base salary of $1,500,000 in 2013 and a bonus of $5,200,000, which is more than three times his salary.  Mr. Corbat also received $3,900,000 in both deferred stock units and performance share units, brining his total compensation for 2013 to $14,500,000 million, almost $3,000,000 more than he received in 2012. Mr. James A. Forese, Co-President of Citigroup and Chief Executive Officer of Institutional Clients Group, received a base salary of $475,000, and a total compensation of $14,000,000.

Wednesday
Jul022014

The Director Compensation Project: JPMORGAN CHASE & Co.  

The Director Compensation Project: JPMORGAN CHASE & Co.

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” See NYSE Rule 303A.02(a).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1.  See 17 C.F.R. §240.10A-3 & 10c-1 

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the JPMorgan Chase & Co. (NYSE: JPM) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Linda B. Bammann**

26,250

0

-

5,000

31,250

James A. Bell

87,278

170,000

-

22.500

279,778

Crandall C. Bowles

102,278

170,000

-

20,000

292,278

Stephen B. Burke

75,000

170,000

-

0

245,000

David M. Cote***

43,750

170,000

-

0

213,750

James S. Crown

101,389

170,000

-

36,833

308,222

Timothy P. Flynn

81,833

170,000

-

7,500

259,333

Ellen V. Futter***

43,750

170,000

-

0

213,750

Laban P. Jackson, Jr.****

106,834

170,000

-

191,833

468,667

Michael A. Neal

0

0

-

0

0

Lee R. Raymond

113,500

170,000

-

20,000

303,500

William C. Weldon

90,000

170,000

-

45,722

305,722

*“All other compensation” includes additional fees earned or paid in cash based on each members’ contribution to special committees.

**Ms. Bammann joined the Board in September 2013, and the amounts provided reflect the pro-rated awards for 2013.

***Mr. Cote and Ms. Futter retired from the Board in July 2013, and the amounts provided reflect their pro-rated awards for 2013.

****Mr. Jackson attended 30 specific purpose meetings and the table above includes $110,000 in compensation for his service as a director of J.P. Morgan Securities plc, an indirect wholly-owned subsidiary of JPMorgan Chase.  He is an independent director.

Director Compensation.  In 2013, JPMorgan Chase & Co. held 13 Board meetings and 85 Committee meetings. The Audit Committee met 15 times, Compensation and Management Development, six times, Corporate Governance and Nominating, five times, Public Responsibility four times, Risk Policy, eight times and Specific Purpose Meetings i.e. Bank Secrecy Act/Anti-Money Laundering Compliance Committee met 13 times, Mortgage Compliance Committee 12 times, Trading Compliance Committee, 14 times, Sworn Documents Compliance Committee three times, and Review Committee in connection with the CIO met five times. The annual cash retainer for the chairs of the Audit and Risk Policy Committees increased by 66% from $15,000 to $25,000, and the annual cash retainer for members of the Audit Committee increased by 50% from $10,000 to $15,000. Each director attended at least 75% of the total number of meetings of the Board and the committees on which he or she served. All but one member of the Board was present for the 2013 annual Board meeting 

Director Tenure.  Mr. Raymond, who holds the longest tenure of any director, has served on the Board since 2001, and prior to retiring in July 2013, Ms. Futter, had served on the Board since 2001 as well. Mr. Crown and Mr. Burke have been on the Board since 2004.  Some of the directors also serve on other boards. In addition to serving on the Board of JPMorgan Chase, Mr. Weldon is a director of CVS Caremark Corporation, The Chubb Corporation, and Exxon Mobil Corporation, and Ms. Bowles is a director of Deere & Company.

Executive Compensation.  James Dimon, Chairman and Chief Executive Officer since 2005, earned a base salary of $1,500,000 and received a total compensation in the amount of $11,791,833 in 2013. The total compensation for Mr. Dimon is down almost 40% from the $18,717,013 he received in 2012. Mr. Dimon also had special use of the company aircraft, use of company vehicles, and residential security paid for by the company, valued at $291,833. Mathew E. Zames, Chief Operating Officer, received a base salary of $750,000 and total compensation of $17,400,000.  The total compensation for the other executives ranged from $8,228,388 to $17,231,640.  

Tuesday
Jul012014

The Director Compensation Project: Wal-Mart Stores, Inc. (WMT) 

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” See NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management.  See Exchange Act Release No. 68639 (Jan. 18, 2013). 

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1.  See 17 C.F.R. §240.10A-3 & .10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Wal-mart (NYSE: WMT) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Director

Fees Earned or Paid in Cash ($)

Stock Awards
 ($)

Option Awards
($)1

 

All Other Compensation
($) 
2

 

Total
 ($)

Aida M. Alvarez

94,379

175,025

0

0

269,404

James W. Breyer*

41,236

0

0

0

41,236

M. Michele Burns*

34,725

0

13,907

2,542

51,174

James I. Cash, Jr.

169,808

175,025

0

1,092

345,925

Roger C. Corbett

84,489

175,025

0

45,332

304,846

Pamela J. Craig

22,741

93,936

0

0

116,677

Douglas N. Daft

68,489

175,025

10,044

0

253,558

Timothy P. Flynn

143,489

175,025

0

2,298

320,812

Marissa A. Mayer

83,489

175,025

0

5,093

263,607

Gregory B. Penner**

103,489

175,025

0

231

278,745

Steven S. Reinemund

79,808

175,025

0

2,213

257,046

H. Lee Scott, Jr.

68,489

175,025

0

1,146

244,660

Arne M. Sorenson*

26,044

0

0

0

26,044

Jim C. Walton

68,489

175,025

0

3,575

247,089

Christopher J. Williams

208,489

175,025

0

1,307

384,821

Linda S. Wolf

108,489

175,025

0

837

284,351

1 Wal-mart neither issues stock options to, nor provides non-equity incentive compensation for, Outside Directors.

2  The amounts in this column include tax gross-up payments paid during fiscal 2014 relating to income attributable to spousal travel expenses, meals, and related activities in connection with certain Board meetings during fiscal 2014. For Mr. Corbett, this column also includes the aggregate cost of such spousal travel expenses, meals, and related activities in the amount of $34,928, primarily related to his travel from his residence in Australia to our Board and Board committee meetings. The cost of any such spousal travel expenses, meals, and related activities for each of the other directors is omitted from this column because the total incremental cost for such benefits for each other director was less than $10,000.

* Served as directors from February to June 2013 and rotated off of the Board in accordance with Corporate Governance Guidelines.

**Gregory B. Penner is the son-in-law of S. Robson Walton.

Director Compensation.  During fiscal year 2014, Wal-Mart maintained six standing committees and held six board of directors meetings. Each director attended at least 85% of the aggregate number of meetings of the board of directors and meetings of the board committees on which he or she served. The base compensation for non-management directors upon their election to the board on June 7, 2013, consisted of a share award and an annual retainer. On June 7, 2013, each non-management director received an award of shares determined by dividing $175,000 by the closing price of the shares. Within 5 years of their election, Wal-Mart’s non-management directors must own shares, restricted stock, or stock units valued at an amount equal to five times the annual director retainer for the year they were elected; all of the non-management directors fulfilled this requirement. During fiscal 2014, Michael T. Duke, C. Douglas McMillon, and S. Robson Walton received compensation only for their services as employees and not in their capacities as directors.

Director Tenure.  In 2013, Mr. Walton, who has held his position as a member of the board of directors since 1978, held the longest tenure. Ms. Craig joined the Board in 2013 and holds the shortest tenure. Several directors also sit on other boards. Mr. Corbett sits on the boards of Fairfax Media Limited, Mayne Pharma Group Limited, and PrimeAg Australia Limited. Mr. Reinemund sits on the boards of Exxon Mobil Corporation, American Express Company, and Marriott International, Inc.

CEO Compensation.  Effective February 1, 2014, C. Douglas McMillon succeeded Michael T. Duke as Walmart’s President and Chief Executive Officer. Mr. McMillon received total compensation of $25,592,938, which included a $954,408 base salary, $23,011,020 in stock awards, $1,035,019 in non-equity incentive compensation, and $254,091 in other compensation. The remaining difference was attributable to changes in pension values and nonqualified deferred compensation earnings. Neil M. Ashe, an Executive Vice President, came in second for highest compensation. Mr. Ashe received total compensation of $13,178,743, which included a $843,544 base salary, $11,252,483 in stock awards, $1,030,705 in non-equity incentive compensation, and $51,169 in other compensation. Likewise, the difference was attributable to an incidental change in Mr. Ashe’s pension value. In addition, Wal-Mart incurred $479,572 in expenses for the personal use of company aircraft for its executive officers. 

Friday
Jun272014

The Director Compensation Project: Hewlett-Packard Company (HPQ)

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” See NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management.  See Exchange Act Release No. 68639 (Jan. 18, 2013). 

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1.  See 17 C.F.R. §240.10A-3 & .10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Hewlett-Packard Company (NYSE: HPQ) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

 

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)
2

Total
($)

Marc L. Andreessen

10,000

275,020

_

_

285,020

Shumeet Banerji

2,000

275,020

_

798

277,818

Robert R. Bennett

29,863

109,818

_

_

139,681

Rajiv L. Gupta

136,730

87,517

87,641

33,098

344,986

Raymond J. Lane

_

275,020

_

_

275,020

Ann M. Livermore1

_

_

_

_

_

Raymond E. Ozzie

29,863

109,818

_

_

139,681

Gary M. Reiner

11,708

137,510

137,719

_

286,937

Patricia F. Russo

115,000

175,014

_

_

290,014

James A. Skinner

29,863

109,818

_

_

139,681

Margaret C. Whitman1

_

_

_

_

_

Ralph V. Whitworth

107,708

175,014

_

_

282,722

John H. Hammergren*

4,292

18,100

_

21,831

44,223

G. Kennedy Thompson*

12,585

18,100

_

_

30,685


1 Employee Directors.

2 Amounts in this column represent the cost to HP of product donations made on behalf of non-employee directors.

*Compensation amount reflects fees earned through retirement date.

Director Compensation.  As of the date of the proxy statement, Hewlett-Packard (HP) had five standing committees and held nine board of directors meetings, including six executive sessions. Each incumbent director serving during fiscal 2013 attended at least 75% of the aggregate of all board and applicable committee meetings held during the period that he or she served as a director. In July 2013, the board approved an amendment to the HP bylaws increasing the number of directors on the board from nine to twelve. Each non-employee director serving during fiscal 2013 was entitled to receive an annual cash retainer of $100,000. HP’s stock ownership guidelines required non-employee directors to accumulate shares of HP common stock equal in value to at least five times the amount of their annual cash retainer, within five years of election to the board. Currently, all directors who have served five years or more have met the requirement or are expected to meet the requirement following the vesting of outstanding equity awards during the first half of fiscal 2014. 

Director Tenure.  In 2013, Mr. Andreessen and Mr. Gupta, who held their positions as members of the board of directors since 2009, held the longest tenures. Mr. Bennett, Mr. Ozzie, and Mr. Skinner are the newest directors and were elected to the board in 2013. Several directors also sit on other boards. Mr. Andreessen is a director of eBay Inc., Facebook, Inc. and several private companies. Mr. Bennett currently serves as a director of Discovery Communications, Inc., Demand Media, Inc., Liberty Media Corporation and Sprint Corporation. Mr. Gupta is a director of Delphi Automotive PLC, Tyco International Ltd., The Vanguard Group and several private companies. Mr. Reiner is a director of Citigroup Inc. and several private companies and is a former director of Genpact Limited. Ms. Russo is a director of Alcoa, Inc., General Motors Company and Merck & Co., Inc. Mr. Skinner currently serves as a director of Illinois Tool Works Inc. and previously served as a director of McDonald's. Ms. Whitman also serves as a director of The Procter & Gamble Company and is a former director of DreamWorks Animation SKG, Inc. and Zipcar, Inc.

CEO Compensation.  Margaret C. Whitman, who served as HP’s President and Chief Executive Officer, earned $17,643,243 during the 2013 fiscal year. Ms. Whitman became President and CEO of HP in September 2011. Ms. Whitman received a base salary of only $1 in 2013 but received $4,394,475 in stock awards, $12,713,433 in option awards, and $260,000 in incentive compensation. Ms. Whitman also received $275,334 in additional compensation, $254,162 of which accounted for personal use of the company aircraft. Also included in Ms. Whitman’s “all other compensation,” were home security services and imputed income with respect to attendance at HP events by Ms. Whitman’s guests. William L. Veghte, Executive Vice President and General Manager of the Enterprise Group during 2013, received $15,644,849 in total compensation. Mr. Veghte, received $866,776 as base salary, $3,450,021in stock awards, $9,926,810 in option awards, $1,083,470 in bonuses, and $295,303 in incentive compensation. HP reported that it paid Mr. Veghte $22,469 in “all other compensation,” including 401(k) contributions, personal use of company aircraft, and imputed income with respect to attendance at HP events by Mr. Veghte’s guests.

Thursday
Jun262014

The Director Compensation Project: Wells Fargo & Company (WFC)  

 This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are, for the most part, including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

 NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management. See Exchange Act Release No. 68639 (Jan. 18, 2013). 

 In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1. See 17 C.F.R. §§240.10A-3 & .10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Wells Fargo & Company (NYSE: WFC) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

John D. Baker II

151,000

150,005

0

5,000

306,005

Elaine L. Chao

105,000

150,005

0

10,000

265,005

John S. Chen

103,000

150,005

0

5,000

258,005

Llyod H. Dean

150,000

150,005

0

0

300,005

Susan E. Engel

139,000

150,005

0

0

289,005

Enrique Hernandez, Jr.

189,000

150,005

0

5,000

344,005

Donald M. James

109,000

150,005

0

5,000

264,005

Cynthia H. Milligan

148,000

150,005

0

5,000

303,005

Nicholas G. Moore*

54,500

0

0

80,000

134,500

Frederico F. Pena

115,000

150,005

0

0

265,005

James H. Quigley

26,750

87,512

0

0

114,262

Philip J Quigley*

45,000

0

18,063

80,000

143,063

Howard V. Richardson**

127,500

200,022

0

0

327,522

Judith M. Runstad

172,000

150,005

0

0

322,005

Stephen W. Sanger

176,000

150,005

0

5,000

331,005

Susan G. Swenson

115,000

150,005

0

0

265,005

John G. Stumpf***

0

0

0

0

0

*Compensation amount reflects fees earned through retirement date.

**Mr. Richardson resigned as a director effective January 31, 2014.

*** As an employee director, Mr. Stumpf does not receive additional compensation for his board service.

 

Director Compensation. During fiscal year 2013, Wells Fargo held nine board of directors meetings and thirty-two board committee meetings. Each current director attended at least 75% of the total number of board and committee meetings on which he or she served. Overall attendance of current directors at meetings of the board and its committees averaged 98.75%. In 2013, each non-employee director elected to the board at the annual meeting of stockholders received common stock valued at $150,000. The annual stock award increased to $160,000 on January 1, 2014. Directors are reimbursed for expenses incurred from board service, including cost of attending board and committee meetings.      

Director Tenure. In 2013, Ms. Milligan, who has held her position as a member of the Board of Directors since 1992, held the longest tenure. Mr. James Quigley holds the shortest tenure, having just joined the board in 2013. Mr. Moore and Mr. Philip Quigley retired at the 2013 stockholder meeting and Mr. Richardson resigned from the board in January 2014. All of the directors except Ms. Runstad and Ms. Engel sit on other boards. Three directors each sit on three additional boards: Ms. Swenson sits on the boards of Harmonic Inc., Novatel Wireless Inc., and Spirent Communications plc; Ms. Milligan sits on the boards of Calvert Funds, Kellogg Company, and Raven Industries Inc.; and Mr. Hernandez Jr. sits on the boards of Chevron Corporation, McDonald’s Corporation, and is the Chairman of the Board for Nordstrom Inc.      

CEO Compensation. John Stumpf, Wells Fargo’s President and Chief Executive Officer since 2007 and Chairman of the Board since 2010, earned total compensation of $19,320,409 in 2013. As an employee director, Mr. Stumpf does not receive separate compensation for his board service. Mr. Stumpf’s 2013 compensation reflects a 15.5% decrease from 2012 due to a $3,588,081 change in pension value and nonqualified deferred compensation earnings in 2012 that were not present in 2013.

David A. Hoyt, Wells Fargo’s Senior Executive Vice President of Wholesale Banking, earned total compensation of $11,086,952 in 2013. Despite a $162,452 base salary increase from 2012, Mr. Hoyt’s total compensation for 2013 represents a 13.7% decrease from 2012. In 2012, Mr. Hoyt received $1,994,728 in option awards that were not present in 2013.

Wells Fargo does not provide privileges to executives for items like financial planning, automobiles, or club memberships except for security or business reasons. Wells Fargo spent $45,792 to install a security system in Mr. Hoyt’s home in 2013, however they do not characterize this as a “personal benefits because they arise from the nature of these executives’ employment.” Mr. Hoyt also received a car and driver for “security or business purpose” during 2013. 

Wednesday
Jun252014

The Director Compensation Project: AT&T

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a).  This includes consideration of “personal and business relationships” between directors and management.  See Exchange Act Release No. 68639 (Jan. 18, 2013).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10C-1.  See 17  C.F.R. §§ 240.10A-3, 240.10C-1. 

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the AT&T (NYSE: T) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total*
($)

Gilbert F. Amelio**

118,200

150,000

0

250,060

518,477

Reuben V. Anderson

145,300

150,000

0

102

409,621

James H. Blanchard

211,300

150,000

0

27,240

443,544

Jaime Chico Pardo

145,100

150,000

0

15,102

310,202

Scott T. Ford

134,000

150,000

0

102

284,102

James P. Kelly

147,100

150,000

0

102

297,202

Jon C. Madonna

172,100

150,000

0

1,102

323,202

Michael B. McCallister***

132,683

150,000

0

12,813

295,496

John B. McCoy

151,600

150,000

0

10,102

311,702

Beth E. Mooney***

39,367

0

0

15,034

54,401

Joyce M. Roché

139,400

150,000

0

8,165

297,565

Matthew K. Rose

138,300

150,000

0

15,102

303,402

Cynthia B. Taylor***

80,517

0

0

60

80,576

Laura D’Andrea Tyson

137,700

150,000

0

102

294,709

* Total Compensation reflects annual changes in pension value, where applicable.

**Dr. Amelio retired from the Board in July 2013.

***Mr. McCallister, Ms. Mooney, and Ms. Taylor joined the Board in February 2013, September 2013, and June 2013, respectively.

Director Compensation. During 2013, the board held nine meetings. Each director attended at least 75% of the total number of board and committee meetings on which he or she served. All directors attended the 2013 Annual Meeting of Shareholders. Non-employee directors receive an annual retainer of $95,000, which remained the same from 2012, as well as $2,000 for each board meeting or corporate strategy session attended in person. The Chairman of each committee receives an additional annual retainer of $15,000, except for the Audit and Human Resources committee Chairmen who receive an additional annual retainer of $25,000. The Lead Director receives an additional annual retainer of $60,000. Under AT&T’s Non-Employee Director Stock and Deferral Plan, directors may elect to defer their fees and all or part of their retainers into a cash deferral account or deferred stock units. Additionally, non-employee directors receive an annual grant of fully earned and vested deferred stock units valued at $150,000. The AT&T Foundation matches directors’ charitable contributions up to $15,000 per year. However, in 2013, the Foundation made a charitable contribution of $250,000 on behalf of Dr. Amelio in connection with his retirement.  

Director Tenure. Dr. Amelio retired from the Board in July 2013. Mr. McCallister, Ms. Mooney, and Ms. Taylor joined the Board in February 2013, September 2013, and June 2013, respectively. A significant portion of the board members are relatively new to AT&T. In fact, five of the thirteen independent directors have been on the board for five or fewer years. Ms. Roché, however, holds the longest tenure having served on the board since 1998.  Several directors serve on the boards of multiple companies. Mr. Ford serves as a member of Westrock Group, LLC and First Federal Bancshares of Arkansas, Inc.  Mr. McCallister serves a board member of Fifth Third Bancorp and Zoetis Inc. Ms. Roché serves as a board member for Dr. Pepper Snapple group, Inc., Macey’s Inc., and Tupperware Brands Corporation. Mr. Rose serves as a member of BNSF Railway Company and Burlington Northern Santa Fe, LLC. Ms. Taylor serves as a board member of Oil States International, Inc. and Tidewater Inc. Ms. Tyson currently serves as a board member for CBRE Group, Inc., Morgan Stanley, and Silver Spring Networks, Inc.

CEO Compensation. Mr. Randall L. Stephenson has served as Chairman and Chief Executive Officer since 2007 and has been with AT&T since 1982. Previously, he served as Chief Financial Officer from 2001 to 2004 and Chief Operating Officer from 2004 to 2007. In 2013, Mr. Stephenson earned a base salary of $1,633,333 and compensation totaling $23,247,167. Mr. Stephenson received perquisites that included $24,000 in financial counseling and estate planning, $27,025 in home security, and $15,528 in club memberships. AT&T also paid Mr. Stephenson’s supplemental life insurance in 2013, amounting to $221,521.

Mr. de la Vega, President and Chief Strategy Officer, was the second highest compensated AT&T executive, receiving compensation totaling $8,804,108 in 2013. Mr. de la Vega received perquisites, including $6,718 for personal use of company aircraft, $15,528 in supplemental health insurance, $14,000 in financial counseling and estate planning, and $5,767 in home security.

Tuesday
Jun242014

The Director Compensation Project: Exxon Mobil Corporation

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management.  See Exchange Act Release No. 68639 (Jan. 18, 2013).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10C-1.  See 17 C.F.R. §§ 240.10A-3, 240.10C-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Exxon Mobil Corporation (NYSE: XOM) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Michael J. Boskin

120,000

219,938

0

380

340,318

Peter Brabeck-Letmathe

110,000

219,938

0

380

330,318

Ursula M. Burns

110,000

219,938

0

380

330,318

Larry R. Faulkner

110,000

219,938

0

380

330,318

Jay S. Fishman

115,879

219,938

0

380

336,197

Henrietta H. Fore

110,000

219,938

0

380

330,318

Kenneth C. Frazier

110,000

219,938

0

380

330,318

William W. George

114,121

219,938

0

380

334,439

Samuel J. Palmisano

120,000

219,938

0

380

340,318

Steven S. Reinemund

110,000

219,938

0

380

330,318

William C. Weldon*

64,973

736,040

0

252

801,265

Edward E. Whitacre, Jr.

110,000

219,938

0

380

330,318

*Mr. Weldon joined the Board of Directors in May 2013, and the amounts provided reflect his pro-rated compensation for 2013.  Mr. Weldon also received a one-time grant of 8,000 restricted shares upon being first elected to the Board in May 2013.  The valuation of this award is based on the market price of $92.05 on the date of the grant. 

Director Compensation. ExxonMobil held 11 board of directors meetings and 31 board committee meetings in fiscal year 2013. Each director attended at least 95% of the board and committee meetings. No director attended less than 75% of the board and committee meetings on which he or she served, except for Mr. Weldon, who joined the board of directors in May 2013, and Mr. George, who was unable to attend the annual meeting of shareholders due to a family commitment. During fiscal year 2013, director compensation for ExxonMobil consisted primarily of two sources: a cash retainer and restricted stock grants. The base cash retainer in 2013 was $110,000, with an additional $10,000 paid to the Chairs of the Audit and Compensation Committees and the Presiding Director. Further, ExxonMobil granted 2,500 shares of restricted stock to each incumbent non-employee director and a one-time grant of 8,000 shares to each new non-employee director upon election to the board. The restricted stock awarded carries equal privileges to that of common units, including the payment of dividends; however, directors are restricted from selling the shares until retirement. Other compensation included the payment of travel accident insurance premiums. 

Director Tenure. Mr. Fishman succeeded Mr. Palmisano in 2013 as the Presiding Director. Mr. Boskin is the longest tenured board member with eighteen years of service. Half of the board members are relatively new to ExxonMobil. In fact, six of the twelve independent directors have been on the board for five or fewer years. Ten of the twelve independent directors also serve as board members of other public companies, including four as chairman. Mr. Reinemund serves on the boards of American Express, Marriott, and Wal-Mart. Mr. Brabeck-Letmathe serves on the boards of Nestlé, Credit Suisse Group, and L’Oréal. Notably, three ExxonMobil directors, Ms. Burns, Mr. Palmisano, and Mr. Reinemund, also serve together on the American Express board. Mr. Weldon, the newest board member serves on the boards of Chubb, CVS Caremark, and JPMorgan Chase.

CEO Compensation. Rex Tillerson serves as Chairman and Chief Executive Officer for ExxonMobil and has maintained that role since 2006. In the 2013 fiscal year, Mr. Tillerson earned $28,138,329 in total compensation, approximately a 30% decrease in compensation from 2012, of which $15,768,829 was realized. Mr. Tillerson’s 2013 base salary was $2,717,000, which increased to $2,867,000 effective January 1, 2014, in accordance with ExxonMobil’s goal of maintaining executive salaries that are competitive with salaries of other U.S. executives. Seventy-five percent of Mr. Tillerson’s compensation was in restricted stock in the amount of $21,254,625. Fifty percent of the restricted units received carry a vesting period of five years, with the remainder vesting at ten years or at retirement, whichever is later. Mr. Tillerson’s total compensation also included certain personal perquisites such as $33,434 of personal aircraft usage, $177,140 of personal security, and $10,261 of financial planning.

Andrew P. Swiger, who serves as Exxon Mobil’s Senior Vice President and became ExxonMobil’s Principal Financial Officer effective January 1, 2013, earned $12,259,221 in total compensation for 2013. Mr. Swiger’s total compensation decreased, including an approximate 14% decrease in his bonus from 2012.

Monday
Jun232014

The Director Compensation Project: The Goldman Sachs Group, Inc. (GS)

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and to director compensation. We are, for the most part, including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management. See Exchange Act Release No. 68639 (Jan. 18, 2013). 

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1. See 17 C.F.R. §§240.10A-3 & .10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Goldman Sachs (NYSE: GS) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

M. Michele Burns

100,000

514,828

0

20,000

634,828

Claes Dahlbäck

0

498,048

0

25,000

523,048

Stephen Friedman*

249,480

523,148

0

0

772,628

William W. George

0

425,146

0

20,000

445,146

James A. Johnson

0

423,030

0

0

423,030

Lakshmi N. Mittal

0

498,048

0

0

498,048

Adebayo O. Ogunlesi

0

125,512

0

0

125,512

James J. Schiro

0

539,928

0

20,000

559,928

Debora L. Spar

75,000

423,030

0

0

498,030

Mark E. Tucker

0

83,055

0

10,000

93,055

David A. Viniar**

68,750

0

0

20,000

88,750

*Compensation amount reflects fees earned through retirement date.

**Prorated for time served as director in 2013. Does not include amounts received for service as a named executive officer.

Director Compensation. During fiscal year 2013, Goldman Sachs held 15 board of directors meetings and 36 board committee meetings. Each director attended at least 75% of the aggregate number of board and committee meetings on which he or she served. Overall attendance at board and committee meetings averaged over 95%. All Goldman Sachs directors are required to own at least 5,000 shares of common stock or vested restricted stock units (RSUs). For 2013, each director who served the entirety of the year received an annual grant of 3,000 vested RSUs, an annual retainer of 452 vested RSUs or $75,000 at the director’s discretion, a committee chair fee of 151 RSUs or $25,000 at the director’s discretion, and the lead director received an additional 151 RSUs. All RSUs held by directors must be held for the entirety of their tenure on the board, and are not delivered until the third quarter of the year following retirement from the board.       

Director Tenure. In 2013, Mr. Johnson, who has held his position as a member of the board of directors since 1999, held the longest tenure. Mr. Viniar, the newest member of the board, joined in January 2013. Several directors also sit on other boards. Ms. Burns sits on the board of Cisco Systems Inc.; Mr. George sits on the board of Exxon Mobil Corporation; Mr. Johnson sits on the boards of Forestar Group Inc. and Target Corporation; Mr. Mittal sits on the boards of ArcelorMittal S.A. and Airbus Group; Mr. Ogunlesi sits on the boards of Callaway Golf Company and Kosmos Energy Ltd.; and Mr. Schiro sits on the boards of PepsiCo, REVA Medical, and Royal Philips Electronics.  

CEO Compensation. Lloyd Blankfein, who continues to serve as Chief Executive Officer and Chairman of the Board, received compensation totaling $19,928,813 during 2013. This represents a 33% increase from 2012, primarily in the form of RSUs. This reflects Goldman Sachs’ focus on long term compensation.  Shares of common stock underlying the RSUs are paid out over three years, 50% of the shares at risk are subject to a five year transfer restriction, and all senior executives must maintain 75% of the after-tax shares they receive as long as they hold a senior executive position. Harvey Schwartz, the CFO, received total compensation amounting to $21,285,173 in 2013.  

Goldman Sachs spends an additional $105,971 on security for Mr. Blankfein. Goldman Sachs did not characterize the security measures as “personal benefits but rather business-related necessities due to the high-profile standing of our NEOs.” Goldman Sachs spent a total of $85,802 to provide cars to Mr. Blankfein and Mr. Schwartz for commuting and personal use. Goldman Sachs provides access to private aircraft to its NEOs for business use but not for personal use, and requires NEOs to pay comparable first class fare for any personal guests they bring along on a business trip. 

Friday
Jun202014

The Director Compensation Project: BANK OF AMERICA

The Director Compensation Project: BANK OF AMERICA

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” See NYSE Rule 303A.02(a).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1.  See 17 C.F.R. §240.10A-3 & 10c-1. 

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Walgreens (NYSE: WAG) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

Sharon L. Allen

110,000

160,000

-

5,000

275,000

Mukesh D. Ambani*

0

0

-

0

0

Susan S. Bies****

80,000

160,000

-

123,031

363,031

Jack O. Bovender, Jr

80,000

160,000

-

0

240,000

Frank P. Bramble, Sr.

100,000

160,000

-

0

260,000

Virgis W. Colbert*

0

125,804

-

0

0

Pierre J. P. de Weck**

62,908

22,500

-

0

188,712

Arnold W. Donald**

103,028

206,020

-

0

309,048

Charles K. Gifford***

100,000

160,000

-

263,811

523,811

Charles O. Holliday, Jr.

167,000

333,000

-

0

500,000

Linda P. Hudson

80,000

160,000

-

0

240,000

Monica C. Lozano

100,000

160,000

-

0

260,000

Thomas J. May

100,000

160,000

-

0

260,000

Lionel L. Nowell, III**

103,028

206,020

-

0

309,048

Donald E. Powell*

0

0

-

0

0

Clayton S. Rose**

62,908

125,804

-

0

188,712

Charles O. Rossotti*

0

0

-

5,000

5,000

Robert W. Scully*

0

0

-

0

0

R. David Yost

80,000

160,000

-

5,000

245,000

*Compensation amount reflects fees earned through retirement date.

**Mr. Doanld and Mr. Nowell were appointed in January 2013 and Mr. de Weck and Mr. Rose were appointed in July 2013, and the amounts provided reflect pro-rated awards for the period of service for 2013. 

***Mr. Gifford receives office space and secretarial support, and is therefore not an independent director.

****Ms. Bies serves as a non-management director of Merrill Lynch International (MLI), a United Kingdom subsidiary of Bank of America.  For her services she received an annual cash retainer of £75,000, which is reported above based on an exchange rate of 0.61 pounds to one U.S. dollar.  She is an independent director.

Director Compensation.  Bank of America Directors are expected to meet at its annual meeting of stockholders and the regular and special meetings of the Board and any Committee meetings on which they serve.  Bank of America held 16 Board meetings and each director attended at least 75% of the aggregate meetings of the Board and the committees on which they served.  The Audit Committee met 15 times, Corporate Governance Committee, 13 times, the Compensation and Benefits Committee, 11 times, the Credit Committee, nine times, and the Enterprise Risk Committee 13 times for a total of 61 committee meeting.

Director Tenure. In 2013, Mr. May and Mr. Gifford held the longest tenure, serving on the Board since 2004. Ms. Lozano and Mr. Bramble have the second longest tenure, serving on the Board since 2006 with Ms. Bies and Mr. Holliday holding the third longest tenure as members of the Board since 2009.  Many directors serve on other Boards as well. Mr. Holliday holds spots on the Boards of CH2M Hill Companies, Ltd., Deere and Company, and Royal Dutch Shell plc. Mr. Yost serves on the Boards of Excelis Inc., Marsh and McLennan Companies, Inc., and Tyco International Ltd. 

CEO Compensation.  Brian T. Moynihan has served as Chief Executive Officer since January 2010. In 2013, Mr. Moynihan earned a base salary of $11,142,643 and compensation totaling $13,139, 357. In addition to his salary, Mr. Moynihan benefitted from use of the company aircraft, which totaled $448,251 and has been included in his total salary. Bruce R. Thompson, Chief Financial Officer, was the second highest paid executive, receiving compensation totaling $11,523,146. Thomas K. Montag, a Co-Chief Operating Officer, earned the third highest salary of $15,066,301.

 

Friday
Jun202014

The Director Compensation Project: Twitter, Inc. (TWTR)

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” See NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management.  See Exchange Act Release No. 68639 (Jan. 18, 2013). 

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1.  See 17 C.F.R. §240.10A-3 & .10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Twitter (NYSE: TWTR) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards ($)

Option Awards
($)

All Other Compensation
($)

Total ($)

Jack Dorsey (1)

_

_

_

_

_

Peter Chernin (2)

_

_

_

_

_

Peter Currie (3)

_

_

_

_

_

Peter Fenton

_

_

_

_

_

David Rosenblatt (4)

_

_

_

_

_

Marjorie Scardino (5)

5,000

175,546

_

_

180,546

Evan Williams

_

_

_

_

_

1. As of December 31, 2013, Mr. Dorsey had an option to purchase a total of 2,000,000 shares of Twitter common stock. 25% of the shares of Twitter common stock subject to this option vested on May 9, 2012, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such date. 1,374,999 of the shares of Twitter common stock subject to this option were vested as of December 31, 2013.

2. As of December 31, 2013, The Chernin Group, LLC, for which Mr. Chernin serves as founder and chairman, had 200,000 RSUs. The shares of Twitter common stock underlying the RSUs vest upon the satisfaction of a service condition and a performance condition. The performance condition was satisfied in February 2014. The service condition was satisfied as to 25% of the shares of Twitter common stock underlying the RSUs on December 1, 2013 Before satisfaction of the performance condition, an additional 1/48th of the total number of shares of Twitter common stock underlying the RSUs vested in monthly installments. After satisfaction of the performance condition, an additional 3/48th of the total number of shares underlying the RSUs vests in quarterly installments, subject to continued service by Mr. Chernin through each vesting date. In July 2013, Mr. Chernin transferred all of his rights, title and interest with respect to the RSUs to The Chernin Group, LLC.

3. As of December 31, 2013, Mr. Currie had one option to purchase a total of 400,000 shares of Twitter common stock. 25% of the shares of Twitter common stock subject to this option vested on November 18, 2011, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such date. 316,666 of the shares of Twitter common stock subject to this option were vested as of December 31, 2013.

4. As of December 31, 2013, Mr. Rosenblatt had one option to purchase a total of 400,000 shares of Twitter common stock. 25% of the shares of Twitter common stock subject to this option vested on December 21, 2011, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such date. 308,333 of the shares of Twitter common stock subject to this option were vested as of December 31, 2013.

5. As of December 31, 2013, Ms. Scardino had 4,018 RSUs. 25% of the shares of Twitter common stock underlying the RSUs vested on March 4, 2014, and the balance vests in three successive equal quarterly installments, subject to continued service through each such vesting date.

Director Compensation. During fiscal year 2013, Twitter held twelve board of directors meetings. Each director attended at least 75% of the aggregate number of meetings of the board of directors and meetings of the board committees on which he or she served. Beginning in 2014, each of Twitter’s non-employee directors will be granted restricted stock units (“RSUs”) having a value of $225,000. The shares of Twitter common stock underlying the RSUs will vest in quarterly installments beginning on the first quarter following the date of grant (on the same day of the month as the date of grant). If the shares have not fully vested on that date then the shares will vest in full on the date of the next annual meeting of stockholders, subject to continued service through each vesting date.

Director Tenure. In 2013, Mr. Williams and Mr. Dorsey, who held their positions as members of the board of directors since 2007, held the longest tenures. In December 2013, Ms. Scardino became the newest member of the board. Several directors also sit on other boards. Mr. Fenton currently serves on the boards of directors of Yelp, Inc. and a number of privately held companies. Ms. Scardino sits on the board of directors of International Airlines Group. Mr. Chernin sits on the boards of directors of American Express Company and Pandora Media, Inc. Mr. Dorsey serves on the boards of directors of The Walt Disney Company and Square, Inc.

CEO Compensation. Mike Gupta, who served as Twitters’ Chief Financial Officer in 2013, earned $24,639,667. Mr. Gupta received $241,667 as base salary and $24,389,000 in stock awards. Vijaya Gadde, served as Twitters’ General Counsel and Secretary in 2013, earning $15,131,983. Mr. Gadde received $219,583 as base salary, $7,500 in bonuses, and $14,904,900 in stock awards. Richard Costolo, who served as Twitters’ Chief Executive Officer in 2013, earned $130,250. Mr. Costolo received no stock awards or other compensation. Mr. Costolo’s annual salary was reduced to $14,000 effective August 2013. 

Wednesday
Jun182014

The Director Compensation Project: General Electric Company (GE)

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are, for the most part, including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management. See Exchange Act Release No. 68639 (Jan. 18, 2013).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 also imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10c-1. See 17 C.F.R. §§240.10A-3 & .10c-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the General Electric (NYSE: GE) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

W. Geoffrey Beattie

0

287,945

0

47,042

334,987

John J. Brennan

0

262,921

0

100,000

362,921

James I. Cash, Jr

115,000

168,859

0

79,087

362,946

Francisco D’Souza*

0

219,364

0

61,839

281,203

Marijn E. Dekkers

105,000

161,450

0

35,452

301,902

Ann M. Fudge

100,000

150,140

0

27,350

277,490

Susan J. Hockfield

100,000

150,140

0

10,883

261,023

Andrea Jung

110,000

165,154

0

50,000

325,154

Alan G. Lafley**

62,500

55,531

0

1,002,200

1,120,231

Robert W. Lane

120,000

180,168

0

0

300,168

Ralph S Larsen

0

275,257

0

50,172

325,429

Rochelle B. Lazarus

0

250,234

0

50,324

300,558

James J. Mulva

0

275,257

0

50,000

325,257

Sam Nunn**

0

101,806

0

1,001,888

1,103,694

Roger Penske**

0

92,551

0

1,005,190

1,097,741

James E. Rohr*

0

38,675

0

0

38,675

Mary L. Schapiro*

40,000

102,222

0

17,876

160,098

Robert J. Swieringa

55,000

214,629

0

49,606

319,235

James S. Tisch

0

262,921

0

0

292,921

Douglas A Warner III

120,000

180,168

0

55,857

356,025

*Compensation amount reflects fees earned for partial year board service for new directors.

**Compensation amount reflects fees earned until retirement. 

Director Compensation. During fiscal year 2013, General Electric (GE) held 14 board of directors meetings and 38 board committee meetings. Each director attended at least 75% of the aggregate number of board and committee meetings on which he or she served. In 2013, each non-employee director received $250,000 in annual compensation that was paid in four installments for each quarter of service–$100,000 in cash and $150,000 in deferred stock units (DSUs). GE provides several other benefits for its directors one example of which is incidental board meeting expenses for guest travel and activities in connection with board meetings. Directors may also receive up to $30,000 worth of GE products and appliances in a three-year period.

Upon leaving the board, directors may choose up to five charities to share a $1 million contribution to be made by GE. During 2013, retiring directors Lafley, Nunn, and Penske made such designations under the Charitable Award Program.   

Director Tenure. In 2013, Mr. Warner III, who has held his position as a member of the Board of Directors since 1992, held the longest tenure. Mr. D’Souza, Mr. Rohr, and Ms. Schapiro joined the board in 2013 while Mr. Lafley, Mr. Penske, and Mr. Nunn retired from the board the same year.  Several of GE’s directors also hold board positions on other companies including James I. Cash, Jr. (Wal-Mart), Susan Hockfield (Qualcomm), Robert W. Lane (Verizon), and James J. Mulva (General Motors).       

CEO Compensation. Jeffrey Immelt, General Electric’s current Chief Executive Officer and Chairman, earned $19,776,716 during 2013. This represents a 23% decrease from 2012. Mr. Immelt’s compensation included $423,783 in other benefits, including $343,121 for personal use of company aircraft.   

Daniel C. Heintzelman was the second highest paid executive in 2013, earning $13,256,497. In Oct. 2013, he became the Vice Chairman with responsibility for services and operations. Previously, he was the president and CEO of GE Oil & Gas. Mr. Heintzelman’s compensation included $318,116 in other benefits, including $306,897 of “other benefits.” Other benefits encompassed payments arising from Mr. Heintzelman’s relocation to Florence Italy, including and “any additional U.S. or foreign taxes” that were incurred “as a direct result of their international assignments.”

 

 

Tuesday
Jun172014

The Director Compensation Project: Starbucks

This post is part of an ongoing series that examines director independence under the rules of the stock exchange and director compensation. We are for the most part including companies from 2014’s Fortune 500 and using information found in their 2014 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). This includes consideration of “personal and business relationships” between directors and management.  See Exchange Act Release No. 68639 (Jan. 18, 2013).

In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 and requires consideration of certain specified factors for directors serving on the compensation committee under Rule 10C-1.  See 17 C.F.R. §§ 240.10A-3, 240.10C-1.

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Starbucks (NYSE: SBUX) 2014 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

William W. Bradley

120,000

59,986

58,349

0

238,335

Robert M. Gates

0

239,996

0

0

239,996

Mellody Hobson

0

239,996

0

0

239,996

Kevin R. Johnson

48,000

191,996

0

0

239,996

Olden Lee

0

239,996

0

0

239,996

Joshua Cooper Ramo

0

239,996

0

0

239,996

James G. Shennan, Jr.

0

239,996

0

0

239,996

Clara Shih

0

239,996

0

0

239,996

Javier G. Teruel

0

239,996

0

0

239,996

Myron E. Ullman, III

0

0

233,446

0

233,446

Craig E. Weatherup

0

0

233,446

0

233,446

Director Compensation.  During fiscal year 2013, Starbucks held nine board of directors meetings, nine independent director-only sessions, and 23 board committee meetings. Each director attended at least 75% of the aggregate number of meetings of the board of directors and meetings of the board committees on which he or she served. For fiscal year 2013, the annual compensation program for non-employee directors provided for a total of $240,000 per year, comprised of one or more of the following as selected by the director: cash (up to 50%); stock options; and, time-based restricted stock units.

Director Tenure. In 2013, Mr. Schultz, who has held his position as chairman of the board of directors since 1985, had the longest tenure. Mr. Shennan has been a member of the board since March 1990 and is the longest tenured independent director. Mr. Weatherup has held his position since February 1999. Mr. Gates has been a board member since May 2012 and has the shortest tenure. Several directors also sit on other boards. Mr. Weatherup serves on the board of Macy’s, Inc. Mr. Ramo sits on the board of FedEx Corporation. Mr. Teurel currently serves on the boards of J.C. Penney Company, Inc. and the Nielsen Company B.V. Ms. Shih is the Chief Executive Officer and a board member of Hearsay Social, Inc. Ms. Hobson sits on the board of directors for the Chicago Public Education Fund, Estee Lauder Companies, Inc., and Groupon, Inc. Ms. Hobson serves as Chairman of DreamWorks Animation SKG, Inc and After School Matters and sits on the boards of The Estee Lauder Companies, Inc. and Groupon, Inc.  

CEO Compensation. The majority of Starbucks’ executive compensation is awarded based on primary, secondary, and tertiary performance goals, related to achieving operating income, earnings per share, and return on invested capital objectives, respectively. For the fiscal year 2013, Howard Schultz served as Starbucks Chairman, President and Chief Executive Officer and Cliff Burrows served as President, Americas and U.S.  In 2013, Mr. Schultz and Mr. Burrows exceeded their primary, secondary, and tertiary goals and received 100% and 182% of their target bonus payouts respectively.

Mr. Shultz received total 2013 compensation of $16,750,000 with a base salary of $1,500,000. Mr. Burrows received compensation of $5,377,903 with a base salary of $737,300. Additionally, Starbucks paid for Mr. Shultz’s home and personal security services, though Mr. Schultz reimbursed the company for amounts in excess of $200,000.

Mr. Schulz is permitted limited personal use of corporate-owned aircraft, but is required to reimburse the company for incremental costs associated with his personal use. Mr. Schultz paid Starbucks $332,318 for his estimated personal use for the first month of fiscal 2014. Family members and guests may also accompany Mr. Schulz when he uses corporate aircraft. These flights are treated as imputed income to Mr. Schulz for which he does not receive a tax gross-up. Starbucks pays for its executives’ life and disability insurance premiums as well as annual physical examinations.

Tuesday
Jun172014

2014 Director Compensation Posts

Every spring new contributors to the blog get the privilege of compiling data to write director compensation posts. This spring was no different.

What is different this year is the attention that is placed on executive compensation. As the U.S. continues to recover from the recession, and shareholders continue to keep a watchful eye on corporate expenditures, executive compensation has become an important issue.

Notably we are entering the 4th year of the Say-on-Pay era and possibly the 1st for Executive Compensation Ratios.

With that said, it is our hope that our dissemination of this information will help investors best use it. And hopefully, that use can give some bite to the Federal regulation that is only needed because state law has failed in this area. 

The companies that we will be covering this year are: Bank of America; Citigroup Inc.; JPMorgan Chase & Co.; General Electric; The Goldman Sachs Group, Inc.; Wells Fargo & Company; Exxon Mobil Corporation; AT&T; Starbucks; Hewlett Packard Company; Twitter Inc.; and Wal-Mart Stores Inc. 

Friday
May302014

The Limits of Disclosure and the Personal Use of the Corporate Aircraft

Disclosure can affect substantive behavior.  Indeed, sometimes the SEC adopts disclosure requirement with this in mind.  See Essay: Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure.  Companies may prefer to avoid the behavior rather than risk the consequences of disclosure including criticism and/or embarrassment. 

With the proxy rules requiring the identification of directors who do not attend 75% of the meetings, see Item 407 of Regulation S-K, one suspects that boards (and directors) go to great lengths to avoid falling below this threshold. Bad attendance disclosure can suggest that directors are not directing and in some cases result in a campaign to deprive the directors of majority support.  Better to attend than risk this result. 

Similarly, boards do not have to have a financial expert on the audit committee but they must provide an explanation if they don't.  See Securities Act Release No. 8177 (Jan. 23, 2003).  Rather than disclose the view that such expertise is unnecessary, something that may garner intense negative publicity, boards typically include a financial expert. 

There are, however, limits to this approach.  Even "embarrassing" disclosure will be permitted when management benefits enough from it to withstand the resulting consequences.  This can be seen with respect to compensation disclosure.  When the SEC amended the requirements in 2006, the threshold for disclosing perqs was reduced from $25,000 to $10,000.  Moreover, the Commission clarified that certain benefits had to be included in the calculation, even if "required" by the board.

The reduced threshold and the policy clarification exposed a number of compensation practices.  Payment of country club dues was common.  So was personal use of the aircraft.  Disclosure of country club dues apparently generated sufficient public attention that their use declined as a perq.  The costs, therefore, outweighed the benefits to management.  

The same was not, however, true of the personal use of the aircraft. The perk apparantly declined in the immediate aftermath of the new disclosure requirements.  See It’s about time: US execs are ditching fancy perks like personal jets for less showy extras, April 4, 2014 ("Towers Watson, for example, found just 36 percent of Fortune 500 CEOs got company aircraft for personal use in 2012, down from 53 percent in 2007."). 

The lull, however, was, apparently, temporary.  According to the WSJ, the perk has increased in use and "in some cases can rival salaries in value."  The article noted that 142 companies in the study provided the perq, up from 122 in 2012. The WSJ article itself showed that the perq is subject to public criticism and media attention.  So why is it increasing in use?  Why isn't disclosure having the opposite effect?

First, its a very nice perq. Second, the SEC requires disclosure as "other income" the incremental cost to the company.  See Item 402 of Regulation S-K ("Perquisites and other personal benefits shall be valued on the basis of the aggregate incremental cost to the registrant"). 

The IRS, however, uses a different formula for determining the amount of imputed income to the officer or employee.  The formula depends on a number of variables including the distance flown and the type of aircraft used.  For the most part, the amount of income for IRS standards looks to be substantially lowerthan the incremental cost to the company. As a result, managers get a very expensive perq but pay something approach the cost of a plane ticket for the benefit. 

In these circumstances, therefore, the benefits to management of the perq are greater than any embarrassment or public pillorying that will result.   

Tuesday
Apr222014

The Evolution of Executive Compensation and the Impact of Say on Pay

The NYT published a pair of pieces on executive compensation. One looked at the amount (a 9% increase in the median) and the other looked at the metrics used to determine the amount. Other articles have suggested that companies use a wide variety of metrics that rely on "unconventional earnings measures." 

The analysis of the amounts was nothing new. Compensation routinely climbs in good and bad years (although 2008 was an exception). With a 26.5% increase in stock prices last year, it was a surprise only that compensation grew by a more modest 9% (of course average wage increases for other workers was around 3%).

What is new, is that the analysis takes place in a "say on pay" era when compensation is given a more public examination. Shareholders have generally pushed for compensation to be determined on the basis of clear standards based primarily on performance. The new era, therefore, provides an opportunity to assess whether "say on pay" has wrought any significant changes to compensation.    

The articles demonstrate a few things that were predictable but are now apparent. Experience in other countries indicated that "say on pay" would not put downward pressure on the amount of compensation, but instead would affect the method of calculation. That has occurred. It is clear that for the most part companies base compensation on performance metrics, with total shareholder return and earnings per share commonly employed. The emphasis on performance has not, as the 9% median increase illustrates, put downward pressure on total amount.

One effect, however, may have been the compression of total compensation. The NYT articles indicated that the most highly paid CEO in 2013 was at Oracle. Oracle used a non-GAAP method to assess performance and has been subjected to a negative say on pay vote two years running. Thus, while it is at the top of the list, the compensation package is viewed with considerable disfavor by shareholders.  

The second highest (and this is only for CEOs in companies that had filed proxy statements in time for the study) was Bob Iger at Disney, with a total compensation at $34.3 million. Here is where it gets interesting. If you go back to 2007, during the pre-say on pay era, the highest paid CEO made more than the Oracle CEO. Moreover, the top 10 highest paid CEOs included eight individuals who received total compensation of more than $40 million. For a list, go here.  

So say on pay may, therefore, be reducing the number of outliers and compressing compensation. Most likely the amounts are more consistent with a company's peer group. In any event, it seems clear that boards are less likely to have their CEO compensation stick out in a way that makes it an example of corporate excess. Problems with compensation remain and the median amounts are climbing, but a significant reduction in the number of extreme outliers is nonetheless a beneficial change wrought by say on pay.   

Tuesday
Jan142014

Amending Dodd-Frank: Opposition to the Proposed Pay Ratio Rule

On September 18, 2013, the SEC proposed an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act in a 3-2 vote. The amendment, called the “Pay Ratio Rule,” would require public companies to disclose the ratio of CEO compensation to that of the median compensation of employees. Since the proposal’s publication in the Federal Register, the SEC has received more than 20,000 public comment letters, many of which express adamant opposition to the ratio disclosures.

Proposal opponents argue that the benefits are outweighed by the burdens of the pay ratio disclosure. Critics are primarily concerned with the costs and complexities involved in calculating the median pay of a company’s workers (see CEO Pay Ratio Disclosure: Drilling Down on the Proposed Rule). According to Bloomberg, the proposal requires that the pay of all employees, including those overseas, be included in calculating median compensation. Business groups stress that the differences in “pay practices” in various countries across the world would be difficult to reconcile with disclosure practices in the United States. The usefulness of the proposed rule has also been challenged because director compensation is already a federally required disclosure, although the ratio is not.

During the comment period, the SEC received two significant letters opposing the rule from the National Investor Relations Institute (“NIRI”) and FEI Company (“FEI”). NIRI facilitates communications among all who are involved in the investment process (opposition letter available here). NIRI has over 3,300 members that represent over 1,600 public companies and “$9 trillion in stock market capitalization.” FEI is an international organization based in Oregon that operates within 50 countries. The company has 2,600 employees, 70% of which are based abroad (opposition letter available here). NIRI and FEI both emphasize that the Pay Ratio Rule is misleading, inconsistent, time consuming, and costly. FEI, which operates internationally, and NIRI, which advises all involved in the investment process, will both be affected should the proposed rule be implemented.

In opposing the rule, NIRI expressed concern over the misleading nature of such pay disclosures. Specifically, differing business structures, such as whether a company engages in contract labor or employment, could cause what would otherwise be a low pay ratio to be significantly higher, thereby having the potential to mislead investors. NIRI argued that, in turn, this would lead to uninformed investment decisions because investors may rely on the pay ratio calculation in lieu of considering other factors, such as the company’s past financial performance, compensation disclosures, and “business structure differences.” Moreover, the Department of Labor’s Bureau of Labor Statistics already publishes the average compensation of U.S. employees, which makes the cost of calculating median employee compensation unnecessary.

NIRI also highlighted the inherent inconsistencies that would result because public companies have discretion on how to calculate median employee compensation. Some companies are likely to incur significant expenses in ensuring the adequacy of the proposed required filings, while other companies will cut corners to avoid excess costs. The cost of compliance with the proposed rule is further heightened because it refers to “all employees,” including those overseas, instead of simply U.S.-based employees.

FEI based its argument against the proposal on the “complexity of arriving at the median wage globally” considering “currency fluctuations” and pay scale differences among countries. Furthermore, the cost of living varies among the countries in which FEI operates. This poses an additional problem with the rule because competitive pay within the United States is unlikely to be consistent with competitive pay abroad. Employees based abroad also receive different benefits that are not shared by the CEO, “including leased cars, more generous paid time off regimes, enhanced medical benefits as well as defined benefit pension plans.” FEI maintained that the differences among job markets in different countries are so inconsistent that the proposed pay ratio rule will skew compensation numbers by not taking into account external factors within each country individually. Both NIRI and FEI recommended that the rule include only employees based within the United States.

FEI claims that, as drafted, compliance with the rule would require large amounts of time and money. Specifically, FEI estimates expending more than 1,000 hours of time to determine a calculation method, plus 500 hours annually “to support an ongoing effort.” Not only would compliance with the proposal be incredibly time consuming, but it would also be extremely costly. FEI anticipated its initial cost of compliance for the first year to be approximately $250,000, and $100,000 annually after the method for determining the median employee is established.

In sum, the proposed pay ratio rule has received significant opposition from large corporations and proposal opponents, such as NIRI and FEI. These opponents contend that the rule would not provide any significant benefit to shareholders because implementation of the rule would be misleading, inconsistent, time-consuming, and extremely costly.

Monday
Jan132014

Amending Dodd-Frank: Comment Letters in Favor of the Proposed Pay Ratio Rule

The Securities and Exchange Commission (“SEC”) proposed a new rule in September designed to implement the requirements of Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  Under the proposed rule, public companies must disclose median employee compensation and the ratio of the median employee’s compensation to the compensation of the company’s chief executive officer (“CEO”). The SEC received over 79,000 letters favoring the proposed rule during the 60-day public comment period. The Press Release is here: SEC Proposes Rules for Pay Ratio Disclosure.

Companies may calculate the median employee’s total compensation using any of the procedures described in Item 402(c) of Regulation S-K, the same method required by Section 953(b) of the Dodd-Frank Act, to calculate CEO compensation.

Many commentators agree with the SEC’s choice not to require the use of any particular method for determining the median of the annual total compensation of all employees of the company. The proposed rule allows a company to choose to analyze its full employee population, a group of employees chosen using statistical sampling, or other reasonable methods to calculate the median employee’s compensation.

Supporters also approve of the flexibility allowed in determining the total compensation of the pool of employees. Companies may calculate the median employee’s total compensation using the same procedures required to determine executive compensation in Item 402(c) of Regulation S-K or another reliable compensation measure, such as payroll or tax records.

The International Brotherhood of Teamsters (“Teamsters Union”) submitted a letter strongly supporting the SEC’s proposed rule (letter available here). In its letter, the Teamsters Union focused on how “[l]arge disparities in compensation within a company can harm productivity and employee morale which may negatively affect the company’s overall performance.” The Teamsters Union believes that pay disclosure will offer investors better insight into a company’s pay practices, and allow monitoring of changes in compensation over time as a metric for comparison of companies to their peers. Finally, the Teamsters Union expressed its belief that the SEC had properly balanced the costs of compliance with the new rule with the benefits of disclosure to investors.

The Laborers’ International Union of North America (“LIUNA”) also supports the proposed pay ratio disclosure rule (letter available here). LIUNA has more than 500,000 members that hold more than $34 billion in assets in the capital markets via LIUNA’s Individual Benefit Funds. LIUNA’s letter focuses on a “correlation between high CEO pay and poor company performance,” emphasizing that high CEO pay does not ensure a company’s financial success, and quoting statistics that one of every five of “the highest paid executives ran firms that received taxpayer money or collapsed during the financial crisis.” LIUNA also noted how valuable the pay ratio information is for LIUNA’s members when LIUNA votes on behalf of its members’ interests in LIUNA’s investments. Finally, LIUNA argued that the flexible methods allowed to calculate the median employee compensation use statistics that companies have already calculated, and therefore will not be overly costly.

The full text of the proposed pay ratio rule is available here.

Thursday
Nov282013

New Ways to Find Gold? Golden Leash Arrangements Under Challenge

ISS Proxy Advisory Services recently recommended that shareholders of, Provident Financial Holdings, Inc., withhold their votes from the three director candidates standing for reelection to the company’s board because the board adopted a bylaw designed to discourage “golden leashes.”  Golden leashes are special compensation schemes offered to dissident director nominees by activist investors.   The precise terms of the arrangements vary but in general they provide that, if elected, the dissident directors will receive large bonuses if the company achieves certain goals within an allotted time frame.

The potential problems such schemes pose to the integrity of the boardroom and board decision-making processes are immediately obvious.  As pointed out by Wachtell Lipton in a client alert golden leashes:

"undermin[e] Board prerogatives to set director pay and select the timeframe over which corporate goals are to be achieved;

creat[e] a multi-tiered, dysfunctional Board in which a subset of directors are compensated and motivated significantly differently from other directors;

creat[e] economic incentives to take the corporation in the specified direction, and within the timeframe, that would trigger outsized compensation, whether or not doing so would be in the best interests of all shareholders, would engender inappropriate and excessive risk, or would sacrifice long-term value for short-term gain;

open[] a schism between the personal interests of directors who stand to benefit in the short-term from the special compensation scheme and the interests of shareholders with a longer-term investment horizon;

creat[e] poisonous conflicts in the boardroom by creating a subclass of directors who have a significant monetary incentive to sell the corporation or manage it to attain the highest possible stock price in the short-run; and

introduc[e] unnecessary and problematic complexity and conflicts in strategic reviews and calling into question those directors’ ability to satisfy their fiduciary duties."

On the other side, activist investors argue that such arrangements benefit all shareholders because they incentivize directors to focus on share gains and to ignore activist positions that might harm share value.  Further, they suggest that golden leashes will attract better candidates to run for board seats, enhancing the quality of representation for all shareholders.  Jolene Dugan of ISS argues that bylaws banning golden leashes  are “concerning because [they] could deter legitimate efforts to seek board representation via a proxy contest, particularly those efforts that include independent board candidates selected for their strong, relevant industry  experience and who are generally recruited, but not directly employed by, the dissident shareholder.”

Many issues are fueling the fight over the bylaw in question in the Provident case.  First, it is a direct example of the growing tensions between companies and activists investors.  Second, the bylaw goes further than simply requiring disclosure of third party compensation to directors by banning such compensation outright.  In addition it bans all outside compensation to directors or nominees which would prohibit activist investors from compensating individuals for standing for office –a not uncommon practice.  Third, while Provident is a small company, several large multinational companies including HalliburtonMarathon OilEastman Chemical and Wynn Resorts have adopted a version of the bylaw.

Finally as with so many issues in corporate law the opposing sides are arguing about the process by which the bylaw was adopted—fighting over process as much, if not more than, as content.  The Provident board adopted the bylaw without taking to a shareholder vote and without a “compelling explanation from the board” according to ISS. 

Regardless of the result of the Provident vote, it is likely that some reasonable compromise will emerge to address the issue of third party compensation of dissident directors.  The precise parameters of that compromise remain to be seen but perhaps a scheme could be devised under which directors could be compensated by third parties for running for office but not thereafter and shareholders would ultimately be given the right to vote on any such arrangement.

Regardless of the vote of the Provident shareholders, the golden leash provision shows the never-ending ingenuity exercised by those in the corporate sphere.  For better or worse these types of issues are bound to keep arising. 

Tuesday
Sep032013

DealBlog, Compensation Ratios, and a One Sided Exposition

The DealBlog, in a post written by Steve Davidoff, an academic colleague, recently took on the provision in Dodd-Frank (Section 953(b)) that requires companies to disclose the ratio of compensation between the CEO and the median employee.  The debate over pay ratios is a heated one and there are good arguments on both sides.  The DealBlog post does not, however, do justice to the issues arising out of the debate.    

What are the concerns?  The post first explores the costs of disclosure.  "We are decades past the time when manager compensation was simply what you received in a paycheck. Now, compensation includes options, pensions, 401(k) matches, health benefits, parking allowances and other various prerequisites. Calculating this all as one figure — and in particular valuing average stock options for employees as well as top executives — can be difficult."

Moreover, disclosure must be based upon "all employees."  As a result, multinationasl have "the task of not only figuring out the total compensation provided to every employee, but it also has to collect and analyze this information, much of which is in different currencies."   He further asserts that there "is the issue of when to calculate it. The number will fluctuate from day to day."

These assertions make it sound as if it is a given that computation of the ratio will be expensive.  The approach does not acknowledge that in fact there is considerable debate over whether this is true. Moreover, some of the issues raised in the post will be eliminated through the rulemaking process. Thus, the contention that the number will fluctuate from day to day is true but the final rule will no doubt limit the calculation to specific dates (say December 31), rendering the "fluctuation" unimportant. 

But the post goes on to assume the computation will be expensive and states that "disclosure would be bearable if there was evidence it would do anything."  In other words, there is no evidence of any benefit (although the next sentence suggests otherwise, noting that "the evidence is mixed that the expense is worth it.").  The absence of benefit?  A lack of clarity on "how the new disclosure required by Dodd-Frank would change established trends" in compensation.  

The assertion seems to limit the idea of materiality to disclosure that can have an impact on current trends in executive compensation.  That is not a traditional definition of materiality.  Moreover, the assertion ignores another significant change that occurred in Dodd-Frank: The requirement of "say on pay."  Shareholders are now entitled to an advisory vote on executive compensation.  The advisory vote cannot bind the hands of the board but does have the power to influence the approach to compensation.  Any discussion of the role of compensation ratios cannot be complete without discussing the usefulness of the information to shareholders voting on compensation packages.    

The post also includes some shibboleths that have occasionally surfaced but in fact are not a significant part of the debate.  For example, the post in one sentence indicates that disclosure of pay ratios may even be "misleading."  As the post notes:  "If global employees are included, the ratio will be exaggerated by relatively low-paid employees in less-developed countries."  

Yet the same is true for companies with a significant number of employees in low income states or high income countries.  It would also apply to companies that employ a varying degree of part time employees.  In other words, it is nothing more than an observation that all companies will have a unique mix of employees that will affect the ratio.  How this makes the ratio "misleading" was not explained.  

But even absent this explanation, the contention is easily remedied.  Any company concerned about a ratio that does not tell an accurate story (and this is likely to be common) need only provide additional disclosure that explains the situation.    

The post ultimately calls for repeal and references the Burdensome Data Collection Relief Act.  The post ignores the fact that the Commission has considerable flexibility in devising an appropriate rule. See Dodd-Frank, Compensation Ratios, and the Expanding Role of Shareholders in the Governance Process.  Moreover, should a legislative solution be appropriate, the post assumes repeal is the only appropriate solution and ignores the alternative that Congress could simply fix some of the issues raised in the debate over the provision.

The SEC is apparently moving forward with rulemaking in this area.  Most if not all parties involved would like to see a rule that provides shareholders with useful information while minimizing the costs of any computation.  It is time to move away from criticism of the language in Section 953 to the crafting of a rule that will meet these standards.    

Wednesday
Aug212013

The Director Compensation Project: Starbucks Corporation

This post is part of an ongoing series that examines the way stock exchange independence rules relate to director compensation. We are for the most part including companies from 2013’s Fortune 500 and using information found in their 2013 proxy statements.

NASDAQ and the NYSE have similar rules with respect to director independence. NYSE Rule 303A.01 requires that each listed company’s board of directors be comprised of a majority of independent directors. A director does not qualify as “independent” if he or she has a “material relationship with the company.” NYSE Rule 303A.02(a). In addition, the director is not considered independent under NYSE Rule 303A.02(b)(ii) if the director received more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. NYSE Rule 303A.06 imposes a higher independence standard for directors serving on the company’s audit committee by requiring them to comport with Rule 10A-3 (C.F.R. §240.10A-3).

Independent directors are compensated for their service on the board. The amount of compensation can be seen from examining the director compensation table from the Starbucks (NYSE: SBUX) 2013 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name

Fees Earned or Paid in Cash
($)

Stock Awards
($)

Option Awards
($)

All Other Compensation
($)

Total
($)

William W. Bradley

81,600

0

167,710

0

249,310

Robert M. Gates*

0

100,847

0

0

100,847

Mellody Hobson

0

239,976

0

0

239,976

Kevin R. Johnson

0

239,976

0

0

239,976

Olden Lee

0

0

254,130

0

254,130

Joshua Cooper Ramo

0

239,976

0

0

239,976

Sheryl Sandberg**

0

239,976

0

0

239,976

James G. Shennan, Jr.

0

239,976

0

0

239,976

Clara Shih***

0

144,352

50,160

0

194,512

Javier G. Teruel

0

239,976

0

0

239,976

Myron E. Ullman, III

0

0

254,130

0

254,130

Craig E. Weatherup

0

0

254,130

0

254,130

* Mr. Gates joined the board in May 2012.

** Ms. Sandberg resigned from the board in March 2012, effective at the conclusion of the 2012 annual meeting of shareholders. Her November 14, 2011, Restricted Stock Unit grant was forfeited at that time.

*** Ms. Shih joined the board in December 2011.

Director Compensation.  During fiscal year 2012, Starbucks held nine board of directors meetings, nine independent director-only sessions, and 21 board committee meetings. Each director attended at least 75% of the aggregate number of meetings of the board of directors and meetings of the board committees on which he or she served. The exception was Mr. Gates, who joined the board in May 2012 and was unable to attend three of the eight meetings that were held between that time and the fiscal year end because of pre-existing commitments. For fiscal year 2012, the annual compensation program for non-employee directors provided for a total of $240,000 per year comprised of one or more of the following as selected by the director: cash (up to 50%); stock options; and time-based restricted stock units. New non-employee directors received a pro-rated portion of the annual non-employee director compensation based on the number of days remaining in the fiscal year from the date the director joined the board.

Director Tenure.  In 2012, Mr. Schultz, who has held his position as chairman of the board of directors since 1985, had the longest tenure. Mr. Shennan has been a member of the board since March 1990 and is the longest tenured independent director. Mr. Weatherup has held his position since February 1999. Mr. Gates has been a board member since May 2012 and has the shortest tenure. Ms. Shih and Mr. Ramo joined the board in December 2011 and May 2011, respectively. Several directors also sit on other boards. Mr. Weatherup serves on the board of directors of Macy’s, Inc. Mr. Lee serves on the board of TLC Vision Corporation. Mr. Ramo sits on the board of FedEx Corporation. Mr. Teurel currently serves on the boards of J.C. Penney Company, Inc. and the Nielsen Company B.V. Ms. Hobson sits on the boards of The Estee Lauder Companies, Inc., Groupon, Inc., and DreamWorks Animation SKG, Inc. where she was named chairman in 2012. She also serves on the board of governors of the Investment Company Institute.

CEO Compensation.  The majority of Starbucks’ executive compensation is awarded based on primary, secondary, and tertiary performance goals, related to achieving operating income, earnings per share, and return on invested capital objectives, respectively. For the fiscal year 2012, Howard Schultz served as Starbucks Chairman, President and Chief Executive Officer and Cliff Burrows served as President, Americas and U.S. In 2012 Mr. Schultz and Mr. Burrows exceeded their primary, secondary, and tertiary goals and received 103% and 109% of their target bonus payouts respectively. Mr. Shultz received total 2012 compensation of $15,808,500 with a base salary of $1,500,000. Mr. Burrows received compensation of $3,135,976 with a base salary of $719,300.  Additionally, Starbucks paid for Mr. Shultz’ home and personal security services, though Mr. Schulz reimbursed the company for amounts in excess of $200,000. Mr. Schulz is permitted limited personal use of corporate-owned aircraft but is required to reimburse the company for incremental costs associated with his personal use. In 2012, this reimbursement totaled $420,095. Family members and guests may also accompany Mr. Schulz when he uses corporate aircraft. These flights are treated as imputed income to Mr. Schulz for which he does not receive a tax gross-up. Starbucks pays for its executives’ life and disability insurance premiums as well as annual physical examinations.