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Monday
Jul162012

Corporate Governance and the Problem of Executive Compensation: The International Response to the Compensation Problem (Lessons for the United States)

The plans proposed by the British government must be approved by Parliament. They have already met with criticism both by opposition politicians for not going far enough and business interests who think the proposals go too far.

Yet they represent a compromise that stopped short of the recommendations of the High Pay Commission. The government did not propose an expansion of the "closed" system to include employees. Nor did the government propose to give shareholders a binding vote on compensation. Instead, shareholders only got the right to a binding vote on compensation policies.

The authority will make the compensation process more complicated and limit the board's ability to quickly and materially change the formula for determining compensation. But assuming the policies approved by shareholders are broad, boards will still have considerable discretion in determining compensation. The reforms, therefore, will probably not have a substantial impact on the amount paid to executives.

Nonetheless, the reforms will temporarily take pressure off the government. The British government can assert that the reforms should be given some time to work. To the extent, however, the reforms do not temper the escalating nature of executive compensation, public pressure for additional and more intrusive reforms will continue to build.

What does this suggest about the United States? A memorandum put out by Wachtel Lipton noted the proposals and had this to say: "We find these proposals troubling, and discourage them traveling across the Atlantic and becoming seriously considered in the United States. . . ."

The experience in the UK could be a harbinger of things to come in the United States. Say on pay in the US looks like it will cause the board to more closely align compensation with performance, the same thing that happened in the UK. But, as the UK example shows, this alignment does not automatically reduce the escalation of compensation. For that to occur, as we have noted, the fiduciary obligations of the board need to change and the standard for reviewing compensation decisions made more exacting. See Returning Fairness to Executive Compensation.

To the extent these reforms do not slow the escalation of compensation, continued pressure will build, as it did in the UK, for further reforms. As in Britain, it will only occur after additional abuses and further public pressure on politicians. Moreover, by then, the reforms in Britain will have been in place for a period of time, providing empirical information for the reforms that could be adopted in the United States.

Saturday
Jul142012

Should we use a Venn diagram when teaching materiality?

My first couple of years in legal academia I focused my scholarship on the issue of materiality in securities regulation (see here and here).  More recently, however, I’ve been focusing on corporate theory (see, e.g., here).  Thus, I felt like I might have missed something when I recently noticed that the Supreme Court cited only the “total mix” definition of materiality in its Matrixx decision.

For the uninitiated, materiality is a central concept in securities regulation because it frequently determines whether a disclosure needs to be made, or constitutes a basis for liability.  In TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 499 (1976), a case involving proxy voting, the Supreme Court defined materiality as follows:

An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote…. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.

I have always thought that these alternative formulations were intended to essentially overlap.  That is to say, I don't think the Court intended to create a Venn diagram with meaningful buckets of facts capable of satisfying only one, but not the other, of the two formulations.  Having said that, I have also been under the impression that courts have at least occasionally acted like the choice of definition mattered a great deal.  In addition, the “total mix” definition appears to have moved from being secondary to being primary--with a corresponding overall increase in dismissals based on immateriality.  (All of these impressions, of course, are subject to empirical verification.)

So what am I to make of the fact that the Supreme Court cited only the “total mix” definition of materiality in Matrixx?  My sense is that the answer is, “not too much.”  Most likely, focusing on the “total mix” definition was simply consistent with the Court re-affirming the no-bright-line-rules aspect of materiality.  See Basic Inc. v. Levinson, 485 U.S. 224, 236 (1988) (“Any approach that designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as materiality, must necessarily be overinclusive or underinclusive.”). That is to say, the “total mix” formulation of materiality arguably stresses the contextual nature of materiality more than the alternative formulation, so it made sense to focus on that definition in concluding that the lack of statistical significance, standing alone, could not be dispositive of materiality.  (It is interesting to note that in Matrixx the “total mix” definition was relied upon to increase--or at least not decrease--the universe of potentially material statements.)

All of which leads me to my question for those of you who teach Securities Regulation: Do you use a Venn diagram when teaching materiality?

Friday
Jul132012

Corporate Governance and the Problem of Executive Compensation: The International Response to the Compensation Problem (The Proposed Reforms)

The High Pay Commission provided the groundwork for reforms.  The continuing shareholder revolt and public criticism effectively forced the government's hand.  The proposals (but not the actual statutory language) surfaced in June.  The press release announcing the proposal is here.  A statement of government policy on the issue is here

The government's proposal stops short of making say on pay mandatory.  Instead, shareholders have the right to approve the company's "pay policy."  The pay policy report submitted to shareholders must include:

  • A table setting out the key elements of pay and supporting information, including how each supports the achievement of the company’s strategy, the maximum potential value and performance metrics.
  • Information on employment contracts.
  • Scenarios for what directors will get paid for performance that is above, on, and below target.
  • Information on the percentage change in profit, dividends, and the overall spend on pay.
  • The principles on which exit payments will be made, including how they will be calculated; whether the company will distinguish between types of leave or the circumstances of exit and how performance will be taken into account.
  • Material factors that have been taken into account when setting the pay policy, specifically employee pay and shareholder views.

The pay policy also must explain any "exit payments" or golden parachutes.  Companies cannot "pay exiting directors more than shareholders have agreed."  To the extent a pay policy is voted down, it will have to "continue to use the existing policy until a revised policy is agreed." 

The vote on pay policy must occur everytime it is changed or every three years, whichever is sooner.  The government reasoned that this approach would "encourage companies to devise a policy for the long term, clearly linked to their strategy and will put downward pressure on pay ratcheting."  In addition, companies receiving a negative advisory vote on specific pay packages must resubmit the pay policy to shareholders the following year. 

The government also will require a "total compensation" calculation much like the one used in the US and has under consideration a requirement that a company receiving a negative say on pay vote from a "substantial minority" of shareholders be required to issue a "a statement saying what they will do to address shareholder concerns." 

The proposals, therefore, amounts to a compromise.  The government stopped short of transforming advisory votes on pay packages into binding votes.  The government essentially forced boards to submit to shareholders the process and factors used in determining compensation.  Presumably the aide was that these will be binding and prevent a board from significantly changing the policy in order to pay executive officers even more.

The approach will increase the complexity of pay approval.  Shareholders will get at least two votes, one on policies and one on actual pay packages.  Boards will find themselves hemmed in by shareholder approved policies.

But will it work?  To the extent the concern is over the amount of compensation, they are not likely to succeed.  Boards will have an incentive to submit policies that are broad and permit plenty of discretion.  As a result, pay will continue to go up.  Public anger and pressure will likely continue.   

Thursday
Jul122012

Corporate Governance and the Problem of Executive Compensation: The International Response to the Compensation Problem (Lessons from the Report of the High Pay Commission)

The Report of the High Pay Commission contained a number of possible warnings, both for companies in Britain and in the United States. 

What was clear from the Report was that matters of executive compensation had become an issue of public concern.  In other words, the matter was no longer between owners and managers.  For the most part, shareholders want to see compensation linked to performance.  The amount paid is less significant.  With respect to the public, however, the concerns are reversed.  The public is less interested in the relationship between performance and compensation and more interested in the escalating amounts.

As the Report of the High Pay Commission shows, once the matter becomes an issue of public debate, the proposed solutions shift.  They increasingly focus on efforts to temper the escalation of executive compensation.  In other words, they focus on the amount rather than the type of compensation.

In the next few posts, we will examine the reaction of the British Government to the recommendations of the High Pay Commission. 

Thursday
Jul122012

Corporate Governance and the Problem of Executive Compensation: The International Response to the Compensation Problem (Public Pressure for Reform)

The Report of the High Pay Commission put on the table some relatively radical possibilities, including the involvement of employees in the compensation process.  Likewise, the Commission injected into the debate general notions of fairness.  The government, however, sat on the recommendations and, for much of 2012, took no action.

The government's discretion was reduced, however, by the constant attention given to compensation issues in the press.  A much chronicled shareholder revolt took place over the compensation pay to the CEO of Barclays.  Another occurred at WPP PLC when shareholders voted down the pay package.  Political pressure, therefore, continued to build. 

The issue, therefore, put pressure on politicians.  As the WSJ described: 

Executive pay has become a hot-button political issue, with the coalition government having come under criticism from opposition politicians and others for failing to counteract sharp rises in executive pay despite management shortcomings during the recent financial crisis. High pay packets for top managers also have drawn public criticism as the U.K. economy continues to contract, putting thousands more out of work and leaving households with shrinking disposable incomes.

The government, therefore, felt the need to act.  It did so in June 2012.

Wednesday
Jul112012

Corporate Governance and the Problem of Executive Compensation: The International Response to the Compensation Problem (The High Pay Commission)

The United States is not the only country wrestling with the problem of executive compensation.  The issue has been much debated in Great Britain, with the country's approach providing possible lessons for the United States. 

Britain has had say on pay in place since the early part of the new millenium.  So Britain has had almost a decade of experience with the practice.  Say on pay may have caused a shift in practices, causing compensation to become better alligned with performance.  But what say on pay did not do was restrain the amount of compensation.  This was made clear in a study by the High Pay Commission late last year. 

The Commission was tasked to examine the issue.  The Commission viewed its mandate broadly.  Billed as non-partisan, the High Pay Commission focused on the escalation in executive pay and the harm not only to investors but also to employees (the disparity "undermines trust and [employee] commitment to the business"), the economy (describing the resulting wage inequality as a "toxic form of free market capitalism") and "society as a whole." 

The Report included a number of findings and recommendations.  Among other things, the Report took issue with a number of standard justifications for high levels of compensation.  The argument that increased compensation was needed to avoid a global brain drain was dispatched. 

Our findings also show that the argument used by many senior figures in British business, that pay must escalate in order to attract the best talent from abroad to UK companies, is a myth. Our own evidence shows that global mobility is limited, with only one successful FTSE 100 chief executive officer poached in five years – and even this person was poached by a British company.

The High Pay Commission issued a number of recommendations, including the need to simplify the pay package.  Most interesting, the recommendations took aim at the "closed" system for determining compensation.  As the Report described:

[R]emuneration committees remain a closed shop. Many continue to be made up of current or recently retired chief executives. This contributes to the dramatic growth in top pay, and the dislocation we have witnessed between average pay and the rewards given to some CEOs.

The closed shop did little to retrain the escalation of executive compensation.  See id. (the "current model of corporate governance locates absolute control in the hands of the owners, the shareholders and their representatives the nonexecutive directors. In the UK this model has failed to restrain escalating top pay.").

The solution?  Rather than leave the matter entirely to directors, the Report called for employee representation on the compensation committee of the board.  As the Report stated:

We believe that greater engagement with employees may help restrain executive pay and help mitigate negative impacts on morale as well as encourage a greater engagement with the workforce. We therefore call for employees to be represented on remuneration committees as a first step to better engagement and accountability.

In effect, the Report, in a mild way, argued for a stakeholder approach with respect to executive compensation.  Under the thinking of the Report, executive compensation would cease to be an issue between owners and managers, but would have require participation of other segments of the broader population.   

Monday
Jul092012

Corporate Governance and the Problem of Executive Compensation: The Role of the SEC (Compensation Consultants and Director Compensation) (Part 6)

We are discussing Rule 10C-1, the rule designed to implement the requirements in Dodd-Frank with respect to compensation committees of the board.  The rule is discussed in Exchange Act Release No. 67220 (June 20, 2012).

Director compensation has become an increasingly important issue to investors.  The Commission in 2006 required companies to disclose total compensation paid to directors.  In some cases, the amount paid has approached or exceeded $1 million.  Shareholders have submitted proposals calling for an advisory vote on director compensation (say on director pay). 

The compensation committee reforms recently adopted by the Commission expanded the disclosure requirements applicable to compensation consultants used in determining directors fees.  Item 407 of Regulation S-K already required disclosure of the role played by compensation consultants in the determination of director fees.  The SEC, however, amended the provision to require disclosure of any conflict posed by the consultant and the manner in which the conflict was "being addressed."  Said another way, Item 407 applies "the compensation consultant conflict of interest disclosure requirement to director compensation in the same manner as executive compensation."  Exchange Act Release No. 67220 (June 20, 2012).

The effect of the requirement is to ensure that compensation committees consider the factors set out in 10C-1 when retaining a consultant for use in determining director fees.  It is, therefore, a disclosure requirement that will alter substantive behavior.  This is not the first or the last time disclosure has been used in this fashion.  See Essay: Corporate Governance, the Securities and Exchange Commission, and the Limits of Disclosure

Sunday
Jul082012

The Week in Review (Sort of)

The following are some items that I came across or reviewed this week that I thought might be of interest to our readers.

Item 1: Greenwood on Human Rights for Human Beings

On June 26th, Daniel Greenwood responded (here) to the Supreme Court’s summary reversal of a Montana Supreme Court decision upholding that state’s campaign finance regulation.  The Montana Supreme Court had upheld the statute despite the fact that it directly targeted corporate political spending contrary to Citizens United. What follows is an excerpt, but I encourage you to read his entire piece here (it’s not long).

Obviously, corporations, which are creatures of statute, must have legal rights [like being able to sue]…. These corporate legal rights come from the legislatures, which regularly tinker with them. Constitutional rights, however, are rights against the legislatures: they are rights we have even if our representatives try to take them away. As a result, constitutional rights are also rights defined by judges, who are supposed to determine the content and limits of the rights by interpreting the text of the Constitution…. It is hard to see why anyone would want to fossilize corporate law in our hard-to-amend Constitution, let alone give judges primary responsibility for regulating large economic enterprises.

Item 2: Partnoy on Slowing Down

Pushing back against the seemingly never-ending pressure to get more things done in less time, Frank Partnoy, author of books such as “Infectious Greed: How Deceit and Risk Corrupted the Financial Markets” and “F.I.A.S.C.O.: Blood in the Water on Wall Street,” has just published “Wait: The Art and Science of Delay.”  The book is currently #10 on Amazon’s Business & Investing (Finance) bestseller list, and you can find a review from the Wall Street Journal here.

Item 3: Quote of the Week

U.K. Business Secretary Vince Cable had this to say about the Libor-fixing scandal (here):

[The public] just can't understand why people are thrown into jail for petty theft and these guys just walk away ….

Item 4:  Things That Make You Go “Hmmm”

The Reuters story on the expert panel report looking into the Fukushima disaster (here) prominently quotes the panel report’s reference to “collusion” among government, regulators, and the Tokyo Electric Power Co. in its headline.  Meanwhile, the Wall Street Journal story (here) merely cites negligence and makes no reference to collusion.

Saturday
Jun302012

Does Poker Staking Constitute a Securities Transaction?

If you followed my posts on the Business Law Prof Blog and/or the Akron Law Café before I arrived here, then you know that I am a fan of poker.  In fact, I have blogged more than once about my desire to cobble together a “Poker for Law Students” course.  I have also blogged previously about whether poker-staking constitutes a securities transaction.  I was reminded of all of this when I came across a story in today’s Wall Street Journal about how many of the professional players planning to play in tomorrow’s “One Drop” $1 million buy-in tournament (10% of each buy-in goes to the “One Drop” charity, which seeks to provide access to safe water worldwide) are selling large pieces of themselves to get into the action.  

I won’t repeat what I’ve said before on this topic (that’s what the links are for), but a couple of things in the WSJ article did jump out at me that I thought warranted some additional comments.  First, one of the players in the story reportedly set up an LLC (“One Drop Investments LLC”) to help organize the financing of his poker buy-in.  Second, there is apparently at least one investment fund (“Arial Ventures, LLC”) dedicated to investing in poker players.  Here is a description of the fund that you’ll find here:

Arial Ventures is a poker backing company – an organization that invests it’s [sic] capital and shares in earnings with some of the top poker players in the world, in some cases household names who have each earned millions of dollars of tournament prize money. The company was founded by and is run by two veteran entrepreneurs and one of the most respected professional player/coaches in poker today.

Now, I have no idea whether any of these folks are aware of their potential liability under, for example, Rule 10b-5, or whether they have looked into their potential registration obligations, but my guess is they haven’t.  Given that I believe there is a strong case to be made for poker-staking qualifying as an investment contract under the securities laws, I think this might be a significant oversight.

PS—Akron Law Café recently moved to a new home.  Please come visit us here.

Friday
Jun292012

Corporate Governance and the Problem of Executive Compensation: The Source of the Problem and the Consequences (Part 2)

In In re Goldman Sachs, plaintiffs challenged the compensation structure put in place at the investment banking firm.  A seven part series on the decision starts herePrimary materials, including the decision in the case, can be found at the DU Corporate Governance web site.

In considering whether to allow the case to go beyond the pleading stage, the lower court first considered the independence of the board.  Despite a number of connections between members of the board and Goldman (or the Goldman foundation), the court found that plaintiffs had not raised "reasonable doubt" about independence at the pleading stage. 

In effect, the court disregarded allegations that directors were not independent because the company's foundation paid significant amounts to charities supported by the directors.  It was as if this benefit did not give directors an incentive to favor management in order to retain their seat on the board.  The same opinion also found that significant business relationships alleged by plaintiffs did not cross the reasonable doubt threshold. 

In addition, however, plaintiffs sought to show a breach of fiduciary obligations by presenting allegations about the amount of compensation relative to other peer companies.  Plaintiffs asserted that the amount of compensation was "anywhere from two to six times the amounts that its peers."  In finding the claims insufficient to allow the case to go forward, the court questioned the peer companies used by plaintiffs.

Plaintiffs provide comparisons of Goldman’s average pay per employee to firms such as Morgan Stanley, Bear Stearns, Merrill Lynch, Citigroup, and Bank of America.  The Plaintiffs note that these firms are investment banks, but do not provide any indication of why these firms are comparable to Goldman or their respective primary areas of business.

More importantly, the allegations of significant disparities in relation to peer companies was not enough to state a claim for breach of fiduciary duties.  

A broad assertion that Goldman’s board devoted more resources to compensation than did other firms, standing alone, is not a particularized factual allegation creating a reasonable doubt that Goldman’s compensation levels were the product of a valid business judgment.

In other words, alleging that compensation was disproportionate relative to peer companies was not even enough to allow the case to go to discovery.   

The case was summarily affirmed by the the Supreme Court in SPTA v. Blankfein.  The Court had this to say in toto: 

To the extent that: (a) the issues raised on appeal are factual, the record evidence supports the trial judge's factual findings; (b) the errors alleged on appeal are attributed to an abuse of discretion, the record does not support those assertions; (c) the issues raised on appeal are legal, they are controlled by settled Delaware law, which was properly applied.

This case illustrates that, in Delaware, courts have little interest in allowing shareholders to challenge compensation decisions based upon the amount.  As long as the board has a majority of independent directors and is "informed, allegations of disproportionate payment will not save a case from dismissal."  Efforts, therefore, to use fiduciary duties to prevent continued increase in compensation or the payment of disproportionate amounts is not likely to happen under state law.  

With state law foreclosed, reforms have focused on federal law.  Congress has increasingly intervened, shifting compensation matters from the states to the federal scheme.  SOX and Dodd-Frank have included a mix of provisions addressing compensation issues.  Loans to executive officers and directors have been prohibited.  Boards have been forced to seek clawbacks of compensation in certain circumstances.  Say on pay has been implemented.  And, as we will discuss in the next posts, control over the process for determining compensation has increasingly been shifted to the SEC.

Friday
Jun292012

Corporate Governance and the Problem of Executive Compensation: The Source of the Problem and the Consequences (Part 1)

Boards are the front line of the executive compensation issue.  They have the authority to determine compensation and to adopt standards that minimize abuse. 

Compensation decisions are, like all matters, tested under the board's fiduciary obligations.  The duties are broadly divided into a duty of care and a duty of loyalty.  The duty of care is a process standard.  If the process is done correctly, the substance of the decision, for the most part, is irrelevant.  The duty of loyalty on the other hand imposes on the board the burden of showing that the transaction was fair.  In these circumstances, substance matters.  

With respect to CEO compensation, the default standard is the duty of loyalty.  In the US, the CEO sits on the board.  As a result, the board is determining compensation for someone inside the board room.  This creates an obvious conflict of interest and, to protect shareholders, directors must show that the compensation was fair. 

Were fairness to be the applicable standard, boards would have greater difficulty showing that personal use of the aircraft or total compensation measured in nine or more figures was fair.  Moreover, since directors are personally liable for breaches of their fiduciary obligations, they would likely take a rigorous approach to fairness.  The benefit of applying a fairness standard can be seen in few cases where it has been applied.  For a discussion of cases applying this standard, see Returning Fairness to Executive Compensation.

Yet for the most part, fairness and substance are not part of any review of CEO compensation.  The Delaware courts have interpreted fiduciary duties in a manner that results in the application of the duty of care rather than duty of loyalty to CEO compensation.  The courts have done so by finding that the duty of care applies where the board is informed and consists of a majority of independent directors (a requirement for all listed companies). 

In those circumstances, the "taint" of any conflict (the presence of the CEO inside the boardroom) is deemed to have been expunged.  It doesn't matter for the most part that the CEO is present when the decision is made or participates in the discussion.  For more on this, see Disloyalty Without Limits: 'Independent' Directors and the Elimination of the Duty of Loyalty.

What is a recent example of this approach?  In re Goldman Sachs, a case we will address in the next post.

Wednesday
Jun272012

Diversity, Italy and the Dearth of Women in the Boardroom

Yesterday, Facebook announced that it was appointing a woman to its board.  As noted, women make up somewhere between 12-16% of the directors serving on boards of public companies.  (A study by ISS put the number at 12.7% of the top 1500 largest public companies).  It is not because there are an inadequate number of qualified candidates.  For a possible explanation, see Essay: Neutralizing the Board of Directors and the Impact on Diversity

The problem of inadequate representation of women on corporate boards is not limited to the US, but global in nature.  Some countries in Europe addressing the issue have taken a more top-down approach.  Norway now requires boards of listed companies to have at least 40% of each gender.  As a result, Norway has the highest percentage of women on boards.  

Spain and France have tried this approach.  Italy has now decided to join them.  With only around 6% of women on the boards of Italian companies, a recent law requires that the percentage be increased to one-third by 2015.  Labeled the "pink quota," the provision goes into effect in August.  Those companies that do not comply will apparently face "progressive sanctions, including fines of up to €1 million ($1.25 million)."

Such an approach would not work in the US.  This type of government intervention is viewed as excessive interference in the market.  Nonetheless, as these laws become more common and the percentage of women on boards increase in other countries, the US will increasingly appear to be a laggard.  That will put additional pressure on the businesses in this country to increase the number of women on their boards. 

Wednesday
Jun272012

Board Diversity, Facebook, and the Dearth of Women in the Boardroom

Facebook, with its 20 something CEO, went public with no women on the board.  It was, as a result, big news when Facebook opted to add a woman to the board, Sheryl Sandberg, the company's COO. According to the Facebook website, the board now consists of:

Mark Zuckerberg, Founder, Chairman and CEO, Facebook
Marc Andreessen, Co-founder and General Partner, Andreessen Horowitz
Jim Breyer, Partner, Accel Partners
Donald E. Graham, Chairman and CEO, The Washington Post Company
Reed Hastings, Chairman and CEO, Netflix
Erskine Bowles, President Emeritus, the University of North Carolina
Peter Thiel, Partner, Founders Fund
Sheryl Sandberg, COO, Facebook

The elevation of Sandberg to the board, rather than a progressive step, is little more than a reaffirmation of the status quo.  The number of women serving on the boards of public companies in the U.S. is somewhere around 12-16%.  Facebook, by adding one woman, now meets the average (one of eight).  

What is the explanation for the dearth of women on boards?  The most common is the absence of adequate candidates.  This mistaken argument focuses on the fact that boards often want current and former CEOs to serve, a category that includes few women.  

But that presupposes that boards are mostly made up of current and former executive officers.  In fact, companies often have other categories of directors represented on their board. Politicians are one example. Chesapeake Energy had a former Senator (Nickles) and Governor (Keating) on its board.  Apple has Al Gore. 

One study of large companies noted the following examples:  (Chuck Hagel, Senator, Nebraska), General Electric (Sam Nunn, Senator, Georgia), Ford (Richard Gephardt, Representative, Missouri & Jon Huntsman, Governor, Utah), JP Morgan (William Gray, Representative, Pennsylvania), Pfizer (William Gray, Representative, Pennsylvania), Dell (William Gray, Representative, Pennsylvania), Prudential (Gaston Caperton, Governor, West Virginia), Purdential (William Gray, Representative, Pennsylvania),  and Honeywell (Judd Gregg, Senator, New Hampshire). 

The list shows that companies commonly consider individuals who are not executive or former executive officers for the board but when they do, they commonly pick men, not women.  This is not because there are no women politicians (for a list of women who have served in the Senate go here; for a list of women in the House, go here).

So the reason is not an absence of qualified candidates.  For a more likely explanation, see Essay: Neutralizing the Board of Directors and the Impact on Diversity

Wednesday
Jun272012

The Director Compensation Project: A Conclusion of Sorts

We have spent the last two weeks examining compensation paid to directors.  The information has only been available in recent years.  The Director Compensation Project is entirely student run and all of the posts are entirely student written. 

The accessibility of the information has significantly increased in recent years.  In 2006, the SEC reformed the disclosure requirements for executive compensation under Item 402.  For the first time, disclosure was required for "total compensation" paid to directors.  Some of the amounts, as the posts illustrate, are substantial. 

Marketwatch provided a list of the most highly paid directors, some of whom appeared in the Director Compensation Project.  Here are some of the conclusions from the article:

  • More than a dozen public company boards had directors whose compensation averaged more than $500,000 in 2011. That is greater than the compensation of some S&P 500 CEOs - CEOs who work full-time while board members do not.
  • In many other cases, the companies on this list have one board member who received an extremely large compensation in 2011. Often, these are former CEOs or other high-ranking executives who now serve as chairman, do part-time consulting work with their former employer or both.
  • just because a company pays its board a lot does not necessarily mean it is excelling financially. Of the top 12 companies, six have lower stock prices compared to two years ago (as of June 4). Seven of the companies had lower profits in 2011 compared to the year earlier.

The article listed the 12 companies with the highest paid board of directors based upon the average compensation paid to directors.  These included:

  • Chesapeake Energy:  Average Compensation: $533,163
  • Freeport-McMoRan Copper & Gold:  $541,836
  • Tyson Foods:  $542,013
  • Alpha Natural Resources: $549,445
  • Ball: $563,954
  • Occidental Petroleum:$645,242
  • Salesforce.com: $690,053
  • Northrop Grumman: $696,717
  • Oracle: $725,589
  • Fidelity National Information Services: $849,691
  • Amazon.com > Average Compensation: $898,993
  • Hewlett-Packard > Average Compensation: $941,802

Averages can be skewed in either direction.  Some boards have directors who have only served a portion of the year and therefore bring the average down.  Others can have a director paid an amount much larger than the other directors, bringing the average up.  This might occur, for example, where the board pays the lead director additional compensation.

The report put out by Federic W. Cook & Co. Inc. on Director Compensation placed median total compensation among large cap companies (over $5 billion) at $225,000.  Moreover, the trend is likely upward.  As the report noted:  "we anticipate that director compensation levels may increase at more rapid pace over the next several years."  Id. at 4. 

The issue of director compensation will remain an important one.  Shareholder proposals have sought an advisory vote on the matter (say on director pay), with some receiving significant support.  A significant number (although not a majority) of shareholders casting votes supported such a proposal at Chesapeake Energy last year.  We on this Blog (particularly students) will continue to follow the issue and provide posts on Director Compensation. 

Tuesday
Jun262012

The Director Compensation Project: ConocoPhillips

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 2011’s Fortune 500 and using information found in their 2011 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 ConocoPhillips (NYSE: COP) 2011 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
($)

Richard L. Armitage

115,000

170,012

--

--

285,012

Richard H. Auchinleck

150,345

170,012

--

13,639

333,996

James E. Copeland, Jr.

135,000

170,012

--

25,358

330,370

Kenneth M. Duberstein

115,000

170,012

--

26,213

311,225

Ruth R. Harkin

125,000

170,012

--

7,000

302,012

Mohd H. Marican***

10,208

--

--

--

10,208

Harold W. McGraw III

120,375

170,012

--

--

290,387

Robert A. Niblock

122,500

170,012

--

15,000

307,512

Harald J. Norvik

122,924

170,012

--

16,200

309,136

William K. Reilly

115,000

170,012

--

16,859

301,871

Bobby S. Shackouls

47,917

170,012

--

21,778

239,707

Victoria J. Tschinkel

122,500

170,012

--

10,164

302,676

Kathryn C. Turner

120,000

170,012

--

15,000

305,012

William E. Wade, Jr.

130,441

170,012

--

5,000

305,453

*This includes voluntary deferrals to ConocoPhillip’s Key Employee Deferred Compensation Plan.

**This column includes directors’ personal use of company aircraft and automobiles, a home security system, annual physicals, life insurance premiums and tax reimbursements.

***Mr. Marican was elected to the board in December 2011, and the amounts in the table represent his prorated compensation for December 2011 only.

 

Director Compensation.  During the 2011 fiscal year, the board of directors met 10 times. Each director attended at least 75 percent of the aggregate of the total number of board meetings and the total number of meetings held by all board committees on which he or she served. The Human Resources and Compensation Committee is responsible for determining performance-based standards for all Senior Officers, including all Named Executive Officers. The executive compensation program utilizes a number of measurement methods, such as comparisons to marketplace compensation, pay equity within the company, and the skills and experience of individual executives, resulting in a unique compensation package for each individual.

Director Tenure.  Directors Duberstein, Harkin, Reilly, Turner, and Tschinkel concurrently hold the title of longest tenure on the board, each having begun their tenure in August 2002. Mr. Marican is the newest director, having joined the board in December 2011. A number of directors also hold membership on other boards. For example, Mr. Copeland serves on the boards of Equifax and Time Warner Cable. Mr. Duberstein sits on the boards of Dell Inc.; The Boeing Company; Mack-Cali Realty Corporation; and The Travelers Companies, Inc.

CEO Compensation.  James Mulva, who has served as ConocoPhillips’ Chief Executive Officer since 2002, earned $27,713,594 during the fiscal year. Mr. Mulva became eligible for retirement on December 31, 2011, and he intends to retire in 2012, provided that the company’s planned repositioning occurs before the 2012 annual meeting. Mr. Mulva received access to company aircraft and automobiles for both personal and business use, accruing $15,298 worth of automobile expenses during 2011, but he reimbursed the company for certain personal uses of these assets. Mr. Mulva and Al Hirshberg, Vice President of Planning and Strategy, both received company-paid premiums of life insurance policies and reimbursements for taxes accrued. Mr. Hirshberg received $9,934,084 in total compensation in 2011. Furthermore, Mr. Hirshberg received $113,761 in relocation expenses as an incentive to accept the company’s offer of employment, consistent with the company’s policy on paying relocation costs for executives.

Monday
Jun252012

The Director Compensation Project: General Electric Company

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 2011’s Fortune 500 and using information found in their 2011 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 General Electric Company (NYSE: GE) 2011 proxy statement.  According to the proxy statement, the company paid the directors the following amounts:

 

Name

Fees Earned of Paid in Cash*
($)

Stock Awards
($)

Option Awards**
($)

All Other Compensation***
($)

Total
($)

W. Geoffrey

Beattie

0

278,643

0

34,500

313,143

James I. Cash, Jr.

120,000

182,385

0

50,000

352,385

William M. Castell

62,500

56,962

0

1,000,000

1,119,462

Ann M. Fudge

100,000

151,987

0

39,233

291,220

Susan Hockfield

100,000

151,987

0

5,250

257,237

Andrea Jung

110,000

167,186

0

27,199

304,385

Alan G. Lafley

100,000

151,987

0

50,000

301,987

Robert W.

Lane

120,000

182,385

0

0

302,385

Ralph S.

Larsen

0

278,643

0

60,022

338,665

Rochelle B.

Lazarus

0

253,312

0

50,046

303,358

James J.

Mulva

0

278,643

0

75,000

353,643

Sam Nunn

0

278,643

0

34,150

312,793

Roger S. Penske

0

253,312

0

56,344

309,655

Robert J.

Swieringa

44,000

234,060

0

48,500

326,560

James A.

Tisch

50,000

228,087

0

50,000

328,087

Douglas A.

Warner III

120,000

182,385

0

53,054

355,439

*This includes salary and bonus amounts.

**Non-management directors are not entitled to non-equity incentive compensation.

***This column includes the total of nonqualified deferred compensation earnings and change in pension value, payments to employee savings plans, expatriate tax benefits, life insurance premiums and miscellaneous other benefits.

Director Compensation.  During the 2011 fiscal year, the board held 15 meetings, including three meetings of the non-management directors of the board. Every director attended 75 percent or more of the board or committee meetings according to his or her respective membership on each committee. The current compensation and benefit program for non-management directors has been in effect since 2003. During 2011, non-management directors received $250,000 in annual compensation, paid incrementally at the conclusion of each quarter. Forty percent was paid in cash, and 60 percent was paid in deferred stock units. Non-management directors could participate in several equity compensation programs, but they received no other non-equity incentive compensation for their services.

Director Tenure.   All of the current Named Executive Directors have held positions with General Electric for over 25 years, with Mr. Warner holding the longest tenure as a director since 1992. Mr. Tisch has the shortest tenure, having joined the board in 2010. Each director has held numerous high-level leadership positions within the company. Most directors hold positions as directors or trustees in other organizations. For instance, Mr. Lane is a director at both Verizon Communications and Northern Trust Corporation and a member of the supervisory board of BMW AG. Mr. Nunn is a director of The Coca-Cola Company.

CEO Compensation.   As part of his total compensation of $21,581,228 in 2011, Chairman of the Board and Chief Executive Officer Jeffrey Immelt received a $4 million cash bonus in both 2010 and 2011 after meeting or exceeding almost all financial objectives. The remaining Named Executives each received bonuses of at least $2.8 million in 2011. Directors received extensive benefits, such as use of both company aircraft and cars for personal use, financial counseling and tax preparation services, and other miscellaneous benefits, such as home alarm and security systems installation and maintenance. In the 2011 fiscal year, Vice Chairman John Rice received $349,651 in expatriate tax benefits according to the company’s policy regarding employees who are temporarily placed in international assignments and $1,375,186 in total value for the “other benefits” named above.

Monday
Jun252012

The Director Compensation Project: Microsoft 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 2011’s Fortune 500 and using information found in their 2011 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 Microsoft Corporation (NYSE: MSFT) 2011 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
($)

Dina Dublon

115,000

135,000

--

--

250,000

William H.

Gates III

90,000

135,000

--

--

225,000

Raymond V.

Gilmartin

103,723

135,000

--

--

238,723

Reed Hastings

96,277

135,000

--

--

231,277

Maria Klawe

90,000

135,000

--

--

225,000

David F.

Marquardt

102,500

135,000

--

--

237,500

Charles H.

Noski

115,000

135,000

--

--

250,000

Helmut Panke

115,000

135,000

--

--

250,000

*Microsoft does not award stock options to its executive officers.

**This column includes the company’s matching contributions to 401(k) plans and imputed income received from broad-based benefits programs, which includes life insurance, disability insurance and athletic club memberships.

Director Compensation.  Microsoft’s board of directors met eight times during the 2011 fiscal year. All directors attended 75 percent or more of the total number of all board and committee meetings of which they were members. Five directors attended Microsoft’s annual shareholders’ meeting in 2010. Microsoft strives to pay directors close to the market median for similar director positions, but most compensation was conferred through equity. Director compensation had remained stable for five years but dropped to lower than the Dow 30 median by 15 to 20 percent. To bring compensation back in line with company goals, the board raised its base director compensation from $200,000 to $250,000.

Director Tenure.  Mr. Ballmer has headed several Microsoft divisions during the past 31 years, including operations, operating systems development, and sales and support. In July 1998, he was promoted to President. He was subsequently named Chief Executive Officer in January 2000. Mr. Gates and Mr. Marquardt hold the longest director tenures, having served as directors since 1981, while Ms. Klawe joined the board most recently in 2009. Mr. Hastings is also the Chief Executive Officer and founder of Netflix, Inc. and continues to serve as a director in that company. Ms. Dublon simultaneously serves on the boards of Accenture Ltd. and Pepsico, Inc. Microsoft’s Corporate Governance Guidelines provide that a substantial majority of directors must be independent; therefore, the independent directors annually appoint a lead independent director to coordinate their activities. Mr. Hastings has served as lead independent director since December 2010.

CEO Compensation.  Microsoft’s compensation philosophy seeks to encourage executive success through competitive base salaries and extensive stock ownership with purchase options based upon executive tenure and position-specific performance metrics. The company believes that this compensation structure aligns the interests of executives with maximizing profit for shareholders while reducing unnecessary risk taking. B. Kevin Turner, Chief Operating Officer, and Steven Sinofsky, President of the Windows and Windows Live Divisions, were the highest paid executive officers at $9,277,141 and $7,207,758, respectively. Mr. Gates, as founder and Chairman, owns the most shares of common stock at 540,979,055, representing a 6.41 percent ownership of the company. Chief Executive Officer Steven Ballmer holds 333,252,990 shares of Microsoft common stock, representing a 3.95 percent ownership of the company. Based on his personal request, Mr. Ballmer is not paid for serving as a director, choosing instead hold a substantial number of shares of stock, tying his personal wealth to Microsoft’s value.

Saturday
Jun232012

Law and Society (Part 3): Questioning the Legitimacy of the Supreme Court

On June 7th, I attended a roundtable discussion entitled, "Beyond the Realists and the Crits: Is the Supreme Court Even a Court?"  The discussion was in reality a "author meets reader" event.  The author was Eric Segall, and the book was "Supreme Myths: Why the Supreme Court Is Not a Court and Its Justices Are Not Judges."  The discussion was very interesting, and I came away from it convinced that this book is relevant to my own work on the Supreme Court's Citizens United decision.  For example, Prof. Segall notes that "judges have an important obligation to be candid about the actual reasons for their decisions."  Meanwhile, my primary criticism of the Citizens United decision has been that the majority ignores, and the dissent expressly disavows, any role for corporate theory in their fight over the majority's ultimate conclusion that "the Government cannot restrict political speech based on the speaker's corporate identity," 130 S.Ct. 876, 902, when in fact it is seemingly impossible to reach that conclusion without adopting particular views about what corporations are.  (Go here for my latest draft on this topic.)  Furthermore, Prof. Segall notes that when judicial conclusions about the Constitution change seemingly solely because the composition of the Court changed, the very legitimacy of the Court is implicated:

The problem with this back and forth, in addition to the instability it causes, is that the Supreme Court’s legitimacy stems in part from its intended role as a traditional court whose judges apply the “law.”  But … “if changing judges changes law,” then it is uncertain whether the law controls judges of the other way around.

Of course, one can argue that the only thing that really changed between Austin/McConnell and Citizens United was the composition of the Court, and I have further argued that the failure to deal with the corporate theory issue likewise implicates the Court's legitimacy.  Relatedly, a recent poll found that the public approval rating of the Court has hit what I believe is an all-time low of 44% recently, with further grumbling expected in connection with the pending health care ruling.

Segall's book supports its dramatic claim with detailed analysis of numerous well-known Supreme Court cases and, while I'm sure many will find much to criticize, I can easily recommend it. 

Saturday
Jun232012

The Director Compensation Project: International Business Machines 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 2011’s Fortune 500 and using information found in their 2011 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 International Business Machines (NYSE: IBM) 2011 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
($)

Alain Belda

250,000

0

0

17,078

267,078

William Brody

250,000

0

0

22,418

272,418

Kenneth Chenault

250,000

0

0

47,884

297,884

Michael Eskew

275,000

0

0

34,681

309,681

Shirley Jackson

250,000

0

0

30,734

280,374

Andrew Liveris

250,000

0

0

5,456

256,456

W. James McNerny, Jr.

250,000

0

0

28,357

278,357

James Owens

250,000

0

0

48,404

298,404

Joan Spero

250,000

0

0

43,596

293,596

Sidney Taurel

270,000

0

0

55,081

325,081

Lorenzo Zambrano

270,000

0

0

37,533

307,533

Director Compensation.  In 2011, non-management directors received a retainer of $250,000 to attend ten meetings of the board of directors.  Attendance at those meetings was greater than 75%.  Under the company’s Deferred Compensation and Equity Award Plan, at least 60% of the annual retainer was required to be paid in Promised Fee Shares (“PFS”), which are the equivalent of one unit of common stock.  When the company issued a dividend, the amount of the dividend was credited to the directors’ PFS accounts and disclosed under the “All Other Compensation” column above.  Mr. Eskew received an additional $25,000 in cash for chairing the Audit Committee.  Messrs. Zambrano and Taurel each received an additional $20,000 in cash for chairing the Directors and Corporate Governance Committee and the Executive Compensation and Management Resources Committee, respectively.  

Director Tenure.  Mr. Chenault is the longest tenured director, holding his position since 1998. Due to IBM’s commercial relationship with American Express, Mr. Chenault does not qualify as an independent director.  Virginia Rometty and David Farr both are the newest members of the board after joining in 2012; hence, they are not listed on the compensation chart above.  Many of the directors sit on other boards.  For instance, Samuel Palmisano, the former Chief Executive Officer and current Chairman of the Board, also sits on the board of Exxon Mobil.  Mr. Owens sits on the boards of Alcoa, Inc. and Morgan Stanley.

Executive Compensation.  Mr. Palmisano was paid $31,798,918 for his roles as Chairman, President, and CEO.  Company aircraft usage of $489,327 is included in this figure.  After departing from his role as CEO on January 1, 2012, Mr. Palmisano also became entitled to an exit package valued at roughly $113,697,548 in stock options, deferred compensation, performance share units, and 401K contributions.  Michael Daniels, the Senior VP and Group Executive of Services, was paid $8,686,835 in 2011.  Ms. Rometty, the newly appointed CEO, will be compensated $1,500,000 in base salary with a target bonus of $3,500,000 in 2012.  Additionally, she will receive $10,000,000 worth of Performance Share Units as a long-term incentive.  In 2011, Ms. Rometty received $8,342,270 in total compensation as Senior Vice President & Group Executive of Sales, Marketing, and Strategy. 

Friday
Jun222012

The Director Compensation Project: American International Group, Inc.

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 2011’s Fortune 500 and using information found in their 2011 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 American International Group, Inc. (NYSE: AIG) 2011 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. Don Cornwell

101,538

49,990

0

0

151,528

John H. Fitzpatrick

101,538

49,990

0

0

151,528

Laurette T. Koellner

179,000

49,990

0

0

219,990

Donald H. Layton

160,000

49,990

0

0

209,990

Christopher S. Lynch

180,000

49,990

0

0

229,990

Arthur C. Martinez

170,577

49,990

0

0

220,567

George L. Miles, Jr.

170,577

49,990

250

0

220,567

Henry S. Miller

160,000

49,990

0

0

209,990

Robert S. Miller

650,000

49,990

0

0

699,990

Suzanne Nora Johnson

160,000

49,990

0

0

209,990

Morris W. Offit

170,000

49,990

250

0

219,990

Ronald A. Rittenmeyer

161,731

49,990

0

0

211,721

Douglas M. Steenland

360,000

49,990

0

0

409,990

Director Compensation. Non-management directors were compensated with an annual retainer of $150,000 plus $50,000 in deferred stock units (“DSUs”).  Each DSU entitled directors to one share of common stock upon departure from the board.  Directors also received dividend payments in the form of DSUs.  Directors were granted an extra $5,000 for sitting on a committee and an extra $15,000 for chairing a committee, except for the chair of the Audit Committee, who received an extra $25,000.  Robert Miller received an additional $500,000 as Chairman of the Board and ex officio member of all standing committees.  Robert Benmosche, AIG’s Chief Executive Officer, did not receive any compensation for his position on the board.  AIG held fifteen board meetings during 2011.  All directors attended at least 75% of the meetings of the board and of the committees for which they served.  All directors attended the 2011 annual shareholders’ meeting. 

Director Tenure. Mr. Miles is the longest tenured director, having held his position since 2005.  Messrs. Cornwell and Fitzpatrick are the newest members, having just been elected in 2011.  Many of the directors hold positions on other boards, including Ms. Koellner, who sits on the board of Sara Lee Corporation.  Mr. Martinez sits on the boards of PepsiCo; Liz Claiborne, Inc.; IAC/InterActiveCorp; International Flavors and Fragrances, Inc.; and HSN, Inc. 

Executive Compensation. AIG’s CEO, Mr. Benmosche, received $13,984,181 in total compensation for 2011.  Due to limitations placed on AIG for accepting federal TARP money in 2008, Mr. Benmosche received only $3,000,000 in cash and did not receive a bonus.  TARP standards require compensation plans that discourage excessive risk taking and promote long-term value instead of short-term results.  Nearly $11,000,000 of the CEO’s compensation was in restricted stock units (“RSU”) that will not vest for at least two years.  Furthermore, after the RSUs vest, they are only payable in 25% increments up to the level AIG has repaid its TARP obligations.  Jay Wintrob, the Executive Vice President of Domestic Life and Retirement Services, made $7,336,879, which included a cash payment of $495,000.  Messrs. Benmosche and Wintrob each received $22,318 and $10,985 worth of company car services, respectively.