Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

See related case examples of

Dell Inc.

appraisal rights for intrinsic value realization

and

Walgreen Co.

stock buyback policies

"Fair Access" Home Page

"Fair Access" Program Reference

For graphs of specific company and related industry returns, see

Returns on Corporate Capital

For graphs of specific company voting for the past 5 years, see

Shareholder Support Rankings

 

 

 

Forum distribution:

Opportunity to shift focus of executive pay from short term stock price to operating performance

 

Source: Los Angeles Times, April 29, 2015 article

SEC is seeking more clarity on executive pay

 

Mary Jo White, chairwoman of the Securities and Exchange Commission, in 2013. The agency proposed new rules comparing executive pay with corporate performance. (T.J. Kirkpatrick / Getty Images)

 

By James F. Peltz

 



SEC proposes rules comparing executive pay with corporate performance


'Pay versus performance' rules for executive compensation proposed by SEC


 

APRIL 29, 2015, 5:44 PM

 

Even as stock prices tumbled and the country was plunged into a deep recession in 2008, seven of California's 10 highest-paid chief executives got sizable raises, lifting the average pay package to $32 million.

That same year, Wall Street bankers gave themselves nearly $20 billion in bonuses as the government spent billions of dollars to bail out financial institutions. President Obama called the bonuses “shameful.”

The public outrage continues, and now the Securities and Exchange Commission is taking another step to help shareholders decide whether to rein in executive pay.

The SEC's commissioners voted 3-2 on Wednesday to require publicly held companies to disclose “in a clear manner” more details about how executive pay compares to a company's total shareholder return; that is, the annual change in its stock price plus dividends.

The data in many cases would provide the compensation and total-return data going back five years. Companies also would have to provide total-return data for firms in its industry or peer group.

The proposed rules were mandated by the Dodd-Frank financial law that grew out of the 2008 crisis.

A company's shareholders don't by themselves directly decide how much an executive is paid, information that companies already spell out in detail in annual proxy statements filed with the SEC.

But investors can decide whether to push for bylaws curbing executive pay or whether to elect the directors who are on board committees that decide executive-pay matters.

The SEC's rules would give shareholders “a new metric for assessing a company's executive compensation relative to its financial performance,” SEC Chairwoman Mary Jo White said at Wednesday's meeting in Washington before voting to approve the proposal.

Ahead of the meeting, the SEC said the rules also “would provide greater transparency and allow shareholders to be better informed when they vote to elect directors or vote on executive compensation.”

Michael Hermsen, a former SEC lawyer who is now a partner with the law firm Mayer Brown in Chicago, said the proposed rules “will crystallize some of the discussion” among investors as to whether an executive's pay is warranted.

“It's going to provide information in a very precise format,” he said.

But Hermsen and some others wondered whether a company's total shareholder return is the best measure against which to gauge executive-pay packages.

Even White raised the question: “Is total shareholder return the optimal measure of financial performance, as the rule proposes?”

White said she was “very interested in receiving public comment on the proposal … and potential alternatives” to the proposed rules approved Wednesday.

The proposal is subject to a public-comment period of 60 days, after which the SEC's staff would make a renewed recommendation on the rules to the commissioners.

Then a second vote by the commissioners is required before the rules take effect. So the rules might be in place by next year's annual-meeting season in the spring.

Gary Lutin, chairman of the Shareholder Forum, which provides information for investor decisions, said he was “glad to see that chairwoman White encouraged debate about what would be the right performance measure.”

Using total shareholder return might provide a fairly uniform measure for the public, but the number might not always represent the true health of an underlying company, he and others said.

For instance, a company that has gone through a merger using lots of debt might have a robust stock price for one year yet remain hobbled by the leverage over the long term, he said.

“It's important to shift the focus from current stock price, which is easily manipulated by all the wrong things, to a focus on operating performance that will encourage building sound companies,” Lutin said.

White said that during the public-comment period, she also wanted to hear how the rules would affect smaller publicly held firms. Those firms, whose size under the rules wasn't immediately available, would have to provide data going back only three years.

“I am particularly interested in views about how investors in smaller reporting companies will use this information, and the costs to these companies of providing this information,” she said.

james.peltz@latimes.com

Copyright © 2015, Los Angeles Times

 

 

This Forum program is open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to access@shareholderforum.com.

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.