These actions have included pay reductions, work furloughs, and layoffs. Among other matters, companies likely need to evaluate the impact of these actions on severance benefits. Multiple types of arrangements provide for cash and other benefits in the event of an employee’s or executive’s severance, including severance plans, severance guidelines, employment agreements, severance agreements, and … Continued
This will be the first in a series of updates that Meridian will produce, on potential impacts to executive and director compensation programs and related governance issues, from the economic turndown that has followed the COVID-19 pandemic, and the recent sharp decline in oil prices. Director Compensation Directors at many companies are currently looking at … Continued
First and foremost, we hope you, your families and your colleagues are staying safe and healthy during this global health crisis. We appreciate normal business operations for many companies have been upended due to the COVID-19 pandemic. Only through the extraordinary efforts of employees, executives and boards will companies be able to manage through the … Continued
Mere weeks after boards approved compensation outcomes from 2019 performance, there’s a temptation to revisit or change those outcomes under the lens of 2020 performance. We believe that in the large majority of cases, those 2019 outcomes should stand on their own merits. Current events will instead impact 2020 outcomes – meaningfully. We believe the … Continued
That was rough… The week of March 9, 2020 may have marked the single worst week for oil and gas stocks on record. A lot has changed, and the only thing certain is that more change will come. Here is what we feel confident of: ■ E&P companies will re-set 2020 capital programs; early announcers … Continued
Periodically we receive requests from our clients to profile advantages, challenges, and best practices associated with administering pay programs that combine a very modest base salary with large equity grants. The $1 Salary Plan is the most extreme version of this approach, and the symbolism of such a program has proven attractive to a handful … Continued
Many of the public company boards and corporate executives (very notably, 181 CEOs signing the Business Roundtable Statement avowing Stakeholder primacy1) that are eager to demonstrate this responsiveness cite compensation as an existing, meaningful and highly visible tool that is increasingly being used to reward or penalize executives for ESG performance. The reality, however, is … Continued
This increase in share use also means that equity incentive plan reserves will drain at a faster rate, and may run out sooner than expected. Companies often ask for more shares when there is roughly enough left in the plan to cover one more year of normal cycle equity awards, in order to have a … Continued
This article offers some useful context and information for compensation committees and management teams of chemical companies to consider when designing and managing their executive pay programs. In particular, we cover key attributes of the industry and their impact on setting goals and designing incentives to help manage the impact of volatility resulting from: Commodity … Continued
Directors should take a close look at how their companies can use compensation to advance an environmental, social, and governance (ESG) strategy. A key to ESG oversight is the board’s examination of how compensation reflects and advances the company’s commitment to ESG goals. Investors and other stakeholders package a broad range of nonfinancial topics under … Continued
Over the past ten years or so – since the widespread adoption of shareholder ‘say on pay’ votes on executive compensation at public companies in the US and elsewhere – arguably no single idea has animated the analysis and design of CEO compensation programmes as much as the goal of ‘paying for performance’. For a … Continued
Given its strong alignment with shareholder value creation, earnings per share (EPS) is a common performance metric selected for short-term incentive and long-term incentive plans. A company’s generally accepted accounting principles (GAAP)-based EPS is equal to its after-tax net income divided by the number of common shares outstanding (either on a basic or fully diluted … Continued
For well over 50 years, there has been the same three general design categories of long-term incentives for US-based CEOs. These have been full-value share grants, which vest over time and focus on retention; stock appreciation vehicles, such as stock options and stock appreciation rights, which focus on driving share price over the long term; … Continued
During the past decade, the use of total shareholder return (TSR) has risen rapidly in prevalence as a performance metric in executive long-term incentive plans. Many compensation committees believed this was a direct way to align executive pay and performance. But is it? A notable number of large-cap companies are now not so sure. Meridian … Continued
Introduction This is Meridian’s fifth year tracking executive compensation practices at U.S. banks with assets above $10 billion. One theme remains consistent: programs continue to evolve. As we entered the 2018 year, companies invested much time and energy calculating the CEO pay ratio and preparing for its disclosure. The Tax Cut and Jobs Act eliminated … Continued
Employers are generally focused on maximizing productivity and facilitating smooth transitions, while employees are generally focused on timing – not only about when will they have enough money for a comfortable retirement, but also what will they forfeit when they do retire. These different perspectives often create a tension that goes unresolved, resulting in employees … Continued
Based on our experience, it is important to understand the many inputs and ensure the Committee is making informed decisions with “eyes wide open” to avoid surprises. Awards should focus on specific intended objectives. From time to time, Compensation Committees may feel pressured to approve recommended one-time LTI grants, particularly in today’s strong economy (lowest … Continued
Relative total shareholder return (relative TSR), the most commonly used performance share unit (PSU) measure, has recently been challenged by institutional investors. Earlier this year Ontario Teachers’ Pension Plan (OTPP) released an article entitled “Is Management Compensation Rewarding the Right Behavior?”, which focuses on incentive design in the oil and gas industry. OTPP criticized relative … Continued
As the global economy remains strong, the pace of mergers and acquisitions will remain robust. As such, this is a good time for compensation committees to review change-in control (CIC) protections, including arrangements for severance, payments, and other special benefits that may be tied to displacement caused by mergers, hostile takeovers, or asset liquidation. While … Continued
According to the Meridian 2017 Governance and Incentive Design Survey1, 43% of Meridian 200 companies use an individual performance component in their executive annual incentive plan, typically as a supplement to financial measures. Actual usage may be higher as the 43% does not account for Compensation Committees using discretion to adjust awards for individual performance. … Continued
Much of the commentary on energy industry pay programs has focused on annual bonus metrics. Annual incentives are easier to analyze because the payouts are clearly disclosed each year in the Summary Compensation Table, and those payments can communicate how the company performed over a discrete one-year period. Due to this visibility, compensation committees spend … Continued
Short-termism: Acknowledging a Trend In his 2016 annual letter to CEOs, Larry Fink wrote: “I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behavior. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most … Continued
The financial crisis and recession may be history, but the impact these events have had on the financial services industry remains. Meridian Compensation Partners LLC, a consulting firm that serves clients on executive compensation and governance matters, has a dedicated team that specializes in serving financial services organizations. Susan O’Donnell and Daniel Rodda, partners at … Continued
Are US CEOs overpaid? Bob Romanchek, senior partner at the executive compensation consulting firm Meridian Compensation Partners, adds clarity to the issue by looking at the components of pay, the historic levels of total pay opportunity and the critical relationship to company performance. The main components of CEO compensation for large US-based companies are base … Continued
High-performing banks define and execute their strategic vision by clearly articulating what they want to achieve and how they will do it. The old adage, “what gets measured, gets done”, is true when it comes to incentive plans. Companies that define specific measures and create accountability for achieving them are more likely to achieve the … Continued
In many cases, U.S. public companies receive a high level of support from shareholders for their annual advisory vote on the executive compensation program. Based on these results, companies often conclude there is no need to make any material changes to the design of their executive compensation program. As a result, companies may not conduct … Continued
The menu of industry annual incentive metrics (and some long-term incentive metrics) now includes several instances of ROCE, Cash ROCE, ROIC, estimated wellhead returns, and other non-GAAP measures of investment returns. Investors may welcome the incentive accountability to financial returns, but will performance against these new benchmarks create better alignment between pay and performance? Should … Continued
[embedyt] https://www.youtube.com/watch?v=oSZ-8hhjzuI[/embedyt] While the Tax Cuts and Jobs Act has brought some positives to the economy and certainly to select individuals, it has also brought some challenges to compensation committees as they try to figure out the correct balance for long-term incentives as part of the executive pay package. In this episode, Bob Romanchek, partner … Continued
It usually perks up the ears of most corporate directors when you say “board compensation.” What’s happened recently in this area, particularly with equity grants? If you take a step back, outside director compensation has generally been in a pretty narrow range, value-wise. Looking back over the past five to seven years, it’s averaged about … Continued
While the use of stock options as a primary vehicle for executive equity awards has tapered recently, the common belief that stock options are worth about one-third of face value has remained. Although this rule of thumb held true for many years, for reasons described below, that may no longer be the case, especially for … Continued
Are you satisfied with the design and operation of your company’s performance-based longterm incentive program for top executives? Chances are you are not. In chasing that ever-elusive pay-for performance vehicle design, you may have gone from stock options to performance units and performance shares, or some combination thereof, over the last 30 years. You also … Continued
There is no more contentious, complex or difficult issue for boards than setting up the right incentives for executives. With companies in cyclical businesses that may have commodity costs as a large portion of performance, the challenge gets even more complex. Corporate Board Member recently talked with Jim Wolf, managing partner at Meridian Compensation Partners, … Continued
Consolidation in the banking industry continues, with more than 200 bank mergers in 2017. Whether your institution is a potential buyer or seller, there are several compensation matters that will need to be addressed proactively. Change-in-Control (CIC) Protections CIC arrangements are particularly important in the banking industry due to the significant consolidation activity. CIC arrangements … Continued
[embedyt] https://www.youtube.com/watch?v=Y8eqctYRuBM[/embedyt] Episode Summary Serving on the compensation committee has become a formidable challenge for most directors regardless of one’s background or career. Not only do compensation committees have to navigate a host of regulations and complex terminology, but over the last several years, shareholders have made a significant push towards transparency on how decisions … Continued
From an executive compensation perspective, boards have an important duty to pay executives appropriately in line with the underlying performance of the company. The age-old issue of paying for performance seems more complex than ever—and more highly scrutinized! The design of short-term and long-term incentive programs needs to align with a company’s business strategy, and … Continued
The key highlights from Meridian’s 2017 Outside Director Compensation study among Fortune 100 companies include: In 2016, total compensation increased modestly at 1.2% Annual cash retainer values were flat for the second consecutive year, but equity values increased at approximately 2.9% per year. Equity comprises 60% of total compensation, while board meeting fees now comprise … Continued
Introduction Bank executive compensation practices continue to evolve, as does the regulatory influence on pay programs. Eight years after the Dodd Frank Act was signed, incentive compensation rules under Section 956 of the Act remain outstanding and seem unlikely to move forward under the current administration. The 2016 re-proposal of Section 956 regulations included prescriptive … Continued
Serving on the compensation committee has become a formidable challenge for most directors regardless of one’s background or career. Not only do compensation committees have to navigate a host of regulations and complex terminology, but over the last several years, shareholders have made a significant push towards transparency on how decisions are made. Bob Romanchek, … Continued
Approximately 25 percent of U.S. public companies will be asking shareholders to approve a new or amended share plan this proxy season. Since most companies do not revise share plans on an annual basis, boards may want a refresher on issues to consider when seeking shareholder approval. When asking for approval of a share plan, … Continued
Find this article and more in the NYSE Governance Services Corporate Board Member Magazine – nyse.com/governance Over the last 10–15 years, we have observed a sea change in long-term incentive (LTI) award design. The role of stock options has dramatically declined, generally replaced by performance share or unit (PS/U) awards. Factors driving this change included … Continued
There has been a lot of attention (both from the media and investors) focused on whether E&P companies are using the right metrics in their annual incentive programs. E&P companies have been criticized for a heavy focus on production and other volume measures without a corresponding link to whether that volume is profitable or generating … Continued
Meridian Partner Jamie McGough joins TK Kerstetter, host of Inside America’s Boardrooms, to discuss “Should Boards Reconsider the Benefits of Stock Options?” Watch Jamie explain why the use of stock options has diminished and why he thinks companies might want to reconsider stock option plans in their executive pay packages. [embedyt] https://www.youtube.com/watch?v=jYeZNUFiRZQ[/embedyt]
This interview originally appeared in Corporate Board Member magazine. Corporate Board Member spoke to Bob Romanchek, partner and consultant with Meridian Compensation Partners, about the expected use of stock options going forward. At one time, the use of stock options for executive pay purposes was a strong majority practice. What changed and why? If you … Continued
Meridian Partner Matthew Isakson joins TK Kerstetter, host of Inside America’s Boardrooms, to discuss “Compensation Committee Best Practices: Pay Increases & Goal-Setting.” [embedyt] http://www.youtube.com/watch?v=bRPVdmcqfyo[/embedyt] Get more insight into compensation committee goal setting from Matt Isakson and Boardroom Resources here: “4 Guiding Perspectives for Compensation Committee Goal Setting.”
Find this article and more in the most recent issue of Equilar C-Suite magazine. Find past issues of C-Suite at Equilar.com. Boards walk a fine line to align director pay with shareholder value By Ryan Villard Boards of directors bridge the gap between investors and their executive teams, providing guidance and holding management accountable … Continued
The structure of a share unit plan and how a share unit is settled can have a significant impact on its taxation and accounting treatment. This update: Considers three alternative share unit plans that are generally used in Canada and outlines the key advantages and disadvantages of each alternative Summarizes the proposed changes to the … Continued
High performing banks execute customized strategies that deliver results. They have the vision, leadership, culture and incentive programs that help to attract, motivate and retain top talent. Leaders of high performing banks articulate their strategic direction with laser focus, communicate performance expectations and achieve or exceed their stated goals. Properly designed compensation programs should reward … Continued
More and more public companies are adopting performance share unit (PSU) plans as a significant component of long-term (equity) compensation for executives.[1] The most common PSU performance metric is total shareholder return (TSR – i.e., stock price growth plus dividends) compared to performance peer companies. The choice of performance peers has a significant impact on … Continued
[su_youtube_advanced url=”https://www.youtube.com/watch?v=JMVEeD7uRmc” width=”700″ height=”420″ responsive=”no” rel=”no” fs=”no”][youtube_channel][/su_youtube_advanced] In this video, Meridian Partner Jared Berman sits down with TK Kerstetter of “Inside America’s Boardrooms” to discuss three issues that should be on the compensation committee agenda.
It’s that time of year when compensation committees begin the process of setting annual incentive goals for the upcoming performance cycle. For most public companies, these goals generally relate to financial metrics such as revenue, earnings, and cash flow that are aligned with the key objectives on which committees want management to focus. Once appropriate … Continued