As You Sow Releases 2019 Annual Report on Overpaid CEOs

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As You Sow published its annual report on the Top 100 Overpaid CEOs among S&P 500 companies on February 21, 2019. As you might expect, the report details those companies who in As You Sow’s view have overpaid CEOs.

https://www.asyousow.org/report/the-100-most-overpaid-ceos-2019/

Key findings of the report:

  • Large institutional shareholders are opposing more CEO Pay packages by voting Against Say-on-Pay votes
  • The number of companies where a large number of shares were voted Against the CEO pay package has increased
  • Companies that As You Sow’s first report 5 years ago identified as Overpayers have underperformed the S&P 500

The report also includes many helpful charts and graphs looking at institutional shareholders and how they have reacted to CEO pay and their votes against CEO pay packages.

Incentive Plan Changes Making News

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We are on the cusp of the 2019 proxy season. Reporters are getting geared up to review the proxy statements of large, household named, public companies and report what they discover. Ahh, the sweet smell of anticipation! A heady aroma of blood, sweat, tears, and a bit of nervousness?

In any event, reporters got started a bit early this year (and who could really blame them given what companies have already disclosed). There have been a number of stories that look at changes in incentive plans that have been announced by companies so far in 2019:

  • Shell–will link high-level employee pay to carbon reduction targets after engaging with shareholder activist Climate Action 100+
  • BP— will factor greenhouse gas emission reductions into rewards for 36,000 employees worldwide after engaging with Climate Action 100+
  • Chevron— plans to set greenhouse gas emissions targets and tie executive compensation and rank-and-file bonuses to the reductions
  • Facebook–plans to incorporate social issue-related metrics into its employee bonus program to reflect updated company goals; none of the factors reportedly will have pre-assigned weightings or monetary values attached to them, instead Committee will use discretion to determine performance.
  • Goldman Sachs–announced that as a result of the on-going investigation into the Malaysian investment fund if the investigation reveals information that would have impacted the company’s year-end compensation decisions, the Committee may reduce or clawback the executives’ 2018 year-end equity awards.

All of the above companies are in a similar situation–events outside of their immediate control (shareholder activists or the media) caused them to revise how they will measure compensation. As shareholder activism increases and the notion of what is good for our society under goes a shift as younger folks begin taking over key roles in society, we are likely to see this trend continue.

Consequently, companies should keep a close eye on emerging issues in their industry and the broader market, identifying those that may require changes to their compensation plans and designs, and keep a “work in progress file on how such changes potentially could be made as well as potential implications for the company of both making and not making such changes. For companies with the foresight to do such planning, they will be rewarded with the ability to better respond to changing events more rapidly, instead of floundering for a bit to find the path that best suits the company’s long-term, strategic goals.

Summary of Larry Fink’s 2019 Letter to CEOs

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Early this week, Larry Fink, the Chairman and CEO of BlackRock, issued his annual letter to CEOs of public companies in which BlackRock is invested. If you haven’t already done so, go read Mr. Fink’s 2018 letter to CEOs before proceeding (it will help you better understand this year’s letter). I’ll wait.

Click HERE to access Mr. Fink’s 2018 Letter to CEOs

Okay. So now you know that in 2018 Mr. Fink urged CEOs to detail their strategy for long-term growth, starting with their company’s purpose. Mr. Fink also announced that BlackRock would be a bit more active in ensuring that BlackRock’s index funds looked at how the companies they held stakes in were going to ensure long-term growth. The 2018 Letter announcement marked a significant change in how index funds at BlackRock would operate. Given BlackRock’s size, this change will have an impact on both the public companies in which it holds stakes as well as other index funds.

In his 2019 Letter, Mr. Fink further refines his message and indicates that laying out a purpose alone is insufficient. Instead, companies need to articulate how they will generate profits long-term and serve all of its stakeholders effectively.

Mr. Fink’s 2019 Letter also asks that CEOs provide leadership (where they can) to help tackle and perhaps solve, social and political issues that are confronting the countries, regions, and communities in which their companies operate. One of these critical issues is retirement. Mr. Fink believes corporations need to reassert their traditional leadership role with respect to retirement that they used to hold. Mr. Fink sees helping workers navigate retirement as leading to the creation of not only a more stable and engaged workforce, but also a more economically secure population in the places a company operates.

Noting the shift in attitudes of the younger generation and the impending large trans-generational asset re-allocation, Mr. Fink argues that corporate valuations will be influenced by the shift in values between the current and younger generations, and companies should recognize that shift and start acting in a manner that will minimize the impact on their valuations.

Finally, Mr. Fink announced BlackRock’s Investment Stewardship engagement priorities for 2019:

  • governance, including a company’s approach to board diversity
  • corporate strategy and capital allocation
  • compensation that promotes long-termism
  • environmental risks and opportunities, and
  • human capital management.

Mr. Fink indicates that BlackRock will not focus on a company’s day-to-day operations, but will seek to understand a company’s strategy for achieving long-term growth. He also reiterates what his 2018 Letter said, “for engagement to be productive, they cannot occur only during proxy season when the discussion is about an up-or-down vote on proxy proposals. The best outcomes come from a robust, year-round dialogue.”

Click Here to see Mr. Fink’s 2019 Letter to CEOs

News Roundup

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This week there were several news items regarding executive, director and equity compensation, including: