In the US, the corporate world is worried about disclosing pay ratios. In Switzerland, they are looking to cap CEO pay compared to the lowest paid employee at no more than 12:1. Here’s news from this excerpt of a WSJ article:
Switzerland is expected to vote later this year on a proposal to place further limits on executive pay, the latest effort to govern corporate compensation in a country that recently approved some of the world’s strictest say-on-pay rules. The Young Socialists, the youth wing of the left-leaning Social Democratic Party of Switzerland, have collected more than 100,000 signatures–the threshold needed to call a vote–in support of a referendum to limit executive salaries to 12 times those of a company’s lowest-paid employee. The campaign, dubbed the 1:12 Initiative for Fair Pay, is named for the organizers’ belief that no one in a company should earn more in one month than the lowest-paid employee makes in a year.
On Thursday, the Council of States, Switzerland’s upper house, will debate what recommendation it should give on the initiative, which voters are expected to consider in September or November. Two other government bodies have already recommended a rejection of the pay proposal.
The referendum will be the second time Swiss voters have been asked to weigh in on the country’s corporate-pay structure this year. This month they overwhelmingly approved the Minder Initiative, named for its creator, businessman and politician Thomas Minder, and also known as the “Rip-Off Initiative.” The plan allows the government to draft sweeping controls on compensation, such as requiring a binding shareholder vote on pay, as well as fines and jail time for violations.
And, as noted in this Reuters article, the Germans have started on work on their own set of new rules to rein in excessive pay…
Here’s news from Wachtell Lipton’s David Katz, Warren Stern & Kim Goldberg culled from this memo:
Reaffirming that the advisory “say-on-pay” vote required by the Dodd-Frank Act cannot be used to attack directors’ executive compensation decisions, the United States District Court for the District of Delaware recently dismissed a derivative complaint brought after a negative say-on-pay vote. The court, applying Delaware law, found that the plaintiff had not pleaded facts sufficient to show that demand would have been futile, or to state a claim upon which relief could be granted. Raul v. Rynd, C.A. No. 11-560-LPS (D. Del. March 14, 2013).
The complaint was filed in 2011, and was one of a number of similar lawsuits filed after Dodd-Frank’s requirement for advisory votes on compensation came into effect. The plaintiff challenged the board’s compensation decisions, alleging that increased compensation in a year when the company posted a net operating loss and negative shareholder return violated the company’s pay-for-performance philosophy and rendered the company’s compensation disclosures in its proxy statement misleading. The plaintiff asserted that the negative shareholder advisory vote rebutted the presumption of business judgment surrounding the board’s compensation decisions.
In dismissing the complaint, the court found that the plaintiff “misconstrue[d] the effect of the shareholder vote” and “mischaracterize[d]” the compensation plan, holding that the plaintiff’s allegations based on the advisory vote “fail to recognize the[] realities of Dodd-Frank” — namely, that the Act “explicitly prohibits construing the shareholder vote as ‘overruling’ the Board’s compensation decision” or altering directors’ fiduciary duties. The court further noted that the plaintiff’s “selective” characterization of the company’s compensation philosophy as “pay for performance” excluded the other goals discussed in the company’s proxy statement.
The Raul decision reinforces the Dodd-Frank Act’s bar on attempts to use the advisory shareholder vote to overrule directors’ business judgment on matters of executive compensation. The decision recognizes that directors should be permitted to determine appropriate compensation for executives in accordance with their company’s overall compensation philosophy — including such motivations as attracting, retaining, and incentivizing executives — without fear that they will be subject to liability should shareholders express disagreement with those judgments through an advisory say-on-pay vote.
As noted by Towers Watson’s Katharine Turner in this blog:
On March 8, the U.K. Department for Business, Innovation and Skills (BIS) published an updated draft of the new reporting regulations for executive remuneration. While the framework for the new disclosures remains largely unchanged, the revised draft includes some welcome clarifications and refinements, as well as some provisions that will raise the disclosure bar even further, including:
– New requirements for the disclosure of bonus performance targets
– Updated proposals to require two separate charts, one showing total shareholder return (TSR) and one showing CEO pay for five years initially, increasing to 10 years over time
– A requirement that companies disclose their recruitment policies, including a maximum salary amount (expressed as a percentage of pay for the highest paid executive).
BIS has asked for comments on the revised draft regulations by March 25, with final versions of both the updated Companies Act provisions and the reporting regulations expected in May. The new reporting regime will be effective as of October 1, 2013.
Our recent U.K. Executive Compensation Market Watch provides a detailed summary of the changes, along with an overview of the new reporting regime, a sample structure for a new form of remuneration report, next steps and summary tables on all the disclosure requirements.
It is also worth noting that, while all the reports on the recent lawsuit against Apple’s proxy statement in the Southern District of New York focused on the unbundling claim made by Greenlight for the charter amendment proposal, as we previously discussed, little known is that the judge in that case also dismissed efforts by another plaintiff to enjoin the say-on-pay proposal. That plaintiff had claimed that Apple’s use of terms like “experiences,” “input” and “peer group data,” when describing the compensation committee’s judgment in granting long-term equity, failed to provide sufficient information. The judge found, however, that since the plaintiff did not identify any material omission in the proxy and since the compensation discussion and analysis section included in the proxy statement was compliant with the SEC rules, the plaintiff was unlikely to succeed on the merits.
Nonetheless, the Symantec and, in the say-on-pay preliminary injunction context, Apple successes do not mean that U.S. public companies should relax and assume that the plaintiffs’ bar will be deterred. At least one law firm that has been particularly active in filing these types of lawsuits has recently identified several more companies which it is investigating for potential breaches of directors’ fiduciary duties in connection with say-on-pay proposals. Given that the proxy season is upon us, we continue to recommend that companies pay extra attention to their executive compensation disclosure.
Dynasil – a Delaware corporation – recently filed its Form 8-K regarding its say-on-pay vote revealing the following results:
– 48% For
– 14% Against
– 38% Abstain
– 0% Broker Non-Votes
Despite the lack of majority support, the company counts its SOP as passing due to this statement in its proxy statement:
The proposal will be considered approved at the annual meeting if more votes are cast in favor than against. Abstentions and broker non-votes will not count
as votes cast for or against this proposal.
Thanks to Steve Hall of Steven Hall & Partners for the heads up!
European Commission Internal Markets Head Michel Barnier says he will push for European Union-wide legislation mandating say-on-pay, Reuters reported. The public announcement follows a March 3 vote by Swiss citizens backing a measure to radically curb executive pay, and a provisional agreement last week between EU regulators and lawmakers to limit bank bonuses at no more than two times salary.
According to the report, the EC, which writes the first draft of EU law known as directives, will propose a mandatory say-on-pay vote applicable across all 27 member states by year’s end. “I am in favor of making shareholders more responsible on pay. I am currently working on EU legislation that would give shareholders a mandatory say on remuneration,” Barnier told Reuters March 6.
A spokesman for the Commission said Barnier’s proposal would aim to empower shareholders rather than to limit pay, Reuters reported. Any legislation is also likely to be part of a broader “action plan” as laid out by the EC in December. Action plan goals include improving transparency on remuneration policies and individual remuneration of directors alongside granting shareholders the right to vote on the remuneration policy. The past week’s developments may prompt consideration of a binding vote on forward looking pay policies, which is now in the works for U.K. companies, pending passage of related legislation later in the year. The March 3 Swiss referendum, backed by more than two-thirds of voters, put in place some of the most rigorous pay curbs globally while empowering shareholders on various elements of Swiss executive remuneration.
Tune in tomorrow for the webcast – “What the Top Compensation Consultants Are NOW Telling Compensation Committees” – to hear Mike Kesner of Deloitte Consulting, Jan Koors of Pearl Meyer & Partners, Blair Jones of Semler Brossy and Eric Marquardt of Pay Governance “tell it like it is. . . and like it should be.” The topics include:
– What is ISS QuickScore & How Relates to SOP
– Weaknesses in ISS’ Pay-for-Performance Assessments
– How ISS Overvalues Options
– The Use of Peer Groups
– How to Demonstrate Pay-for-Performance Alignment
– Severance and Pay-for-Performance
– Fighting ISS Recommendations
– Moving Away From a Relative TSR Program
– Clawbacks
What can I say about this Crain’s article? It piggybacks off a paper by a U. of Illinois professor who claims that CEOs who adopt good governance frameworks ingratiate themselves with their board and wind up with a larger pay package.
Just thinking out loud here: do you think this academic has ever talked to a director or someone who has actually been in a boardroom? There certainly are better ways to kiss the bottom of a director than adopt good governance! One of the first stories I heard when I got in this field many moons ago – crisp $100 bills were placed under the dinner plates for each director, the dinner being held the night before a board meeting…