Directors Confront Overscheduling Long Before Over boarding

Agenda – A Financial Times Service Article Written by Amanda Gerut That Uses MyLogIQ Data- By Amanda Gerut September 25, 2017

For Dale Jones, it was a creeping realization that settled in over time. Two outside board seats, plus serving as a newly minted CEO, was just too much.

During the past 12 months, 80 other Fortune 1000 directors have resigned from board seats for various reasons, and nearly one fifth (19.8%) of the resignations were specifically related to scheduling or time commitments, according to 8-K filings data from MyLogIQ, an SEC compliance and public company intelligence provider. During the 12 months prior, 89 directors resigned from board seats, and only five filings (5.6%) specifically referred to time commitments or scheduling.

An “overboarded” director is technically defined by proxy advisory firms and some investors as one who serves on more than five public company boards — in the case of retired executives — and more than two outside boards, when it comes to sitting executives.

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Mandatory Equity Deferrals for Directors On the Rise

Agenda – A Financial Times Service Article Written by Amanda Gerut That Uses MyLogIQ Data – By Amanda Gerut September 18, 2017

A small but growing number of boards are requiring that directors defer a portion of their annual equity compensation until after board service ends.

Deferral Differences

A look at director compensation plans using MyLogIQ, an SEC compliance and public company intelligence provider, shows that companies such as AnthemAT&TDTE EnergyMerck & Co. and Travelers Companies pay directors in deferred stock units or require a period of deferral.

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Some Reported Staggering Increases in 2016 Cash Bonuses of More than 40 percent

The Conference Board, Arthur J. Gallagher & Co. and MyLogIQ Release Comprehensive Review of Russell 3000 Executive Pay Packages

According to research on executive compensation released today by The Conference Board, while the value of cash bonuses awarded by publicly traded U.S. financial firms grew 10.6 percent overall in 2016, the analysis by asset value shows extraordinarily wide variation in the level of such growth. CEOs of leading companies with asset value in the US$50-99.9 billion group reported staggering year-on-year bonus increases of more than 40 percent in value (and almost 500 percent since 2010). However, even during the 2016 expansionary period, annual bonuses were affected by the cyclical fortunes of underperforming industries, with companies in consumer discretionary, consumer staples, health care and telecommunications services reporting median declines.

A collaboration between The Conference Board, Arthur J. Gallagher & Co. and MyLogIQ, CEO and Executive Compensation Practices: 2017 Edition documents trends and developments in CEO and senior management compensation at companies that issue equity securities registered with the U.S. Securities and Exchange Commission (SEC), and were included in the Russell 3000 index as of May 2017. The study of disclosed compensation elements is complemented by the review of the major features of short-term and long-term incentive plans (STIs and LTIs) in a subset of 100 mid-market companies included in the Russell 3000 index as of May 2017. (For the purpose of this report, mid-market refers to nonfinancial companies with annual revenue between US$1 billion and US$5 billion, and financial companies with asset value between US$1 billion and US$10 billion). In addition, the publication illustrates findings from The Conference Board survey of corporate secretaries and general counsels on the role of the board of directors in setting executive compensation, as well as the analysis of say-on-pay resolutions and shareholder proposals at Russell 3000 companies on issues of executive pay that went to a vote in the 2017 proxy season.

“We are pleased to present the new edition of what has become one of the most comprehensive benchmarking publications on the executive compensation of U.S. public companies,” said Matteo Tonello, Managing Director of Corporate Leadership at The Conference Board and a co-author. “Given today’s emphasis on pay for performance and the dialogue on equality that is expected to continue in coming years, our granular data on CEO pay across the entire Russell 3000 is a window into long-term business strategy and the changing corporate culture.”

“Using the data contained in this report as both a benchmark and trend indicator empowers employers, their compensation committees and boards to design strategic executive compensation programs to meet the needs of today’s key talent,” added co-author James Reda, Managing Director, Executive Compensation in the Human Resources & Compensation Consulting practice of Arthur J. Gallagher & Co. “Balancing the pay mix to incentivize performance, retain top performers and drive shareholder value is a complex task. This report is a valuable tool to help drive employers’ strategic decision making.”

“Our broader sample highlights the bigger picture,” said Paul Hodgson, partner of governance research firm BHJ Partners and co-author of the study. “Rather than limiting our analysis to the S&P 500 or another sample of large public corporations, our report highlights the important differences that exist in executive compensation between the S&P 500 and the broader Russell 3000 universe, making it that much more relevant and applicable to thousands of employers.”

Other findings highlighted in CEO and Executive Compensation Practices: 2017 Edition include:

  • Exceptional financial market performance continued to fuel the recourse to equity-based compensation, with the pay mix analysis confirming the inexorable rise of stock awards at the expense of both base salary and stock options. Compensation committees of boards of directors have continued to take advantage of high equity valuations to increase the amount of pay at risk, and shift the weighting of compensation elements from cash to stock. From 2010 to 2016, stock awards are up from 22.8 percent to 36.7 percent in the Russell 3000 and from 32 percent to 47.4 percent in the S&P 500, occupying a greater portion of total pay than ever before. Only seven years ago, base salary represented 30.25 percent of the typical Russell 3000 CEO pay mix, a share that fell consistently over time to reach 23.93 percent in 2016; in the S&P 500, it went from 14.22 percent in 2010 to 11.3 percent last year. In general, as widely documented since the financial crisis of 2008, the weight of stock options in the typical compensation package has been gradually reduced, mostly due to their volatility and concerns about their real effectiveness as performance motivators.
  • In addition to expanding their share of the total compensation mix, stock awards have been growing in value and offsetting the softening of stock option grants. In 2016, the median Russell 3000 CEO received US$1.4 million worth of company shares, while their counterpart in the S&P 500 received US$5.4 million—marking a growth rate of 12.4 percent in the Russell 3000 and almost 8 percent in the S&P 500. Even more remarkable is the trajectory that this component of pay has followed over the last few years: In the 2010-2016 period alone, the value of stock awarded to CEOs has risen 265 percent in the Russell 3000 and almost 100 percent in the S&P 500. Energy companies were the most generous in terms of stock grants in 2016, awarding US$3 million at the median, while health care companies reported the lowest amounts (US$402,000). Over the six-year period, the highest median increase in stock award value was tenfold and seen among consumer staples organizations. The analysis by company size reveals a direct correlation between the value of stock grants to CEOs and the size of their employer.
  • Increases in CEO base salary vary considerably by index, with the median rise in the Russell 3000 close to that for total compensation and little or no movement in the S&P 500.Low inflation rates and the shift to compensation in the form of equity awards continue to explain the moderate rise in base salary. In 2016, the median base salary rise for CEOs in the Russell 3000 was 4.6 percent, compared to less than a percentage point in the S&P 500. By means of comparison, for 2016 The Conference Board has recently reported an overall base salary increase for the general workforce of U.S. public companies of 3 percent, the same as in each of the last seven years.[1] A more detailed breakdown by revenue and asset value confirms that rises in base salary for CEOs of the largest companies lagged those of the smallest by significant amounts. Only those CEOs leading the very largest companies, US$50 billion and more in revenue, received an increase of more than 5 percent. Most others were in the region of 2 percent or less.
  • While increases in base salary for Named Executive Officers were similar to those for total compensation, NEOs benefited from much higher bonuses, especially in the S&P 500.The rates of increase in NEO base salary closely mirrored those seen for their total compensation—more specifically, they were 5.1 percent in the Russell 3000 and 3.2 percent in the S&P 500. No significant variation in base salary emerges from the analysis by industry, either over the last year or over the last six years, except for health care companies that reported the highest of all median annual salary raises (8.6 percent). In the analysis by size, changes in base salary also followed a pattern that is very similar to the one described for total compensation. The rate of change for annual bonuses, on the other hand, was higher than that for total compensation, which would lead to an increase in cash incentives in the overall mix. The pattern by company size was also reversed, as bonuses increased by more for NEOs in the S&P 500 (9.3 percent) compared to those in the Russell 3000 (7.7 percent). The overall value of annual bonuses has changed very little over the last six years, especially in the S&P 500, where it has hovered around US$600,000 for the whole period. For both groups, there was a drop in bonus value in 2015, leading to the more substantial increase to 2016 as bonuses recovered.
  • Performance-based awards now approach 50 percent of the total LTI award value at mid-market companies, demonstrating that these companies adopt the LTI trends of the country’s largest companies, but with some lag time. Among the Top 200 U.S. companies by market capitalization, performance-based LTI awards first averaged 50 percent of LTI grant value back in 2012, reflecting at that time a greater desire among large companies for pay-for-performance alignment and rewards with a big potential upside still within the limit of Internal Revenue Code Section 162(m) tax-deductibility. That said, the mid-market is catching up, with performance-based awards making up 48 percent of the total LTI grant value in 2016, up from just 39 percent in 2014. Following the trend of large companies, as performance-based awards have increased in the mid-market, both appreciation awards and time-based restricted stock/units have declined (from 26 percent and 35 percent in 2014 to 20 percent and 32 percent in 2016, respectively). With respect to the choice of compensation vehicles, in designing LTI awards with two or more performance metrics, a number of companies tend to prefer a balanced approach that incentivizes stock appreciation, corporate results and retention. In 2016, 29 percent of companies used all three types of LTI awards: 1) appreciation awards that include stock options, SARs (stock appreciation rights) and incentivized stock price increases); 2) performance-based awards that include performance shares, performance restricted stock, and performance or premium stock options; and 3) long-term incentive cash—effective vehicles to promote corporate performance targets and restricted stock to ensure executive retention. Use of all three LTI award vehicles has nearly doubled since 2014, when only 16 percent of companies structured plans this way.

CEO and Executive Compensation Practices: 2017 Edition is available for download here.

A fee may apply for non-members of The Conference Board.

‘New Normal’ in Pay Extends to Directors

Agenda – A Financial Times Service Article written by Amanda Gerut in Collaboration with MyLogIQ

The relatively nominal raises seen in CEO pay at the largest companies are also being reflected in boards’ increases to their own pay plans. Compensation consulting firm Willis Towers Watson reports that among 300 Fortune 500 companies, total direct compensation for directors grew 2% at the median, to roughly $260,200, from 2016 to 2017.

A look at some of the most recently filed proxies using MyLogIQ, an SEC compliance and public company intelligence provider, shows numerous examples of the various approaches boards take in structuring pay for lead directors with dual roles.

 

To view the full article click here. 

 

 

Boards Uneasy About ‘The Survivor Question’

Agenda – A Financial Times Service Article written by Amanda Gerut in Collaboration with MyLogIQ

Nominating and corporate governance committees are grappling with how to make board evaluations more meaningful, and one niggling question that has emerged is whether boards should ask individual directors to rank the contributions of peers.

Data from SEC compliance and public company intelligence provider MyLogIQ shows that Arconic’s corporate governance guidelines state that “board positions should not be regarded as permanent. Directors should serve only so long as they add value to the board, and a director’s ability to continue to contribute to the board should be considered each time the director is considered for re-nomination.”

To view the full article click here. 

Board Moves: Tech, Big Data and Industry Experience Seen in New Recruits

Agenda – A Financial Times Service Article written by Amanda Gerut in Collaboration with MyLogIQ

“Boards are finding new board recruits with expertise in software, big data and cyber security and other industry experience, and are expanding board sizes as a result. In addition, retirement age policies have prompted director resignations at AAR Corp. and General Mills.

Data from SEC compliance and public company intelligence provider MyLogIQ shows that boards such as Abbot LaboratoriesAdvanced Micro DevicesConocoPhillips and McClatchy announced the appointments of directors with expertise in various areas of technology in the past month.”

To view full document click here. 

How Microsoft Reformed Its ‘Toxic’ Culture

Agenda – A Financial Times Service Article written by Amanda Gerut in Collaboration with MyLogIQ

Company culture at Microsoft in 2013 had grown so “toxic,” said independent chairman John Thompson, the board couldn’t get its top choices of executives from outside the company to sign on as the $526 billion software behemoth’s new CEO.

The CEO succession the board oversaw in 2014 led to a strategic and cultural shift, and board members followed it with a series of governance improvements and an infusion of new directors. Since 2012, the board size has expanded by two, and eight new independent directors have joined the board. Six directors have left. Governance experts are urging other boards to follow the lead of companies such as Microsoft and regard directorships as tours of service based on company strategy rather than an appointment that typically spans close to a decade or longer.

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Lead Director Profile: CEOs Wanted

Agenda – A Financial Times Service Article written by Amanda Gerut in Collaboration with MyLogIQ

As more boards provide additional details about the role and function of lead directors in company governance, common attributes and experiences that shape lead directors at the largest companies are emerging.

Though the responsibilities of lead directors and the profile of the position vary from company to company, data collected by SEC compliance and public company intelligence provider MyLogIQ shows several striking similarities among lead directors at the largest companies.

To view the full article click here.

Board Moves: Director Exits, CEOs Tapped for Board Seats

Agenda – A Financial Times Service Article in Collaboration with MyLogIQ

A slew of new appointments to the boards of ArconicMattel and Waters include sitting or retired CEOs of publicly traded companies, reports Agenda’s Amanda Gerut with data provided by MyLogIQ. In addition, several directors have given notice that they won’t be continuing with the boards of such companies as Alaska Air GroupArconic and General Mills.

To read the full article please click here.

Qatar and SEC Comment Letters on State Sponsors of Terrorism

Recently several Gulf nations, including Saudi Arabia, have severed connections with Qatar; they claim the country is destabilizing the region with its support for extremist groups. Though the United States has interests in the country of Qatar, President Trump has expressed his support for the boycotting of Qatar by the Gulf Nations, claiming “…perhaps this will be the beginning of the end to the horror of terrorism!”

If President Trump followed Saudi Arabia’s lead and pushed to label Qatar as a state sponsor of terrorism, what would this mean for public companies? What industries would most be affected?

Currently, the Department of State has labeled three different countries as state sponsors of terrorism: Sudan, Syria, and Iran. These countries are subject to U.S. economic sanctions and export controls.

The Securities and Exchange Commission ensures that public companies are depicting the nature and extent of any past, current, and anticipated contacts with these countries, whether through subsidiaries, affiliates, distributor, partners, joint venture partners or other direct or indirect arrangements in their SEC filings.

MyLogIQ studied trends in SEC Comment Letters relating states labeled as sponsors of terrorism and found the following data:

The top 10 industries who received SEC Comment Letters relating to countries designated as sponsors of terrorism and the number of companies for each industry are:

MyLogIQ also studied SEC filings for mentions of Qatar. The top 10 industries who have disclosed relationships or possible associations with Qatar are shown below.

SEC Comment Letter Disclosures:

Company: Delta Airlines Inc/DE/

SEC Comment Letter Disclosure: Please discuss the materiality of any contacts with Sudan and Syria you describe in response to the comment above, and whether the contacts constitute a material investment risk for your security holders.

Company Response: Deltas total revenues for 2014, 2015, 2016 and the first three months of 2017 were $40.4 billion, $40.7 billion, $39.6 billion, and $9.1 billion, respectively. As discussed in the response to comment 1 above, Delta did not operate flights to or from either Sudan or Syria during the referenced period nor did its subsidiaries or the companies in which Delta holds a minority investment operate in either of the two countries. The interline sales commission revenue Delta received from flights operated to or from Sudan (on carriers other than Sudanese carriers) did not exceed $3,000 per annum in any of the referenced period and did not exceed $2,000 per annum in two of the years in the referenced period. Delta had no revenue related to Syria in any of the years in the referenced period.

 

Company: Comcast Corp

SEC Comment Letter Disclosure: A press release on the NBCUniversal.com website dated January 13, 2016 states that NBCUniversal International signed a long-term deal with OSN, a pay-TV network in the Middle East and North Africa, granting OSN exclusive rights to NBCUniversal International content including the Syfy channel. The OSN.com website provides TV scheduling for its services in Sudan and Syria that include the Syfy channel and programming produced by Universal Pictures, an entity you identify on page 1 of the 10- K as included in your filmed entertainment business segment. Sudan and Syria are designated by the Department of State as state sponsors of terrorism, and are subject to U.S. economic sanctions and export controls. Please describe to us the nature and extent of any past, current, and anticipated contacts with Sudan and Syria, whether through subsidiaries, affiliates, distributors, partners, joint venture partners or other direct or indirect arrangements.

Company Response: NBCUniversal has not had any agreements and/or commercial arrangements with the governments of either Syria or Sudan during the last three fiscal years or the three months ended March 31, 2017 (the Relevant Time). NBCUniversal has had minimal contacts with Sudan and Syria during the Relevant Time as described below. We note that, although Sudan has not yet been removed from the list of state sponsors of terrorism, pursuant to a general license issued on January 17, 2017 by the U.S. Department of the Treasurys Office of Foreign Assets Control (OFAC), U.S. persons are currently generally permitted to transact with individuals and entities in Sudan. Further, Executive Order 13761, dated January 13, 2017, provides for the revocation of the sanctions provisions in prior Sudan-related Executive Orders on July 12, 2017, if the Government of Sudan sustains certain positive actions. We do not have business offices or ongoing operations located in Sudan or Syria. While our general approach is to exclude Sudan and Syria, as well as other countries subject to U.S. economic sanctions, from NBCUniversals distribution, programming, and licensing contracts, occasionally Sudan and/or Syria have been included within a larger territory covered in certain contractual arrangements in a manner consistent with OFAC regulations based on the application of guidance related to the general inventory rule and/or the informational materials exemption.

Company: Exar Corp

SEC Comment Letter Disclosure: We are aware of publicly available information indicating that you have significant business with ZTE Corporation, which is reported to have sold products into Sudan and Syria. Sudan and Syria are designated as state sponsors of terrorism by the State Department and are subject to U.S. economic sanctions and export controls. You do not include disclosure in the Form 10-K about contacts with Sudan and Syria. Please describe to us the nature and extent of any past, current and anticipated contacts with Sudan and Syria, whether through subsidiaries, original equipment manufacturers, distributors, customers or other direct or indirect arrangements.

Company Response: The Company has not entered into any agreements, arrangements or other contacts with Sudan or Syria and has no future plans to enter into any such agreements, arrangements or other contacts. Moreover, the Company does not maintain any offices or other facilities in Sudan or Syria, has no employees in either of those countries, and has no assets or liabilities associated with activities in either of those countries. The Company derives its revenue from the sale of semiconductors to distributors who then sell parts to their customers to integrate or incorporate into other products. The Companys distributors work with their customers to fulfill any orders that involve Company products. The Company receives a weekly resale report from its distributors so it can monitor its sell-through to its end customer. With respect to ZTE, which the Company considers its end customer, the Company does not directly sell any products to ZTE; all prior sales to ZTE have gone through the Companys distributors and consisted of sales of the Companys standard commodity products. In addition, the Company believes its standard terms and conditions of sale obligate its distributors and its end customers to strictly comply with United States export control laws and regulations.

 

 

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