CULTURE AND COMPENSATION RISKS
RC: Could you provide an overview of recent developments and trends in the executive compensation arena? Are shareholders overall satisfied with executive pay?
Haggerty: Recent developments in executive compensation are being driven by the US Securities and Exchange Commission (SEC) and its four new and pending rules. First, the CEO Pay Ratio rule will require companies to disclose the ratio of median pay of all employees to the annual total compensation of the CEO. Second, the Pay for Performance disclosure rule will require a new table and narrative description of the relationship between compensation ‘actually paid’ and total shareholder returns. Third, the Clawback Policy rule requires companies to develop, disclose and implement a compensation clawback policy. And finally, the Hedging Policy rule requires disclosure about whether employees are permitted to hedge or offset any decrease in the market value of equity held. The vast majority of shareholders are satisfied with executive pay given that approximately 75 percent of companies receive over 90 percent support for say-on pay proposals. Less than 3 percent of companies actually fail to receive majority support for say-on-pay.
RC: How important is it to foster an ethical culture from top to bottom, reflected in pay and incentive structures?
Oct-Dec 2015 Issue