Executive Pay Matters

Executive Compensation Bulletin: Annual Proxy Analysis Shows CEO Pay Growth Slowed in 2011, While Link to Performance Remained Strong at Most Companies

Wed, 16 May 2012 11:16:14 EST

Total direct compensation for chief executives of the nation’s largest companies grew at a less aggressive pace in 2011 than it did in 2010, according to Towers Watson’s recent annual analysis of executive compensation. The analysis also confirms that most companies continue to show strong alignment between CEO pay and company performance, and it shows that a number of companies exercised discretion to reduce incentive payouts. This article provides a closer look at our analysis, which examined the 225 Fortune 1000 companies that filed proxies by the end of March.

Director Pay Trends — As Demands of the Role Increase, So Do Pay Levels

Fri, 11 May 2012 2:11:51 EST

Director compensation remained relatively flat for several years following the financial crisis. Since 2010, many companies altered their director pay programs to compensate for the growing demands and accountability that directors are facing. Our review of proxy statements filed early in the 2012 proxy season shows that this trend continued in 2011.

And Your Executive Pay Program Is Good for Shareholders Because-

Tue, 08 May 2012 12:29:46 EST

It’s a good question. And more and more people — not just proxy advisors and institutional shareholders — expect the answer to be better explained. A good place to start is with the CD&A.

Paying for Performance in the U.K. — Defining Your Terms and Managing Unintended Consequences

Mon, 07 May 2012 11:46:42 EST

The search for how best to measure performance and then how to link that performance to pay lies at the heart of the great debate on executive pay at the moment. It may be wise to steer clear of the view that certain things are always right (what some might call ‘best practice”) and that others are always wrong.

Say-on-Pay 2012 Update — Steady as She Goes (So Far)

Fri, 27 Apr 2012 4:06:27 EST

While most companies continue to receive strong shareholder support for their 2012 say-on-pay votes, recent high-profile failures prove shareholders are still inclined to cast negative votes at companies where pay and performance concerns are present.

Three Myths About the Impact of Proxy Advisor Recommendations on Say-on-Pay Votes

Mon, 23 Apr 2012 10:01:46 EST

In the say-on-pay era, it’s no surprise that proxy advisors are perceived to be gaining greater influence on shareholder voting. Upon closer inspection, however, proxy advisors’ impact is more nuanced than generally thought, and a new academic study sheds light on several commonly held myths

CEO Compensation Increased Moderately in 2011, Towers Watson Analysis Finds

Tue, 17 Apr 2012 11:24:46 EST

Our review of 2012 proxies filed by 225 Fortune 1000 companies found that median annual salaries increased 2.6% for CEOs in 2011, while annual bonuses paid were flat. Total direct compensation, which includes salary, annual bonuses plus the grant value of long-term incentives, increased 5.6% in 2011.

Executive Compensation Bulletin: SEC Burdens for Executive Compensation Reduced

Fri, 13 Apr 2012 5:36:50 EST

New legislation has just been enacted that makes a number of positive changes to U.S. securities laws relevant to executive compensation. Some of the changes made by the Jumpstart Our Business Startups (JOBS) Act facilitate broad use of equity compensation by private companies, while others address disclosure burdens faced by companies making initial public offerings (IPOs) of their stock

The Potential Importance of Disclosing Your Compensation Philosophy

Wed, 11 Apr 2012 1:54:25 EST

In the past, we’ve been critical of Compensation Discussion and Analysis (CD&A) disclosures containing boilerplate statements that don’t change from year to year. Now comes a recent say-on-pay court opinion that has us thinking that maybe that view should not apply to discussions of pay philosophy.

Standing Your Ground: Company-Selected Peers vs. ISS Pay-for-Performance Peers

Tue, 03 Apr 2012 4:54:02 EST

With updated Institutional Shareholder Services (ISS) voting policies in place, the 2012 proxy season is already proving contentious for some companies. The issue around whether to draw a line in the sand with respect to peer group selection and challenge the peers selected by ISS is gaining momentum

U.K. Government Provides More Details About Its Binding Say-on-Pay Proposals

Fri, 30 Mar 2012 2:34:31 EST

The Department of Business, Innovation and Skills has published a detailed consultation document on enhanced voting rights for U.K. shareholders, including the proposal to require binding say-on-pay votes in the U.K and, in some instances, to increase the approval threshold to 75% of votes cast. The new voting regime, as finalized, is due to come into effect for reporting years ending on or after October 2013.

Into the Vanguard — Greater Transparency to the Shareholder Engagement Process

Thu, 29 Mar 2012 5:18:54 EST

In initiating dialogue with investors, there can be a tendency for companies to focus too heavily on the leading proxy advisors, rather than on the views of their own investors. Many institutional investors have gone on record stating that they don’t blindly follow the advice of proxy advisors. In this regard, we noted with some interest Vanguard’s recent publication of its views on executive compensation, which supplement its proxy voting guidelines.

Companies Use Increasingly Sophisticated Incentive Programs to Attract Talent and Drive Performance in Key Asian Markets

Tue, 27 Mar 2012 3:31:51 EST

Despite recent signs of moderation in the economic growth rates of some Asian countries, the war for experienced leadership talent remains fierce across the region. At the same time, companies in Asia continue to pursue growth strategies targeting increased sales and expansion into adjacent markets. One upshot of these trends is that more and more companies in Asia are using sophisticated incentive programs — both annual and long-term — that are linked closely to company performance and in many ways are increasingly consistent with incentive practices in other parts of the world.

Now Open: Towers Watson Data Services’ 2012 Executive Compensation Surveys

Mon, 26 Mar 2012 12:06:06 EST

To make sound executive pay decisions, robust and up-to-date market data are critical. The best way to ensure that companies have access to such data is to participate in one or more of the executive compensation surveys conducted by Towers Watson Data Services (TWDS), the leading provider of compensation data and research globally

Executive Compensation Bulletin: Year Two of Mandatory Say on Pay in the United States — Early Votes Offer a Glimpse of What’s in Store for the 2012 Proxy Season

Fri, 23 Mar 2012 1:01:09 EST

Despite overall strong shareholder support in 2011 votes, interest in say on pay remains intense in year two of mandatory advisory votes. Early year-two results suggest that support for companies’ resolutions will stay relatively even with 2011 on an aggregate basis, albeit with large shifts in support for some companies.

High CEO Pay Opportunity and Pay-for-Performance Disconnects Likely to Trigger More Say-on-Pay Opposition, Towers Watson Analysis Finds

Wed, 21 Mar 2012 11:27:47 EST

Companies that give their CEOs high pay opportunities are more likely to receive lower levels of shareholder support for their say-on-pay votes than those with smaller pay opportunities, according to a Towers Watson review of pay data and 2011 say-on-pay voting results for 728 companies. The study also found that the likelihood of receiving lower levels of shareholder support triples for companies with poor performance compared to those that are top performers.

Beyond the Proxy… and Proxy Advisors

Mon, 19 Mar 2012 11:34:43 EST

To help boards and compensation committees navigate the 2012 say-on-pay environment, we consulted with several leading institutional investors to gauge their top “hot button” issues and better understand the kind of dialogue they want to have with their portfolio companies. Their observations offer a preview of what investors are on the lookout for in deciding how they will cast their 2012 say-on-pay votes.

How Often Might Dodd-Frank Clawbacks Be Invoked-

Fri, 16 Mar 2012 4:36:13 EST

As we wait for the SEC to propose regulations (still on the SEC agenda for the first half of this year), there’s been a lot of discussion about how the SEC might answer many of the open questions about Dodd-Frank clawbacks. But relatively few compensation professionals have yet focused on the reality of how often financial restatements triggering clawbacks might actually arise. Two recent reports found there are more restatements taking place each year than you may have thought.

Many Organizations Boosted D&O Insurance Coverage in 2011, Towers Watson Survey Finds

Fri, 09 Mar 2012 1:42:24 EST

In our recent survey of 401 organizations, a quarter of the public companies and 14% of the private companies and nonprofits increased their D&O liability insurance limits last year. Concerns about regulatory claims were cited most often, followed by concerns about shareholder lawsuits and derivative litigation.

U.S. Taxpayers Participating in Non-U.S. Equity and Deferred Compensation Plans Face New Filing Requirement

Thu, 08 Mar 2012 1:22:20 EST

Executives who pay U.S. taxes and participate in equity or unfunded deferred compensation plans sponsored by non-U.S. employers will have a new headache in filing their 2011 U.S. tax returns thanks to the Foreign Account Tax Compliance Act (FATCA), a 2010 law designed primarily to crack down on U.S. tax evasion. The same is true for those who participate in funded foreign retirement or deferred compensation plans, whether sponsored by a U.S. or non-U.S. employer.

PCAOB Proposal Could Bring Added Auditor Involvement in Executive Compensation Decisions

Thu, 01 Mar 2012 5:45:51 EST

In an unexpected move, the Public Company Accounting Oversight Review Board (PCAOB) has proposed new standards for auditor reviews of company executive compensation programs that, in some cases, may enhance auditors’ influence on executive pay decision-making. The rationale for these proposals is the notion that because incentive compensation programs can create potential incentives for executives to exaggerate corporate financial gains or minimize losses, auditors must review these programs in order to opine on the reliability of their clients’ financial statements.

Girding for the 2012 Proxy Season: Preparing for When Your CEO’s Pay Hits the Headlines

Fri, 17 Feb 2012 10:39:48 EST

It’s the most wonderful time of year for business writers. Yes, it’s the proxy season and, as has become an annual tradition, executive pay is back in the headlines. If you find yourself staring at an unflattering headline about your company’s executive pay that seems less than fair, you might want to be ready to explain the real story.

Should U.S. Companies Consider Using New Summary Pay Charts Modeled on U.K. Proxy Advisor Reports-

Thu, 16 Feb 2012 2:33:45 EST

Our short answer would be yes. U.S. companies should be considering all of the alternatives for explaining how they pay for performance for their 2012 proxies, even in advance of new SEC rules mandating enhanced pay-for-performance disclosures, as required by Dodd-Frank. For this reason, U.S. companies may want to take note of what companies in the U.K. will be seeing in reports from the U.K.-based arm of ISS.

Getting the CD&A Right a Key Focus for 2012

Tue, 14 Feb 2012 11:29:36 EST

Based on our research and recent consulting experience, it seems clear that many companies have been sharpening their pens and taking a fresh look at the Compensation Discussion and Analysis (CD&A) sections of their proxies in preparation for the 2012 proxy season. Ultimately, drafting the CD&A is can become a high-stakes endeavor, with some companies doing a better job of telling their story than others.

Executive Compensation Bulletin: So Your Compensation Committee Just Approved a New Long-Term Performance Plan- It’s Time to Implement

Wed, 08 Feb 2012 6:04:00 EST

With the growing popularity of stock- and cash-based performance plans in the long-term incentive portfolio, the decision to implement a performance plan may be the easiest part of the rollout. To ensure successful implementation of a new plan, several key considerations must be addressed and effectively communicated to plan participants and stakeholders.

Companies With SERPs Likely to Report Significant NEO Pay Increases in 2012

Tue, 07 Feb 2012 3:16:48 EST

When the SEC decided that companies must include pension value changes in Summary Compensation Table pay, commentators noted that this measure would prove volatile without regard to actual changes in plan design or covered compensation. That will certainly be the case with 2012 proxy disclosures, as declining FAS 87 discount rates will produce larger pension values for many named executive officers participating in supplemental executive retirement plans.

Capping Executive Pay in Nonprofits: More States Jump on the Bandwagon

Mon, 06 Feb 2012 5:42:25 EST

Convincing talented people to sign on for difficult jobs is hard enough, but it’s even harder when government officials tie organizations’ hands in terms of the compensation opportunities they can offer. But, that’s exactly the challenge that’s been raised in recent months in several states from coast to coast.

Executive Compensation Bulletin: New SEC Interpretation Raises Uncertainties for Performance Share Disclosure With Discretionary Vesting Provisions

Wed, 01 Feb 2012 12:24:58 EST

A Securities and Exchange Commission (SEC) interpretation concluded that the value of shares delivered under a company’s performance plan should be disclosed in the year the decision was made as to how many performance shares should be paid (i.e., at the end of the performance period), rather than in the earlier year in which the company believed those shares were actually granted (at the start of the performance period). Companies should be mindful of the SEC’s position on this disclosure issue, while also keeping in mind that other circumstances may exist in which discretionary provisions for performance grants may cause different disclosure and accounting treatment than anticipated.

A New Litigation Risk: 162(m)-Based Derivative Suits

Tue, 31 Jan 2012 11:56:30 EST

Three recent lawsuits filed against corporate board members have taken a different approach to challenging executive compensation matters than we’ve seen before. The suits allege that the companies failed to satisfy the various procedural and other requirements imposed under Section 162(m), but misled shareholders to believe that the awards would nevertheless qualify as performance-based compensation exempt from the $1 million cap on deductible compensation.

Outside Directors’ Compensation: Is It Time for a Game-Changing Proposal-

Mon, 30 Jan 2012 9:28:42 EST

When it comes to director compensation, the question should not be “are we getting what we are paying for,” but rather “are we paying for what we expect-” Simply put, our expectations at the beginning of the 21st century for an independent board member have increased significantly. It may be time for the board’s compensation to change accordingly.

Grappling With Peer Groups

Thu, 26 Jan 2012 4:31:33 EST

Let’s face it, we live in a world in which besting peers is what matters, and appropriate peer groups are critical building blocks for executive compensation. Our recent analyses for clients underscore the need for companies to be thoughtful about the selection of peer companies.

UK Government Announces New Initiatives on Executive Pay

Wed, 25 Jan 2012 3:49:36 EST

On January 23, Vince Cable, the Secretary of State for Business, Innovation and Skills, announced the UK government’s response to its consultation paper on changes to the way in which executive remuneration is reported and its discussion paper on executive remuneration more broadly. The specific proposals, while not incorporating all of the initial ideas in the government’s consultation paper, are perhaps more extensive than expected and include some ideas not in the original consultations.

Is It Time for a Change in the Tax Treatment of Stock Options-

Mon, 23 Jan 2012 12:36:34 EST

A recent New York Times article suggests that the tax code accounts for much of the popularity of stock options and defends revisions to the rules. However, the current timing rules governing the taxation of stock compensation are well-founded and economically reasonable, and proposed legislation to change the tax treatment of options may not achieve Congressional goals.

Is Your Company at Risk of a Negative Say-on-Pay Vote Recommendation Due to Pay for Performance-

Fri, 20 Jan 2012 5:28:56 EST

With the recently announced updates to the Institutional Shareholder Services (ISS) voting policies for the 2012 proxy season, projecting the potential for a negative ISS vote recommendation on say on pay will be more challenging than last year.

Executive Compensation Bulletin: Share Utilization in Fortune 500 Companies

Mon, 16 Jan 2012 4:16:33 EST

In fiscal 2009, equity award practices reversed a multiyear trend of decreasing share usage as companies increased the number of shares granted to make up for some — but not all — of the value lost due to declining share prices during the market turmoil. In many ways, 2010 was a return to the norm. A preliminary review of grants awarded in 2011 confirms that utilization continued to stabilize last year.

How Does a Corporate Resizing Affect Pay Design- Not as Much as You Might Think

Tue, 10 Jan 2012 5:23:36 EST

As the economy continues to show signs of recovery, more organizations are announcing acquisitions or sales of companies or business units. Others are spinning off units to unlock value. During a resizing, there are often many more questions than answers with regard to executive compensation.

SEC Regulations on Dodd-Frank Formally Delayed

Thu, 05 Jan 2012 5:49:43 EST

If you thought you’d missed the SEC’s rulemaking on the Dodd-Frank executive compensation disclosure rules, you can relax. Regulations were not issued before the end of 2011, as was previously planned. In fact, during the last week of December, the SEC updated its Dodd-Frank implementation timeline, including adjustments to the agency’s schedule for these executive compensation rules. Thus, it’s clear that new executive compensation disclosures will not be required in 2012 proxies for calendar-year companies since the rules will not be finalized before proxies are filed,

Executive Compensation Bulletin: Planning for Incentive Plan Determinations in a Mixed Economy

Wed, 04 Jan 2012 5:28:22 EST

Despite the success most companies enjoyed in their 2011 say-on-pay votes, the 2012 votes may well be substantially more difficult for some companies, given the divergence of 2011 earnings and stock price performance. Company earnings generally have been strong in 2011, while shareholder returns tell a less positive story. This article focuses on some tools and processes companies can use to document the analytical rigor that underlies their incentive plan award determinations.

Outcomes Matter

Fri, 23 Dec 2011 12:52:13 EST

In the corporate world, there are winners and losers, and those in between. We see evidence in earnings releases, stock prices and, yes, even in pay outcomes. Even so, the current SEC rules (through the Summary Compensation Table) focus on a definition of pay that includes cash outcomes but considers only potential pay when it comes to stock compensation. Admittedly, using Summary Compensation Table pay data is easy, but that doesn’t make it right.

Executive Compensation Bulletin: A Closer Look at the 2012 ISS Policy Update — The Devil in the Details

Thu, 22 Dec 2011 2:24:04 EST

On December 20, Institutional Shareholder Services (ISS) released a series of documents that shed more light on the organization’s 2012 U.S. proxy voting policy updates that were released in November. These documents were eagerly anticipated by ISS watchers and include further details about the revised ISS pay-for-performance methodology for 2012, updates to GRId (Governance Risk Indicators) scoring and questions, and the 2012 ISS industry burn-rate thresholds. Across the board, our detailed review of these documents suggests that companies may need to prepare carefully as the 2012 proxy season approaches and ISS begins publishing analyses of compensation reflecting the new policies.

Executive Pay in the UK — Looking Forward to 2012

Tue, 20 Dec 2011 4:47:38 EST

Despite the difficult economic environment, companies in the UK expect that executive labor markets will remain highly competitive in the coming year. Pay potential is generally expected to continue to follow the trajectory of slow or even zero growth that we’ve seen in recent times. These are among the overall findings of a recent pulse survey we conducted of UK companies to gauge current thinking on a range of executive pay matters as we head into 2012.

Executive Compensation Bulletin: Potential Shareholder Disconnect Calls for Added Attention to 2011/2012 Incentive Decisions

Mon, 19 Dec 2011 10:55:26 EST

The results of Towers Watson’s recent survey of 265 companies reveal the potential for some unpleasant surprises at the close of the current executive pay cycle. Based on their operating performance through the end of October in what’s been a relatively good year for many companies, a majority of the responding companies anticipate that annual bonus pools will be funded at or above target levels, and almost half also project above-target funding for long-term incentive cycles ending in 2011. However, for the 42% of the responding companies that expect their companies’ shareholders to see negative total shareholder return (TSR) in 2011, it’s likely that some companies could experience a chilly response to the news of their incentive payouts for 2011 operating results from investors who view performance from the perspective of portfolio returns.

Executive Compensation Bulletin: Spin-Offs and Their Effect on Executive Compensation

Tue, 13 Dec 2011 4:50:10 EST

Since the beginning of 2011, over 60 companies have announced a spin-off or breakup of their existing businesses, up dramatically from recent years. All too often, the breakup process leads to animosity on both sides, especially as it relates to executive compensation matters. This article examines some of the most critical executive compensation issues raised by spin-offs.

Coming Soon: ISS White Paper on New Pay-for-Performance Methodology

Thu, 08 Dec 2011 12:28:04 EST

As expected, Institutional Shareholder Services (ISS) didn’t release any new guidance on its December 7 webcast but instead discussed the recently announced 2012 changes in its policies and provided some context behind the key updates. We hope an ISS white paper expected next week will address some of the questions that have been raised about the 2012 changes in the ISS methodology for evaluating pay for performance.

Health Care Organizations Face Increasingly Complex Executive Compensation Issues

Tue, 22 Nov 2011 11:29:18 EST

There’s probably never been a more complex or challenging environment for health care providers than there is today. Marked by health care reform and increased disclosure requirements and scrutiny, the current environment holds important implications for executive compensation in the industry, especially in not-for-profit organizations.

How Soon Will Pay Regulations Reach Insurance Companies-

Mon, 21 Nov 2011 12:11:47 EST

It’s unlikely that U.S. insurance companies will be able to completely escape the tidal wave of pay scrutiny and regulation that has swept through the banking industry in this country (and globally). The impact on insurers is evolving and may not be felt as strongly as by banks, but the wave is about to reach the shoreline

ISS 2012 Policy Updates Focus on Pay for Performance and Responsiveness — Towers Watson’s Summary and Takeaways

Fri, 18 Nov 2011 2:04:37 EST

Institutional Shareholder Services (ISS) just released its 2012 U.S. corporate governance policy updates. The compensation-related updates arrive with few surprises since they track the draft policies released in October. The 2012 updates are largely focused on pay for performance and board responsiveness related to say on pay.

IRS Clarifies Application of Two-and-a-Half-Month Rule for Bonus Pool Deductions

Thu, 17 Nov 2011 1:26:28 EST

The IRS has issued a revenue ruling clarifying the circumstances in which accrual-basis employers can take a deduction for bonuses earned during a tax year that are paid within two and a half months after the end of that year. The new ruling adds certainty that the IRS will not challenge a bonus pool arrangement that includes a “must be present to win” provision as long as the value of the bonus pool ultimately is paid within two and a half months after the end of the tax year.

Executive Compensation Bulletin: Taking Measure of a Mixed Economy — Implications and Challenges for Executive Pay

Wed, 16 Nov 2011 11:35:13 EST

Current economic and equity market trends hold important implications for executive pay because of the potential disconnect between companies’ financial/operating performance and their stock price at the end of the year. This article is the first in a series exploring the current economic environment and the implications for executive pay.

Towers Watson Submits Comments to ISS on Peer Selection

Thu, 10 Nov 2011 1:10:17 EST

Towers Watson recently submitted a comment letter to Institutional Shareholder Services (ISS) on the draft ISS 2012 policies relating to say on pay. ISS received a total of almost 50 comment letters on the proposed changes to its proxy voting policies and is expected to issue its revised policies for 2012 the week of November 14.

Finger Pointing Misses the Mark

Mon, 07 Nov 2011 4:55:43 EST

Being mentioned in the company of national icons like Harvard University and the Supreme Court would normally be a positive. But not when the context is yesterday’s Washington Post article that included Towers Watson among these and other “culprits” of income inequality because of our leadership position in the executive compensation consulting space. While we might have concerns about unemployment levels and lack of growth in the U.S. economy, we also feel there’s little to be gained by playing the blame game regarding income disparity, a topic that is, by any measure, incredibly complex.

Preparing for the Unexpected Is Key to Successful Shareholder Voting

Fri, 04 Nov 2011 12:34:46 EST

It’s been said many times in many contexts, but thoughtful preparation really is the key responding to the unexpected. Taking a few small steps now can help make the difference in your next shareholder votes.

2012 UK Executive Pay Trends Survey Now Open

Thu, 03 Nov 2011 12:27:05 EST

As part of Towers Watson's ongoing research program globally, we’re currently conducting a short survey to gauge companies' current thinking about their executive compensation programs in the UK as we move into the period when many will be considering annual salary reviews and any changes to short and long-term incentive plans. Companies with executives in the UK can participate in the online survey until November 15.

Executive Compensation Bulletin: Golden Parachutes — Still With Us, But for How Long-

Tue, 01 Nov 2011 12:41:57 EST

Although the trend toward eliminating the most egregious provisions continued this year, golden parachute arrangements remain a staple of the pay package for over two-thirds of top U.S. executives today. Our latest annual study of change-in-control severance arrangements found that almost half of the Fortune 500 companies with parachute agreements made changes to these programs in recent years, typically to eliminate tax gross-up provisions.

Deadline Extended for Commenting on 2012 ISS Policies

Mon, 31 Oct 2011 12:44:06 EST

Institutional Shareholders Services (ISS) has announced that it will accept public comments on its draft 2012 proxy voting policies through Monday, November 7. The comment period had been scheduled to close October 31.

Executive Compensation Bulletin: Larger Equity Awards Push Director Pay Higher

Wed, 26 Oct 2011 11:18:42 EST

Our latest annual review of director pay programs shows that, as with executive pay, director compensation rose in the past year following two consecutive years in which the economic environment prompted many companies to hold director pay levels in check. Our new analysis of director compensation at Fortune 500 companies shows year-over-year pay for directors in the largest U.S. companies increased 6% at the median during the past year.

Compensation Committee Checklist: The Fall Agenda

Fri, 21 Oct 2011 12:06:22 EST

Although most companies came through their 2011 say-on-pay votes with strong results, few compensation committees are resting on their laurels. Most of the committees with which we work will have a full plate of issues awaiting them during the fall, including wrapping up the 2011 incentive year and getting ready for 2012 pay decisions. Here’s our short list of the areas committees should consider focusing on in their fall meetings.

UK Perspectives: What Makes Remuneration Committees Effective-

Tue, 18 Oct 2011 2:09:09 EST

Recent Towers Watson research in the U.K. provides detailed insights into how remuneration committees operate — and what makes some committees more effective than others.

Time to Weigh In — Comment Period on ISS Policy Changes Closes October 31

Tue, 18 Oct 2011 5:12:52 EST

With roughly a month to go until Institutional Shareholder Services (ISS) releases its policies for 2012, ISS has launched its open comment period on a number of potential policy changes. Given the intense focus on say on pay in the past year and the added attention to pay for performance, it’s not surprising that many of the draft ISS policies relate to these interrelated topics.

Long-Term Incentives in China — Moving the Market

Mon, 10 Oct 2011 1:14:19 EST

Western multinationals have long been leaders in the use of long-term incentives (LTIs). However, fueled by above-average economic growth and an unprecedented demand for talent, Chinese companies are ramping up what they spend on LTIs.

Executive Compensation Bulletin: Winds of Change or Steady Sailing- Responses to the ISS Policy Survey Provide a Window Into Current Views on Pay

Thu, 06 Oct 2011 12:33:23 EST

Recently published results of Institutional Shareholder Services’ annual survey of investors and companies offers clues to the tenor of the upcoming proxy season, although it’s too soon to tell if the responses signal a gentle breeze or stronger winds of change. One of the findings was not a surprise: A majority of investors and companies view compensation as a top governance topic for the coming year.

The Results Are In: Recent Studies Reveal How the Executive Compensation Consulting Landscape Has Changed (and Stayed the Same)

Mon, 03 Oct 2011 11:47:19 EST

The past year has brought many changes in the process by which executive pay is crafted and communicated to shareholders. In particular, as a result of new consulting fee disclosure requirements and the uncertainty regarding how the term “independence” will be defined by the SEC, many compensation committees have taken a fresh look at their choice of executive compensation consultant. Recent research reveals what’s changed — and stayed the same — in this marketplace

Executive Compensation Bulletin: Changes in Retirement Benefit Practices: Implications for Executive Plans

Fri, 30 Sep 2011 12:19:04 EST

Towers Watson’s 2011 Report of Executive Retirement Benefits Practices provides an update on the continuing trends in executive retirement plan designs in U.S. organizations and sheds light on the current state of retirement benefits for newly hired executives. Ongoing shifts in broad-based retirement plan designs are directly affecting executive benefits as companies search for the right balance between providing attractive total rewards packages and controlling costs.

Relative TSR and the U.K. Perspective: Perfect or Imperfect Measure-

Thu, 29 Sep 2011 11:21:03 EST

There has been some discussion in the U.S. recently about the advantages of performance-based incentive plans that use relative total shareholder return (TSR) as the primary measure. Years of experience in the U.K., where relative TSR plans are common, underscores some of the drawbacks with this approach.

Executive Compensation Bulletin:Known Unknowns: Meeting 162(m) in Corporate Transactions

Wed, 28 Sep 2011 1:16:50 EST

Careful planning is required in crafting performance-based incentive plans to preserve tax deductibility under Code Section 162(m) (the million-dollar pay cap) in the event of a corporate acquisition, reorganization or recapitalization. While there is no one-size-fits-all approach that can be employed by all companies in every situation, there are strategies that can maximize companies’ chances for success.

Say on Pay and Shareholder Engagement: One Institutional Investor Waits for the Call

Fri, 23 Sep 2011 9:43:30 EST

Given that our recent survey found engaging with shareholders is the most common action companies are taking to improve their say-on-pay results, why is it that one institutional shareholder says it received no calls to discuss executive pay matters during this last proxy season-

The Case for Home Security Perks

Thu, 22 Sep 2011 12:09:50 EST

Many companies provide various kinds of home security systems or services for their top executives. A recent Barron’s article suggests these perks may be money well spent.

The New Canadian Disclosure Rules: A Closer Look

Wed, 21 Sep 2011 3:45:28 EST

Our recent Client Advisory to our Canadian clients offers a detailed analysis of the new proxy disclosure requirements that apply to Canadian publicly traded companies and income trusts for fiscal years ending after October 30, 2011.

Equity Incentives — Not Just for Public Companies

Thu, 15 Sep 2011 2:16:17 EST

As the economy struggles to rebound, private companies continue to be squeezed in competing for talent, often due to the perception that private company compensation tends to lack leverage and offers less pay opportunity than public companies through their equity packages. However, some private companies are finding new ways to differentiate themselves and level the playing field.

Managing Compensation Plans at Financial Institutions — Potential Implications of the Proposed Regulations

Fri, 09 Sep 2011 11:54:15 EST

Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits covered financial institutions from offering incentive-based compensation arrangements that are “excessive” or could lead to a material financial loss for the institution. The FDIC, SEC and other agencies with jurisdiction over covered institutions have issued proposed regulations to implement Section 956. Here’s a step-by-step guide to help financial institutions comply with these new rules.

Proxy Access Case May Prompt Delay of Dodd-Frank Regulations

Thu, 08 Sep 2011 11:18:05 EST

Some legal experts speculate that the recent appellate court decision invalidating the SEC’s proxy access regulations may have a chilling effect on other Dodd-Frank regulations pertaining to executive compensation. At the very least, the controversial D.C. Circuit ruling should make the job of drafting those rules even more challenging.

Competitive Pay Positioning for Multinational Corporations

Tue, 06 Sep 2011 12:01:49 EST

In the marketplace for top-level executive talent, how are multinational companies establishing competitive pay philosophies for their senior teams- Recent Towers Watson research reveals how compensation positioning varies by each element of total direct compensation and by the level of the executives.

Forget the Summer Doldrums, It’s Back to Business for Executive Compensation Pros

Thu, 01 Sep 2011 11:56:07 EST

As you savor the end of summer, remember that some heavy lifting is right around the corner. These tips can help position your organization for the challenging decisions that may lie ahead.

Executive Compensation Bulletin: Resting on Your Laurels- Five Steps You May Want to Take Before Your Next Say-on-Pay Vote

Wed, 31 Aug 2011 3:52:02 EST

Whether 2011 was a company’s first, second, or third experience with say on pay, many are too exhausted, relieved and/or immersed in the next issue to want to think about say on pay again -- just yet. But, it’s not too early to look ahead. Early preparation can be the most efficient and effective approach to ensuring another successful vote.

Say-on-Pay Frequency: And the Winner Is...

Tue, 23 Aug 2011 11:54:15 EST

We’ve just completed our preliminary analysis of say-on-pay and say-on-frequency vote results at more than 2,400 Russell 3000 companies. So which camp won the frequency war- (Hint: It wasn’t biennial.)

New Towers Watson Survey Points to Moderate Pay Raises in 2012

Mon, 22 Aug 2011 4:40:01 EST

A new Towers Watson of 773 U.S. employers suggests that merit increases will be modest again in 2012 for employees at all levels. Another new Towers Watson survey also found that employers expect to fully fund their annual bonuses for workers this year, as corporate profits have increased.

New Canadian Rules Make Wide Changes in Disclosure Requirements

Fri, 19 Aug 2011 3:21:44 EST

Canada's security regulators have decided not to mandate say on pay, CEO pay ratios or clawback policies for Canadian companies. However, their recent final amendments to the proxy disclosure rules will require Canadian companies to provide more information on the management of compensation risks, compensation committee practices and competitive benchmarking.

The “Fifth Analyst Call”: an Idea Worth Pursuing

Thu, 18 Aug 2011 5:10:15 EST

To enhance the dialogue with shareholders about governance issues including executive compensation, a few companies have begun exploring an additional call to supplement the four quarterly analyst calls. This so-called “fifth analyst call” is an idea more companies should consider.

Executive Compensation Bulletin: Survey Points to Further Refinements in Executive Pay Programs and Processes as U.S. Companies Adapt to the Say-on-Pay Environment

Fri, 12 Aug 2011 12:05:53 EST

Our recently completed survey of 179 companies found that most are planning or considering changes to their executive pay-setting process and overall preparations for next year's proxy season. This article provides a closer look at the survey findings.

Executive Compensation Bulletin: Another Federal Court Case Upholds Deferral Plan Forfeiture Provisions

Thu, 11 Aug 2011 10:58:52 EST

In a case that may have wider implications for deferred compensation arrangements, a federal appeals court recently upheld a voluntary stock deferral plan requiring employees who resign from the company to forfeit unvested stock and wages.

Incentive Plan Risk Assessment – What Canadian Companies Need to Know

Wed, 10 Aug 2011 10:19:22 EST

New regulations in Canada require companies to disclose risks associated with their compensation programs in their annual proxy statements. In order to prepare for these new requirements, companies should start the evaluation process soon to identify these risks and address them.

What Say-on-Parachute Votes Will Tell Us About Single- vs. Double-Trigger Vesting

Tue, 09 Aug 2011 10:26:07 EST

Despite the recent trend away from single-trigger equity vesting in change-in-control situations, double triggers are not without drawbacks. There may be ways to get the best of both worlds. And, do shareholders really care- The say-on-parachute votes could provide the answer.

Executive Compensation Bulletin: How Companies Should React to the SEC's Delay in Key Dodd-Frank Rulemakings

Mon, 08 Aug 2011 4:02:06 EST

As noted in our August 3 post, the SEC recently updated its regulatory calendar page to show that final regulations for several important Dodd-Frank requirements will be delayed until the January-June 2012 timeframe. This article provides a look at what these delays might mean for companies’ preparations for the 2012 proxy season.

Dodd-Frank Anniversary Brings Further Delay in SEC Implementation Dates

Wed, 03 Aug 2011 10:27:13 EST

With the recent one-year anniversary of Dodd-Frank, the SEC has announced a delay in the development of implementing regulations for key provisions including the new pay-for-performance and CEO-vs.-employee pay disclosures.

Clawbacks in the News as Companies Await SEC Regulations

Mon, 01 Aug 2011 1:52:00 EST

There have been a number of significant developments in the world of clawbacks of late, but still no regulations spelling out how clawbacks will work under Dodd-Frank. Companies are watching to see what the SEC comes up with.

Inaugural Say-on-Pay Proxy Season Brings Few Problems For Most Companies, Although Many Plan Changes for 2012, Towers Watson Survey Finds

Fri, 29 Jul 2011 4:54:39 EST

The first-ever say-on-pay proxy season had relatively little immediate impact on most U.S. public corporations, although the vast majority of companies are either planning or considering making changes to their executive pay-setting process and overall preparations for next year's proxy season, according to a new survey by Towers Watson. The survey also found the some companies anticipate the need to step up their efforts to prepare for the next proxy season if they want to improve their voting results.

Executive Compensation Bulletin: Companies Have Until August 3 to Respond to the ISS 2011-2012 Policy Survey

Thu, 28 Jul 2011 4:40:20 EST

Given the influence that proxy advisor voting policies and recommendations can have on say-on-pay and other shareholder votes, companies are encouraged to respond to ISS’ 2011-2012 policy survey, which closes August 3.

Use Board of Director Evaluations as a Strategic Corporate Governance Tool

Wed, 27 Jul 2011 4:14:53 EST

Companies that view the board evaluation process as a mere formality may be missing an important opportunity to strengthen corporate governance. Taking a step back to reexamine the process could be quite meaningful for boards in preparing for year-end decision-making.

UK Perspectives: New Ideas to Reward Sustained Performance

Fri, 22 Jul 2011 9:58:53 EST

As pressure grows on boards to rethink their remuneration packages and in light of the UK Corporate Governance Code, it’s becoming clear that companies need to find new ways of rewarding executives for creation of long-term shareholder value via new performance measures and pay designs. One idea — the career shares scheme — seems to be gaining traction in the UK and may provide some of the answer. And, while the context in the UK is unique, the design certainly has its merits in other markets globally, including the US.

Say on Pay: A Duty to Abstain-

Thu, 21 Jul 2011 4:24:12 EST

A recent commentary from law firm Latham & Watkins offers a view of institutional investors’ fiduciary duties that has particular relevance to say-on-pay voting. Applying this viewpoint raises the interesting question of whether investors should only vote on executives’ pay when it may actually affect shareholders.

Executive Compensation Bulletin: Proposed Regulation Clarifies $1 Million Pay Cap Rules for Plan Grant Limits and Companies Going Public

Fri, 15 Jul 2011 4:22:38 EST

This article examines the recently proposed IRS amendment to the regulations under Section 162(m), which clarifies equity plan transition rules for companies going public and how companies must disclose to shareholders the limits on equity grant maximums that can be made to individual executives.

Proxy Season Lessons Learned (in Some Cases, the Hard Way)

Tue, 12 Jul 2011 10:21:28 EST

As the 2011 proxy season winds down, one topic that continues to dominate the post-mortems is say on pay. In addition to reviewing pay practices and pay-for-performance linkages, many companies took steps such as enhanced disclosures and added shareholder outreach to improve their chances of say-on-pay success. We expect these activities will become the norm as companies prepare for their next round of say-on-pay votes in 2012.

Report Suggests Frank May Want Flexibility in Pay-vs.-Performance Depiction

Fri, 08 Jul 2011 3:36:51 EST

One of Dodd-Frank’s authors favors giving companies flexibility in depicting the relationship between pay and performance under forthcoming SEC rules on the new disclosure, according to a recent report in Agenda. Rep. Barney’s Frank’s views are a ray of light suggesting the Beltway pundits may be wrong.

ISS to Review Pay for Performance Testing Approach

Thu, 07 Jul 2011 11:22:59 EST

Recent remarks by Pat McGurn of Institutional Shareholder Services (ISS) indicate a willingness to review aspects of ISS’s pay-for-performance evaluations that have led to “against” recommendations on 2011 say-on-pay voting.

Is Market Cap the Right Primary Metric for Peer Selection-

Tue, 05 Jul 2011 12:42:30 EST

At least one proxy advisor seems to think so. Many companies and consultants believe a broader set of metrics yields a better group of peers for compensation purposes.

How the Say-on-Pay Lawsuits Will Change Proxy Disclosures

Thu, 30 Jun 2011 2:10:27 EST

The growing number of lawsuits filed recently against companies that have failed to gain majority support for their say-on-pay resolutions all take aim at an issue that all companies’ pay disclosures should be focused on: Did they prove the case of whether they paid for performance-

Executive Compensation Bulletin: Does 409A Impede Good Governance-

Tue, 28 Jun 2011 3:09:05 EST

This article offers a brief analysis of the speech of George Bostick, Benefits Tax Counsel in the Treasury Department, given at the ABA Joint Committee on Employee Benefits conference, where he highlighted five major areas where companies have expressed concerns to the Treasury related to executive compensation.

Disclosing CEO vs. Median Employee Pay: More Unintended Consequences

Mon, 27 Jun 2011 5:39:31 EST

A bill pending in the U.S. House of Representatives (H.R. 1062) would repeal Section 953(b) of the Dodd-Frank Act. 953(b) is the controversial provision that requires public companies to disclose the ratio of the chief executive officer’s compensation (as disclosed in the Summary Compensation Table) to the annual median employee compensation (calculated as if in the Summary Compensation Table). By Marshall Scott

Early Filings Show Director Pay Levels Inching Up, Companies Upping Pay for Compensation Committee Chairs

Thu, 23 Jun 2011 10:55:39 EST

Will director pay remain flat in the face of new Dodd-Frank requirements and the greater accountability for directors- Will comp committee members see the same kind of pay bump under Dodd-Frank that audit committees experienced in the wake of SOX- Our preliminary analysis of Fortune 500 proxy disclosures finds director pay trending up — albeit modestly.

Some Thoughts on the Current Proxy Season

Tue, 21 Jun 2011 11:02:26 EST

At the peak of the 2011 proxy season, it’s clear that say on pay has reshaped the dynamic between companies, their compensation committees, shareholders and proxy advisors. While institutional investors have been willing to engage some companies in a dialogue about pay this year, they should shoulder more of the burden for improving communications with companies going forward.

Executive Compensation Bulletin: Proxy Season 2011: Say on Pay Takes Some of the Steam Out of Shareholder Proposals

Mon, 20 Jun 2011 3:55:31 EST

This article presents our analysis of the smaller number of shareholder proposals voted on this year and highlights the continuing -- but more targeted -- role that shareholder-driven pay initiatives are likely to play in the say-on-pay era.

View From the Summit

Fri, 17 Jun 2011 11:20:48 EST

What do many of the leading U.S. experts on executive compensation have in common- A recent visit to Carlsbad, California, to share ideas and insights at the annual Equilar Executive Compensation Summit.

Wait, I Thought This Was Just an Advisory Vote (Say-on-Pay Lawsuits Enter the Fray)

Thu, 16 Jun 2011 1:24:36 EST

The recent spate of lawsuits claiming a breach of fiduciary duty over failed say-on-pay votes adds an interesting new dimension to shareholder "advisory" votes on pay under Dodd-Frank. Whether such suits will succeed remains to be seen, of course. But, the mere threat of litigation could raise the bar in terms of the board’s accountability and responsiveness following a failed say-on-pay vote.

Executive Compensation Bulletin: Say-on-Pay Scorecard: The Tale of the Tallies (So Far)

Tue, 31 May 2011 9:52:20 EST

This article provides our latest analysis of recent voting trends and emerging issues in say-on-pay voting in the 2011 proxy season.

Say on Pay: Where's the Bar-

Thu, 19 May 2011 11:39:56 EST

What, if any consensus forming about the level of approval for say-on-pay votes that is considered acceptable- According to a recent study we conducted, half of all companies stated that they do not know what level of shareholder support they would consider a success. Among those respondents who did have an opinion, the average response was 80%.

Do the FDIC Pay Restrictions Have Legs-

Tue, 17 May 2011 4:49:11 EST

While firms in the banking industry begin to assess how the proposed FDIC pay regulations [link to ECR article] will affect the structure of their pay programs, a looming question is whether the concepts put forth might find their way into pay designs for companies in other industries.

Executive Compensation Bulletin: CEO Compensation Rebounded in 2010, Towers Watson Analysis Finds

Tue, 17 May 2011 2:42:34 EST

Compensation for chief executive officers at the nation’s biggest corporations rebounded strongly in 2010 due largely to improved company financial performance and a rising stock market, according to an analysis of proxies conducted by Towers Watson in April 2011. This article examines those findings.

Executive Compensation Bulletin: The Changing Shareholder Engagement Dynamic: How to Engage in an Increasingly Tense Environment

Thu, 28 Apr 2011 4:17:25 EST

In addition to bringing even greater scrutiny to executive pay this proxy season, the arrival of mandatory say on pay has also heightened the awareness of proxy advisor vote recommendations. Companies increasingly are taking a more direct approach to responding to negative vote recommendations, including preparing additional SEC filings to solicit shareholder support for the company’s say-on-pay proposal. These filings represent a departure from prior proxy seasons in that more of them focus on compensation matters, and many contain direct responses to the opinions and recommendations of the proxy advisors.

Executive Compensation Bulletin: Proposed SEC Rules Require Close Consideration of All Potential Conflicts of Interest for Compensation Advisors

Wed, 13 Apr 2011 4:04:40 EST

On March 30, the Securities and Exchange Commission (SEC) voted unanimously to propose regulations that will require compensation committees to take a closer look at the “independence” of their compensation consultants, legal counsel or other advisors. The proposed regulations will also require proxy disclosure of how committees evaluate and address any conflicts of interest their compensation advisors may have.

Executive Compensation Bulletin: Proxy Season Update: March Brings Little Madness in Say-on-Pay Voting

Thu, 31 Mar 2011 3:16:33 EST

With more than five weeks of say-on-pay and say-on-frequency votes behind us, results for the first 137 Russell 3000 companies to report the outcome of their shareholder advisory votes on pay under Dodd-Frank generally point to a continuation of the trends we saw a month ago.

Executive Compensation Bulletin: Selecting an Executive Compensation Consultant Today Requires Compensation Committees to Use a Wider Lens

Thu, 10 Mar 2011 3:27:12 EST

Not that long ago, compensation committees commonly selected their executive compensation advisors on the basis of the advisor’s reputation and referrals, without too much attention to the firm where the consultant worked or the company’s unique requirements. But today’s heightened governance and disclosure environment makes the selection process more important than ever.

Executive Compensation Bulletin: Setting Financial Targets in a High-Stakes Environment

Tue, 01 Mar 2011 2:11:35 EST

Financial target setting doesn’t have to rely solely on “insider” processes. Companies are surrounded by outside information sources that can help them craft a plan incorporating a wide range of beneficial procedures.

Executive Compensation Bulletin: Early Say-on-Pay Votes: A Harbinger of Shareholder Views in the 2011 Proxy Season-

Tue, 22 Feb 2011 11:49:55 EST

Recent weeks brought the opening round of required say-on-pay and say-on-frequency votes under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. As the first companies hold their annual meetings following the effective date for the law’s say-on-pay provisions, interest in both the early vote outcomes and how they’re being influenced by the recommendations of proxy advisors is running high. Many companies that will hold their annual meetings in the weeks and months ahead are closely monitoring the early votes to help inform their proxy season preparations.

Executive Compensation Bulletin: Answers to Frequently Asked Questions About the FDIC’s Proposed Rules on Executive Pay in Financial Services

Tue, 15 Feb 2011 1:33:36 EST

The Federal Deposit Insurance Corporation (FDIC) became the first agency to adopt proposed regulations to implement Section 956 the of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits covered financial institutions from offering incentive-based compensation arrangements that are excessive or could lead to a material financial loss for the institution. The proposed rules would also implement the Dodd-Frank requirement that covered financial institutions disclose the structure of their incentive-based compensation arrangements.

Executive Compensation Bulletin: Companies Considering Pension Funding Relief Must Keep Executive Compensation Programs in Mind

Fri, 11 Feb 2011 1:44:42 EST

Executive compensation is a key consideration for any company considering pension plan funding relief under a new federal law enacted last year. The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PRA) imposes a so-called “cash-flow rule” that, as clarified by IRS Notice 2011-3, will typically require higher minimum pension contributions when companies pay “excess compensation” to executives or other employees. Payments of extraordinary dividends to shareholders or payments to repurchase stock also would generally trigger increases in minimum pension contributions under the law. The cash-flow rule generally applies for three to five years after a funding relief election is made.

Executive Compensation Bulletin: The Final Say-on-Pay Regulations — A Closer Look

Mon, 31 Jan 2011 11:29:05 EST

At its meeting January 25, the Securities and Exchange Commission (SEC) voted 3 – 2 to adopt final regulations to guide companies in implementing the nonbinding say-on-pay votes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The final regulations also provide guidance on so-called say-on-frequency (say-on-when) and say-on-parachute votes. The final regulations have changed little from the proposed regulations, so most companies will not need to alter their existing plans for conducting shareholder advisory votes on executive compensation during the 2011 proxy season.

Executive Compensation Bulletin: IRS Grants a Temporary Reprieve for Discriminatory Insured Medical Plan

Wed, 26 Jan 2011 2:45:39 EST

The Internal Revenue Service recently announced a temporary stay of new nondiscrimination equirements imposed on insured medical arrangements under the health care reform law. The delay in the implementation gives employers that provide insured executive-only health care coverage additional time to explore alternatives that may avoid the imposition of a potentially significant excise tax. The stay extends until the IRS issues regulations or other guidance regarding these new requirements.

Executive Compensation Bulletin: Survey Finds Companies Divided on Say-on-Pay Frequency and Uncertain About the Implications

Thu, 13 Jan 2011 10:53:57 EST

As most public companies in the U.S. prepare for what will be their first say-on-pay votes, a new Towers Watson survey finds companies divided on key compliance issues, and many are uncertain about how they will deal with the implications of the upcoming shareholder advisory votes on executive compensation. Conducted in mid-December, the online survey garnered responses from 135 U.S. companies, primarily midsize and large organizations in a broad range of industries. Key findings are included.