Category Archives: corporate governance

Do CEO Stock Options Mean Trouble?

It’s the season for fretting about chief executive compensation. Annual proxy statements for most public companies are in. The numbers have been crunched. Now it’s time for the hand-wringing.

200401764-001But there are some surprises this year. The New York Times, using data compiled by Equilar, reports that average compensation for the 200 best-paid CEOs last year was $19.3 million, down 15 percent from 2014.

This follows an analysis by Equilar and the Associated Press of a larger group of CEOs that found pay was up, but at a slower rate compared to past years. The AP story noted that public companies are increasingly relying on performance-based compensation such as stock grants or options.

The theory, of course, is that CEO pay should be aligned with the interest of company shareholders. But there’s an active debate over whether stock options — a very common part of CEO compensation packages — are the best way to do that.

That’s where we find this proxy season’s most interesting news about CEO pay. In the latest issue of the Harvard Business Review, Dylan B. Minor offers evidence that stock options not only encourage CEOs to pursue bold innovation, but also to take dangerous risks.

Minor, a visiting assistant professor in Harvard’s business school,  summarizes in his article the results of a recent research paper. Minor compared two kinds of CEOs, divided by what kind of equity-based compensation they received. His conclusion: those who got stock options were more likely to get their companies in trouble than those who got straight shares.

Others have made the case that stock options create a perverse incentive. Shares reward a CEO for success, just like options. But unlike options, shares also penalize the CEO for failure. Some argue that shares therefore provide a better incentive for CEOs to pursue long-term benefits.

Minor offers some hard data to back up this argument. He compared the two groups of CEOs against two measures of risk-taking.

The first analysis looked at whether companies were linked to an environmental disaster or brokeThinkstockPhotos-466936217 environmental laws. He found that those with CEOs getting options were 65 percent more likely to get in trouble than companies with CEOs receiving shares.

Minor then looked at whether companies ran into financial irregularities. He found that those with CEOs receiving options were 50 percent more likely to be investigated by the SEC for an earnings restatement than were companies with CEOs receiving shares.

“In sum, higher powered incentives can increase both good and bad risk-taking,” Minor writes. It’s a good lesson for companies of all sizes: In providing incentives to top executives, think carefully about the behavior you’re encouraging.

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Compliance Efforts Not So Great Globally, Either

507249886 -- compliance word cloudIt wasn’t that long ago that I wrote a news analysis about the problems with ethics and compliance programs here in the United States.

Experts in that piece lamented the lack of clout being given to many corporate ethics and compliance officers, and the tendency at far too many organizations to require ethics officers to wear too many hats — doubling up on such governance responsibilities as risk management and human resources, thereby not being able to focus properly on any one of them, especially ethics and compliance.

Well, it appears those two disciplines are in need of collar corrections on the global stage as well. According to the recently released NAVEX Global’s 2015 Europe, Middle East, Africa and Asia Pacific State of Compliance Programmes Benchmark Report, despite tighter government enforcement, boards are not getting regular compliance reports and 40 percent don’t have regular reporting cadence with their boards or are not sure. And the majority say their budgets for ethics and compliance will remain the same or will be less in the coming year.

To come up with its findings, NAVEX Global partnered with an independent research agency to investigate how companies headquartered  across Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) develop and execute their ethics and compliance programs.

Researchers polled 247 key decision-makers and individuals responsible for ethics  and compliance programs. The purpose of the survey was to benchmark “the top priorities and challenges faced by ethics and compliance professionals headquartered in EMEA and APAC,” according to the report.

From the report (edited slightly for English readers):

“It is not surprising that measuring program effectiveness was cited as the biggest program challenge, since this is a complex undertaking. Organizations struggle to define the right combination of key indicators of culture and compliance to demonstrate the program is working.

“The key challenges of time availability and managing regulations speak to the need for programs to be properly resourced. A robust risk-assessment process can help to identify and better manage resource allocation and to prioritize jurisdictional issues. Successful programs regularly review resources against the organization’s risk profile to ensure appropriate management and mitigation actions .

“Survey write-in responses to challenges included concerns about implementing standardized programs across locations and being seen as a “troublemaker” for bringing up issues. The wide variety of responses serve as a reminder that every organization has its own culture and challenges to be factored into the development and implementation of an effective ethics and compliance program .

Key takeaways from the report:

  • Take a Risk-Based Approach: Program components and implementation strategies can be complex and will vary significantly by company and by region. The development of these programs should be driven by the organization’s risk profile, which can be identified by conducting a comprehensive ethics, compliance and reputational risk assessment.
  • Put Meaningful Program Measurements in Place: Consider a variety of metrics to determine the effectiveness of the program as there is no one metric or indication that will provide complete insights. A combination of useful metrics could include whistleblower-hotline benchmarks, feedback on training sessions, leadership feedback, employee surveys and focus group data, exit interview feedback, and legal actions.
  • Train Middle Managers and Supervisors: First- and second-level managers are culture carriers — the strongest link senior management has to employees. These managers need to be trained on communicating organizational expectations to employees — and trained on how to respond when issues arise. Investing in these managers will pay dividends in terms of creating a strong culture of integrity and compliance.
  •  Engage Leadership and Your Board of Directors: Both best-practice frameworks and regulatory bodies around the world have defined a clear oversight role for the board of directors. Neglecting this duty could mean putting the organization, and board members themselves, at risk. A regular reporting cadence — with high-quality data put into context — will help keep the board and leadership engaged.
  • Do More With Less: Make good use of systems and processes that will improve the efficiency and accuracy of their programs. There is still opportunity for further automation in many areas of respondents’ E&C programs.
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All Eyes on Volkswagen’s Amnesty for Answers

465782341 -- volkswagen2It’ll be interesting to see what comes of Volkswagen’s move to offer amnesty to all its bargaining-unit employees in hopes of uncovering just who was/is behind its emissions-cheating scandal.

According to a letter that went out Thursday from Herbert Diess, chief executive of the division that produces Volkswagen brand cars, employees have until Nov. 30 to come forward with information about who was responsible for installing software in 11 million diesel vehicles that disguised nitrogen-oxide output.

The letter, reviewed and reported on by the New York Times, says “people who provided information would not be fired or face damage claims [but] the company could not shield employees from criminal charges.”

In other words, the amnesty isn’t really designed for the really bad guys, “but rather, for the midlevel people who may have, without even knowing it, some relevant information,” Mike Koehler, a law professor at Southern Illinois University, told the Times.

It’s also, according to another legal source for that story — Alexandra Wrange, president of Trace International in Annapolis, Md. — “a tacit admission … that the usual reporting channels have been ineffective.”

You might call it a kind of pulling-out-all-the-stops kind of move, above and beyond the more commonplace no-retaliation policies contained in most whistleblowing programs, says Allan Weitzman, a Boca Raton, Fla.-based partner with Proskauer, whose list of specialties includes whistleblowing.

(At Volkswagen, it was an internal whistleblower who uncovered the false carbon-dioxide claims that the company made public last week. “German news media reports have said that internal investigators looking into the emissions-cheating software, which came to light in September, have been hampered by a reluctance among employees to come forward,” the Times story states.)

Weitzman joins in the general chorus of employment attorneys who consider Diess’ move new and different, to say the least.

“I know I’ve never heard of [this kind of corporate amnesty],” he says. “But these are unusual circumstances, and [as pointed out in the Times article as well], Volkswagen wants to show to governmental agencies that it has done everything it can to solve this problem; well, amnesty is pretty broad … I’d say ‘Yes, they have gone about as far as possible’ ” in this endeavor.

Is it the right move? Weitzman thinks so.

“I think it’ll work, too, if it has the support of the union, meaning [very simply] that the people who look to unions as their source of job security will participate in the amnesty program if their union supports it,” he says.

“And the union should support this,” he adds, “because the future of the union is tied to the future of Volkswagen, and if Volkswagen cannot solve this problem, it’s going to result in the unemployment of many, many union members.”

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Women and the Competitiveness Factor

women competeMany women don’t like to compete with men. That’s the upshot of a number of recent studies summarized today in the Washington Post‘s Wonkblog, which notes that Germany has become the latest country to require large public companies to fill at least 30 percent of their board positions with women (starting next year).

Germany’s new law strikes some as a form of affirmative action that will only taint its beneficiaries as having gotten their positions due to their gender, not their skills and/or accomplishments, writes Wonkblog’s Jeff Guo. However, he writes, a number of studies suggest that even highly qualified women are reluctant to compete — especially with men — and that quotas such as Germany’s may be necessary to ensure that high-performing women feel comfortable putting themselves forward.

Guo quotes Muriel Niederle, an economics professor at the University of Cologne who’s helped conduct a number of studies that found women are eager to compete with other women but much less eager to compete with men. In one such study, conducted in 2013, Niederle and her research colleagues gathered groups of six participants — divided equally between men and women — and gave them equations to solve. The participants had a choice of whether to be paid 50 cents for each problem they solved correctly or enter a competition to get paid many times that.

In a previous study in 2007, the researchers found the women were much less likely than the men to participate in the competition — even the ones who demonstrated an alacrity for solving the equations. This time around, however, the researchers added a twist: The competition would have two winners, and in some cases at least one of the winners was guaranteed to be a woman. Faced with a contest that guaranteed a winning spot to a woman, over 80 percent of women elected to participate in the competition.

These and other studies suggest that quotas mandating that a certain number of spots be set aside for women will help organizations be more competitive, University of Cologne economist Matthias Sutter told Guo.

“We find that quota rules encourage the best women to really go for it,” he said.

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Osama bin Laden: HR Leader?

When you’re running an operation whose business is creating mass casualties of innocent bystanders at various locations throughout the world, you need a strategic plan. You need a sophisticated recruiting program. You need a training program. You need a development program. These subjects weighed heavily on the mind of Osama bin Laden, recently declassified documents from the Central Intelligence Agency show.

The documents, which were seized by U.S. commandos after they stormed the terrorist leader’s hideout in Abbottabad, Pakistan during the May 2, 2011 operation that culminated in bin Laden’s death, include a series of planning memos that Agence France-Presse disconcertingly suggests “paint a picture of the jihadist leader operating almost as the director of human resources at a struggling multinational.”

This particular multinational (let’s call it Al-Qaeda Corp.) had a rather unique business model, but all the same its leaders struggled with finding and deploying the right mix of talent to accomplish its core objective (killing lots of civilians).

“Please enter the requested information accurately and truthfully. Write clearly and legibly. Name, age, marital status. Do you wish to execute a suicide mission?” So reads Al Qaeda’s application form, which included this gem as well: “Who should we contact in case you become a martyr?”

bin Laden clearly was concerned about operational efficiencies, as revealed by a document he wrote calling for a professional training program: “One of the specialties we need that we should not overlook is the science of administration.” The organization needed motivated young volunteers with qualifications in science, engineering and office management as well as deep religious convictions, according to the document.

AQ Corp. was bedeviled with talent-deployment issues, as another document reveals: “The other brothers are new and we rushed to send them very quickly, before their security was exposed or their residency documents expired.”

Retention and turnover may also have been an issue: the same document cites a volunteer who was able to stay a couple months because he had to return home: “We have him an academic explosives course and he travelled back before his residency expired and we have not heard from him since he left. … We hope that we hear from him very soon.”

bin Laden was concerned that young recruits who were capable of infiltrating the West lacked adequate patience and training to accomplish their missions. “We need a development and planning department,” he wrote. He wanted to create a center of excellence, of sorts, compiling jihadist best practices and research to create a more effective breed of jihadist.

Outreach activities were also part of the mix: bin Laden was apparently planning a PR campaign to mark the 10th anniversary of the Sept. 11 attacks. But thanks to Seal Team 6, he wasn’t able to make it  to the celebration.

 

 

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Confidentiality Agreement Crackdown, Revisited

If there was any question whether the Securities and Exchange Commission was serious in its efforts to clamp down on confidentiality statements, Office of the Whistleblower Chief Sean McKessy put it to rest during a recent American Bar Association webinar titled “New Developments in Whistleblower Claims and the SEC,” which took place on Wednesday.ThinkstockPhotos-155172325

Some of you may recall the story we published earlier this month titled “Cracking Down on Confidentiality Agreements,” in which I reported on the SEC’s first “enforcement action” against a company it said had used restrictive language in its confidentiality agreements.

More precisely, the SEC charged the Houston-based engineering firm KBR Inc. of violating whistleblower protection Rule 21F-17 by requiring witnesses in certain internal-investigation interviews to sign confidentiality statements saying violators could face discipline, including termination, if they discussed the matters with outside parties without KBR’s approval.

Most of the experts I spoke to for that story predicted that the SEC wasn’t likely to stop with KBR in pursuing such violations—and  McKessy’s remarks on Wednesday seemed to back up those claims.

On Thursday, Seyfarth Shaw attorney Ada W. Dolph, who was one of the sources for my original story, provided some commentary on McKessy’s remarks, writing in a memo that McKessy pointed out in the ABA webinar that the SEC rule is “very broad,” and “intentionally so.”

Dolph, based in her firm’s Chicago office, continued …

“McKessy stated that this initiative remains a ‘priority’ for him and his office. ‘To the extent that we have come across this language [restricting whistleblowers] in a Code of Conduct’ or other agreements, the SEC has taken the position that it ‘falls within our jurisdiction and we have the ability to enforce it.’ He noted that ‘KBR is a concrete case to demonstrate what I have been saying,’ referencing public remarks he has made in the past regarding SEC scrutiny of employment agreements. He stated that the agency is continuing to take affirmative steps to identify agreements that violate the Rule, including soliciting individuals to provide agreements for the SEC to review. Additionally, he reported that the SEC is reviewing executive severance agreements filed with Forms 8-K for any potential violations of the Rule.”

Dolph pointed out that McKessy also addressed the question of whether the SEC would apply the KBR order to private companies under the U.S. Supreme Court’s 2014 ruling in Lawson v. FMR LLC, 134 S.Ct. 1158 (2014)—which expanded Sarbanes-Oxley’s whistleblower protections to employees of private companies who contract with public companies. McKessy, she reported, “stated that the SEC has not officially taken a position on this issue, but in his personal opinion he ‘certainly can see a logical thread behind the logic of the Lawson decision’ to be ‘expanded into this space [private companies],’ and that ‘anyone who has read the Lawson decision can extrapolate from it the broader application.’ ”

In short, Dolph concluded, “it is clear that we can expect further SEC enforcement actions in this area.”

Granted, that’s pretty much been the expectation all along. But McKessy’s remarks should, at the very least, be considered a not-so-friendly reminder that you might not want to wait too long before reviewing your confidentiality agreements and policies in order to ensure they aren’t worded in a way that would catch the attention of SEC officials.

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The Push for Gender Wage Equality

On the heels of Patricia Arquette’s call for wage equality at last Sunday’s Academy Awards ceremony, Arjuna Capital issued a press release yesterday referencing Arquette’s remarks and calling attention to eBay’s decision to oppose the wealth-management GettyImages_478267645firm’s gender-pay-transparency proposal.

Could proposals like this one be a preview of things to come? I would think many HR leaders probably hope they won’t be.

Here are some specifics from the Arjuna’s release …

“eBay’s Board has committed to publicly oppose a shareholder proposal filed by Arjuna Capital … requesting eBay publicly report the pay disparity between male and female employees and set goals to close the gap.

This is the first year the issue of gender wage equality has been put to the proxy ballot of a U.S. corporation and the Company’s opposition comes in the face of public outcry and regulatory efforts … .

The eBay Board has stated that it believes that implementation of this proposal is not in the best interests of eBay and its stockholders.”

Arjuna’s proposal calls for eBay to issue a report that would be “adequate for investors to assess eBay’s strategy and performance” and “would include the percentage pay gap between male and female employees, policies to improve performance and quantitative reduction targets.”

In case you’re not familiar with Arjuna (I certainly wasn’t), here’s a snippet from its website …

“Our mission is twofold: Through our research and activism, we seek to advance the understanding of what sustainability means for investor returns and corporate profitability.

We bring the fruits of those efforts to our clients in the form of the most diverse, sustainable, profitable and suitable investment opportunities on offer.

We work to build and preserve our clients’ wealth while serving the common good through enlightened engagement in the capital markets.”

In its response to Arjuna, eBay wrote …

“We remain committed to our ongoing efforts to promote diversity in the workplace and strongly believe we continue to make demonstrable progress in building a diverse eBay. As such, the Board feels that the proposal would not enhance the Company’s existing commitment to an inclusive culture or meaningfully further its goal and efforts in support of workplace diversity.”

Natasha Lamb, director of equity research and shareholder engagement for Arjuna Capital, said the eBay proposal is Arjuna’s first and only attempt to seek information on pay gaps. “But our goal,” she explained, “is to invest in companies committed to the innovation and success diversity fosters, and we intend to continue to seek more transparency on these issues.” (She said she’s heard similar proposals, independent of Arjuna, were sent to the boards of ExxonMobil and Wal-Mart for the current proxy season.)

Lamb said she was surprised by the board’s opposition, since the eBay proposal is clearly in the interest of enhancing shareholder value.

Of course, not everyone agrees that would be the case.

Yesterday afternoon, I spoke with Alan Johnson, managing director of Johnson Associates, a New York-based compensation-consulting firm, who told me he wasn’t at all surprised eBay’s board would reject the proposal.

“In terms of eBay,” Johnson said, “the assumption is being made that the jobs are the same, but the reality is that that may not be the case. eBay, for instance, may have a big call center staffed by females. If that’s true, it would skew all the numbers.”

Johnson noted that the Arjuna proposal is an attempt to put “a lot of pressure on fixing something that may not be correctable” and could ultimately “do a lot of harm” by encouraging employers like eBay to offshore jobs or hire part-time workers.

Apparently not one to mince words, Johnson described the effort as “naïve” and a “big, expensive distraction.”

Like I said, not everyone agrees the proposal is a good idea.

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Corporate Misconduct: Everyone Loses

financial misconductTalk about one bad apple spoiling the whole bunch.

A new Penn State University study finds the announcement of one public firm’s misconduct can have negative consequences for other public companies in the same industry, in the form of decreased investor confidence.

Srikanth Paruchuri and Vilmos Misangyi, associate professors of management and organization at PSU’s Smeal College of Business, studied accounting irregularities that resulted in financial restatements, in which the company in question had to revise and publish one or more previous financial statement. The pair focused on a sample of 725 Standard & Poor 1500 firms, covering 219 industries. They analyzed 84 financial restatement events that took place in 2004, as captured in the U.S. General Accountability Office’s Financial Restatement Database.

When one firm announces that wrongdoing has occurred within its organization, Paruchuri and Misangyi found “a generalization of culpability ensues,” to an extent that investors fear others within the industry “are also likely to have engaged in similar misconduct,” they wrote in the study, which is slated to appear in the Academy of Management Journal.

And, the more recognizable the company doing the dirty deeds, the worse the fallout, it seems.

“In other words,” the study authors wrote, “bystander firms are more negatively valued based on another firm’s misconduct if the offending firm is larger, and therefore more familiar to the investor.”

In the context of how investors perceive financial transgressions, “investors will see those perpetrator firms with which they are familiar as being representative of the industry as a whole, and this familiarity therefore makes the culpability of the perpetrator more potent for generalization,” according to the researchers.

These findings come just a few months after we reported on the release of an Ethics Resource Center study indicating corporate misconduct is on the decline. In a poll of 6,400 U.S. employees, the Arlington, Va.-based ERC found 41 percent of respondents saying they observed misconduct in 2013; a 14 percent dip from 2007.

So, that’s encouraging. But, as this new PSU study demonstrates, the implications of bad corporate behavior are far-reaching, extending well beyond your organization’s walls. Taken together, these studies seem to also offer another reminder of HR’s responsibility to conduct solid ethics training, promote a principled corporate culture, and, hopefully, keep the organization from becoming that one bad apple.

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A Few Takeaways from Total Rewards 2014

WorldatWork has expanded its focus in recent years to include “total-reward” issues such as healthcare, financial wellness and work/family as part of its overall mix. But as anyone who’s attended the association’s annual conference lately knows, no one can ever accuse the Scottsdale, Ariz.-based association of abandoning its roots in compensation. (Some of you will no doubt remember the days when WorldatWork was named the American Compensation Association — and pretty much exclusively focused its attention on comp.)

totalrewards2014-500x334Certainly, those roots were evident this week at WorldatWork’s Total Rewards 2014 Conference & Exposition at the Gaylord Resort in Dallas, which attracted around 1,500 attendees.

Comp-specific sessions at this year’s event ranged from the tactical “Compensation as a Career” to the more strategic “Executive Rewards Trends and Predictions,” which I tried to attend but was turned away from at the door because, I was told, every seat had been taken.

I was able find a seat at an earlier session on Monday titled “The Danger of One-Size-Fits-All Executive Compensation,”  which included as presenters Steve Harris, managing director of Frederic W. Cook & Co., and Brynn Evanson, executive vice president of HR at J.C. Penney. (Evanson previously headed comp, benefits and talent operations at JCP and replaced Dan Walker as its top HR leader in April 2013. Some of you may remember Walker earned a whopping $20 million during his first and only year as JCP’s top HR executive and departed soon after Ron Johnson was ousted as CEO in early 2013)

I was especially interested to hear how JCP was tackling executive comp these days, considering all its been through. (In what has to be described as perfect timing, JCP reported its first decent quarter in quite some time last week, suggesting that its turnaround might have entered a new phase.)

Harris suggested that employers would be making a mistake were they to let the forces at work today, such as increased government oversight and the efforts of proxy advisory firms, significantly influence what they do — and, more importantly, don’t do.  Considering no two companies have the same challenges and business objectives, he said, there’s a real danger of “falling into the trap” of “sameness” when it comes to exec comp.

Of course, he said, it’s not all bad to be formulaic, but it’s also not all good.

When you look at the pay-mix charts today, Harris said, you don’t see a whole lot of difference between your company and the median company.

True, he said, being somewhere in the middle goes a long way toward preventing scrutiny, but that doesn’t mean it’s the best approach.

Harris stressed the downside of formulaic incentive plans that emphasize pre-established goals and downplay comp-committee discretion and judgment in determining payouts. Following a herd mentality, he said, can often stifle innovation and undermine an organization’s ability to achieve its business’ objectives.

Instead, Harris said, employers need to be able to balance shareholder support for performance against proxy-adviser angst, use good business judgment and “manage the influence of peer comparisons.”

As Evanson made clear in her remarks, as far as executive comp is concerned, flexibility has been an important factor in JCP’s turnaround efforts.

As most of you are aware, JCP has seriously underperformed against its peers in recent years, with its stock price going from $36 in 2011 to around $8 today. During that period, the Plano, Texas-based retailer went from being a coupon- and discount-based retailer in 2011, with Mike Ullman at the helm; to a lowest-price retailer in 2012, with Ron Johnson in charge; back to being a coupon- and discount-based retailer in 2013 and 2014, again with Mike Ullman leading the firm.

Each phase required a very different strategy, Evanson told attendees.

As part of JCP’s turnaround efforts, Evanson said, JCP has recently been using spot awards for top talent, promotions, and learning and development to hold onto key talent.

(Before moving on, I probably should mention a story in the Dallas Morning News that reported  all of “the hiring and firing in 2011 and 2012 cost Penney $236 million in bonuses, stock awards, transition and termination pay: $171 million for officers and $65 million for other corporate executives.”)

I also had a chance to speak on Monday with Mercer Senior Partner Steven Gross and Partner Mary Ann Sardone prior to their session titled “Learnings from Managing Global Talent, Compensation and Benefits.”

On the global-comp front, Gross said, employers are focused on “segmentation” and “figuring out how money gets allocated, especially for many of the more critical positions.”

Recognizing critical workforce segments is a core component of a successful total-rewards strategy, Gross said.

He also said it’s no coincidence that the expo hall at WorldatWork has so many rewards-and-recognition vendors exhibiting, since compensation budgets aren’t expanding and companies are looking for other cost-effective ways to acknowledge the efforts of employees. (Achievers, BI Worldwide, Globoforce, O.C. Tanner, MTM and Michael C. Fina were among the dozens of exhibitors at the show in this space.)

In an effort to successfully align comp with business and talent strategies, Sardone said, she’s seeing more and more companies attempting to create “an eco system” across their organizations, where comp and talent management are more regularly talking to each other.

Mercer released this week its Total Rewards Survey, which suggested that companies still have a lot more work to do when it comes to aligning comp to business priorities. While more than half (56 percent) of organizations surveyed said they made a significant change to their total-rewards strategy in the past three years, less than one-third (32 percent) said their total rewards and business strategies were fully aligned.

It is critical that the rewards strategies of companies align with their business strategies to achieve overall success, Gross said.

On Tuesday, I also sat in on a session titled “An Insider’s Guide to Compensation Committee Meetings,” during which a panel of experts shared a few common-sense best practices HR and comp leaders might want to keep in mind as they work with their comp committees.

Robin Colman, vice president of compensation, benefits and HR operations at eBay, pointed out that it’s important for the comp person to know the preferences, biases and points of view of the people in the room and adjust his or her approach accordingly. Often, she said, that includes knowing what committee members might be seeing and hearing at other boards they may be sitting on.

John England, managing partner at Pay Governance LLC, a consulting firm that works with comp committees, advised those working with their comp committees not to be “another personality” in the room, since there are enough “personalities” in the room already.

If you have something to share, he advised, make sure no one is ever surprised.

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Shareholders Shift Their Focus

It’s been widely reported that companies have fared quite well as far as Say on Pay votes have been concerned. Indeed, Semler Brossy Consulting Group reports that, as of April, 94 percent of employers have passed such a vote (with a 70 percent approval rating).

Say on PayTo be sure, that’s good news for companies and their comp committees. But it does raise the question:  Who’s failing?

According to researchers at Towers Watson, the answer: smaller companies.

While key shareholder voting outcomes have improved very slightly for the Russell 3000 overall, the analysis found, smaller companies are failing their Say on Pay votes at almost twice the rate as last year. (Towers Watson defines failures as receiving Say on Pay support from less than 50 percent of the votes cast.)

In an article posted Monday on Towers Watson’s website, the authors note:

Through May 24, a total of 27 Russell 3000 companies received failing Say on pay votes from their shareholders. Only two are in the S&P 500. Companies outside the S&P 1500 … accounted for almost two-thirds (63 percent) of the failures. Last year, these smaller companies accounted for only 31 percent of the Russell 3000 failure.”

James Kroll, a senior consultant at Towers Watson and one of the article’s authors, said he isn’t surprised to see shareholders start to shift some of their attention to smaller companies. “We’re most of the way through proxy season and we’ve seen a refinement of efforts at the largest companies—so it’s natural that the focus would start to shift downward in terms of company size,” he said.

In light of this, Kroll said, smaller companies might want to take some cues from their larger peers, including revisiting their disclosures and fine-tuning their messaging so shareholders have a much clearer picture of what’s happening.

Put simply: Be more engaged with your shareholders, something many larger companies have  gotten much better at.

And if you’ve failed a vote? “Shareholders,” Kroll said, “are going to be looking at how you’ve responded … .”  In terms of responding, he adds, some companies are doing a better job than others.

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