3/21 Jackie Cook: 1 pm Pacific, 4 pm Eastern – Register
Jackie holds the position of Director, Stewardship, Product Strategy & Development at Morningstar, leading Sustainalytics’ ESG Voting Policy Overlay service. She previously held the role of Director of Investment Stewardship Research. Her research covers investor active ownership practices, proxy voting trends, and corporate governance. Jackie joined Morningstar in October 2018 via the acquisition of a data and analytics company she founded in 2007. Over the past 22 years, she has held several research roles and advisory positions and has published academic and industry studies on corporate form, investor advocacy, and energy governance. Follow Jackie on Twitter: @FundVotes
Homework: See a partial list of possibilities. Jackie will focus on the following (click on links in the headings):
3/21 Jackie Cook: 100 Most Overpaid CEOs (As You Sow)
A record 16 companies had CEO pay packages rejected by more than half of the shareholders. That is a 60% increase from the ten in 2020 and more than double the seven in 2019. Using a calculation that excludes management and “insiders” and includes just institutional shareholders, the number of CEO pay packages that were rejected by more than a majority of institutionally held shares was 29, almost twice the 15 we saw last year. BlackRock voted against 4.2% of CEO pay packages of the S&P 500 companies. I’m sure I voted against more than half. Good to see my retirement system, CalPERS, voted against 44% of S&P 500 and 76% of the most overpaid CEOs. The University of California certainly did better. Shareholders in firms that overpay their CEOs also perform worse, so it is certainly in the best interest of shareholders to vote down pay at companies that overpay.
3/21 Jackie Cook: Pandemic Pay Plunder (Institute for Policy Studies)
Of the 100 S&P 500 firms with the lowest median worker wages, 51 bent their own rules in 2020 to pump up executive paychecks by lowering performance bars, awarding special “retention” bonuses, excluding poor second-quarter results from evaluations, and replacing performance-based pay with time-based awards. Sixteen firms ended 2020 in the red. That group had the highest average CEO pay, at $17.5 million. Because women and people of color make up a large share of low-wage workers and a tiny share of corporate leaders, extreme CEO-worker pay divides increase gender and racial disparities. I will add the IMF finds GDP growth is 0.08% lower in the five years following a 1% increase concentration of wealth. Increasing the share of income to the bottom 20% by 1% is associated with a 0.38% rise in GDP. Funds that vote for over-sized pay, compared to workers, are not only hurting shareholders, but they are also hurting GDP.
3/21 Jackie Cook: Corporate Leadership Won’t Reach Gender Parity Until 2060 at Its Current Rate (Morningstar)
Progress, what progress? In 2020, the most recent year for which data is available, the gender pay gap in the C-suite expanded–a reversal of the narrowing that occurred between 2015 and 2019. Indeed, female C-suite pay as a percentage of pay earned by their male counterparts fell to a record low for the nine-year period since 2012. Just over half of S&P 500 C-suites (56%) had at least one female NEO in 2020, up from one-third (34%) in 2012. However, C-suites have been slow to advance a second female executive. Only 16% of C-suites had two or more female NEOs in 2020, up from 7% in 2012. And at the very top, progress is even slower: The number of woman-headed S&P 500 companies inched up to 5.5% from 4.3%. Whereas women in the C-suite saw a 20% rise in share-based pay, men in the C-suite enjoyed a whopping 49% increase in this component–with the gap opening considerably in 2019 and 2020.
Extra Credit: CEO Pay Machine Destroying America
The CEO Pay Machine: How it Trashes America and How to Stop it (Amazon) by Steven Clifford should be mandatory reading for all compensation committees and those who vote proxies for large funds, even though published 5 years ago. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003. I wonder if anyone has updated that figure or the numbers used in the “tell me something naughty” graphic.
Clifford discusses some possible fixes. With regard to boards, they should:
- Increase board meetings substantially beyond the current four to six.
- Separate CEO and Chair positions.
- Pay should be established by internal equity.
- At least half of all compensation should be in restricted stock (ideally 2/3 stock, 1/3 salary).
- Payout of restricted stock should be linked to years of service retirement and return above the S&P 500.
With regard to society, Clifford recommends a luxury tax on “excess” compensation above $6M. Anything above that amount would not be tax-deductible. All compensation would be included in that $6M limit, including retirement benefits, 401(k) matches, and other perks. Many have pushed to get rid of the tax-deductibility of “pay for performance,” to no avail. One of my many thoughts is, how about linking pay to return on invested capital (ROIC)? Still, that may measure how well the company is doing but certainly not what the CEO contributed.