Tag Archives | CFO

Buybacks

CFO‘s recent CFO article, Rethinking Buybacks, should give directors pause before jumping on the bandwagon. In the first quarter of 2014, S&P companies repurchased an estimated $159.5B of their own shares. However, the performance of the S&P 500 Buyback Index, which tracks 100 stocks with the highest buyback rations, is lagging the return of the overall S&P 500 by nearly one percentage point, after beating it by 10% in 2013. Continue Reading →

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Reeds: Proxy Access Still Needed

ReedsLast Year’s Proxy Access Proposal

Last year I introduced a proxy access proposal at Reeds (REED) calling on the Board to allow 1% shareowners holding for two years to place their director  nominees (up to 24% of the board) on the proxy. It also would have allowed a party of 25 or more $2,000 one year shareowners to place an equal number of nominees on the proxy. Since Reeds had a five member board, the proposal would have allowed for up to two shareowner nominees from two non-coordinating parties. Continue Reading →

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Report From ITC Meeting

Darius Peek

Darius Peek

Guest Post from Darius Peek, a junior at Wayne State University in Detroit, MI, majoring in Finance who presented our proposal to allow shareowners to call special meetings.

ITCITC Holdings (ITC), the nation’s largest independent electric transmission company, held its annual shareholders meeting yesterday at its headquarters in Novi, Michigan. ITC invests in the electric transmission grid to improve reliability, expand access to markets, lower the overall cost of delivered energy and allow new generating resources to connect to its transmission systems. Continue Reading →

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CEO Pay in an Age of WikiLeaks: Reporting, Rationale and Ratios

As has been widely reported, WikiLeaks will soon release thousands of documents revealing malfeasance, greed and incompetence at the highest levels of a major American bank, most likely Bank of America. According to WikiLeaks’ Julian Assange, this may be the biggest expose of unethical corporate behavior since the Enron scandal. (Facing Threat From WikiLeaks, Bank Plays Defense, NYTimes, 1/2/2011) For broader “leaks,” see Ex-Banker Gives Data on Taxes to WikiLeaks, NYTimes, 1/17/2011.

This will focus new attention on the subjects of greed, fraud and abuse at the highest levels of Corporate America. See Gary Larkin’s post, Wikileaks Episode Should be Wake-Up Call for Companies. (The Conference Board Governance Center Blog, 1/14/2011)

Last year’s Dodd-Frank bill includes Section 922, which provides that the SEC must pay rewards to whistleblowers who provide original information about violations of the federal securities laws that leads to successful enforcement actions resulting in more than $1 million in penalties. (Concerns Grow Over New Dodd-Frank Act Whistleblower Provisions). Additionally, a pay disclosure rule will require many U.S. companies to report the ratio of CEO pay to median employee pay in the annual proxy statements and also requires votes on corporate proxies concerning how often shareowners will have a “say on pay.”

A recent Towers Watson poll of 135 U.S. publicly traded companies found that 51% expect to hold annual say-on-pay votes, while 39% prefer the vote be held every three years, and 10% anticipate holding biennial votes. Meanwhile, nearly half 48% of companies surveyed are making some adjustments to their executive pay-setting process, while 65% are devoting more attention to explaining their programs in the Compensation Discussion & Analysis (CD&A). Some of the best advice for companies on these issues can be found regularly at CompensationStandards.com, including a program today, The Proxy Solicitors Speak on Say-on-Pay.

Clearly, the issue of executive pay is one that stay with us for years to come but 2011 could set the tone, not just in America but around the world. One of the more interesting discussions I’ve read is in the recent posts of an an Indian blogger, Sonia Jaspal, who cites a recent report of COSO “Fraudulent Financial Reporting 1998-2007- An Analysis of U.S. Public Companies,” which states that CEOs are involved in 72% of the 347 alleged cases of fraudulent financial reporting listed with SEC during 1998-2007 period. (see Fraud Symptom 1- Insatiable hunger of CEO, Fraud Symptom 2- A Weak CFO, and Fraud Symptom 3 – Board’s failure to exercise judgment. We need mechanisms to reduce the likelihood of collusion between CEOs and CFOs, such as making directors and/or audit committee responsible for recruiting and terminating CFOs and not linking CFO pay to stock market performance.

Shareowners are also grappling with how to address the issues. Manifest, a UK-based proxy advisory firm has something of an advantage, since UK shareowners have had a say on pay for many years. See an example of relatively recent discussion at “Excessive” bonuses lead to higher dissent. Other sources of advice include books such as Money for Nothing: How CEOs and Boards Enrich Themselves While Bankrupting America and the classic Pay without Performance: The Unfulfilled Promise of Executive Compensation.

Members of the United States Proxy Exchange have initiated a forum to discuss where individual shareowners and USPX should come down on pay issues. Get in on the conversation for $3.95 a month, if only to monitor what direction this increasingly influential group will take. There are thousands of sites providing investment advice but USPX is one of only a few on investors as owners.

While I have often advocated that any any principles regarding limits should be grounded on academic research, it is difficult to envision a mass movement based on the complex formulas and principles contained in most CD&As, even if they may be grounded in research. Should founding CEOs be given a pass? I don’t think so. CEOs like Steve Jobs of Apple and John Mackey of Whole Foods can easily afford to work for minimum wages because they own a substantial portion of their companies. Their real pay comes through ownership, not by working.

CEOs will try to convince their boards they should be paid in the top 25% of their peers and we have the Lake Wobegon Effect. Since companies will be reporting the ratio of annual CEO pay to median annual total compensation for all employees, that number may drive a popular movement. What will be considered fair? 1 to 25? 1 to 50? 1 to 100? 1 to 200?

In 2007, CEOs in the S&P 500, averaged $10.5 million annually, 344 times the pay of typical American workers, but that was a steep drop in the ratio from 2000 when CEOs earned 525 times average pay. With companies forced to report their ratios, expect more pressure than ever from shareowners in 2011.

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