Proxy Published: 3/16/15
Meeting Date: 4/24/15
When a company is performing well, some ask, why should shareholders care about compensation? The answer becomes most obvious after a company isn’t doing well: poor compensation can be the first visible symptom of a board that is not engaged in protecting the interests of shareholders. Certainly, one can imagine that in the context of the market capitalization a request from the CEO for a perquisite may be hard to deny, but a board in the habit of never denying the CEO anything is not a board focused on the important issues of strategy and sustainability that they should be focused on.
A clear example today can be seen at Wynn Resorts, with corporate governance as close to a soap opera as it can get in recent months, where questionable compensation may have been an early clue to larger issues. Co-founders Elaine Wynn and Steve Wynn first married in 1963, first divorced in 1986, married again in 1991, divorced again in 2010. In the second divorce Steve got 9.9 percent of their company, Wynn Resorts, Elaine got 9.4 percent, and both remained on the board. This year she was not renominated for the board, and has launched a campaign for reelection. It is a long complex story of covenants and lawsuits with the potential to trigger change in control definitions under debt agreements, but we return our focus to executive compensation.
Stephen Wynn’s total compensation has been higher than his peers for many years. Among the features shareholders objected to were his $4 million salary, his routinely large non-equity incentive payment (which was $10 million again in 2014), excessive perquisites and non-performance based bonuses. The company notes that it did a complete overhaul of compensation in 2014 after conversations with shareholders. This year, for the first time, 50% of Wynn’s annual incentive award was paid in equity.
However, most of the reforms were not effective in fiscal year 2014, and required a revised employment agreement for the CEO. The January 2015 agreement lowers the salary to $2.5 million, a reduction that would still place his salary among the top 10 in S&P 500 companies. In addition, it replaces an aircraft time sharing agreement and will require Wynn to reimburse the company for certain expenses related to personal use of aircraft. However, he will receive a $250,000 credit each year “to offset his reimbursement obligations,” suggesting that this might be more of a slight of hand than substantive reform. The agreement also lengthens the term of the agreement with Wynn, who is now 72 years old, extending it through October 24, 2022.
ISS recently issued its recommendations on the contested board elections, recommending that shareholders vote against all nominees, and its scathing report was highlighted by David McKee’s Las Vegas Advisor blog and the New York Times. ISS recommended against all the directors, including Elaine Wynn: “There appears to be no daylight between Elaine Wynn and the rest of the board on tolerating weak governance practices, poor pay practices, or an overall corporate governance profile that ranks among the worst, not the best of U.S. companies.”
Soap operas can be entertaining, but one doesn’t wish to have one’s retirement money invested in them. The story of the Wynns is another example of why shareholders should follow executive compensation and corporate governance closely.