This summer I looked at disclosure in over 100 proxies regarding changes made to compensation packages generally as a result of low votes and/or shareholder outreach. I expect to write several blog posts on this, but begin today with cases where pay declined significantly.
In late May the New York Times made public its executive compensation database of 200 of the highest paid executives for the prior year. There were sixteen companies where total disclosed compensation (TDC) declined year over year by 20% and almost all of them had received weak support for their advisory votes in the prior year. Of the companies in this list that were on the top 50 of As You Sows most recent overpaid CEOs, 16 had reduced TDC, and only 4 had increased pay. Overall, however, the New York Times showed the vast majority of executive compensation increased.
Here’s a review of cases where pay went down. Changes may be a direct result of policy changes, including many based on shareholder suggestions, or may be an outgrowth of declining performance. Also, some of the companies listed below were not on the New York Times list, but identified elsewhere.
Salesforce Chairman & CEO Marc Benioff’s total reported compensation declined from $39.9 million for FY 2015 to $13.1 million for FY 2017. The most recent one year decline was 60%. Despite a smaller decline the prior year (16%), less than two-thirds of shareholders approved compensation that year, which spurred addition changes. The company noted in its proxy: “We take seriously, and believe it is important to respond to, the voting results on our annual stockholder advisory vote to approve our executive compensation.” The company has frozen CEO Benioff’s salary through 2018, adopted performance based share units (PSU), and announced perks it plans to eliminate in 2018.
Honeywell, where TDC declined 47%, heard from shareholders a preference that long-term performance awards “be share-based instead of cash.” In the case of Cote’s 2016-2017 Growth Plan award, “the [compensation committee] retroactively changed the form of payout from cash to shares.” The company is transitioning compensation from discretion-based “to a more formulaic plan,” from stock options to performance share units, and has lengthened performance cycles.
Regeneron’s CEO’s TDC fell by 40%. Regeneron has been in discussion with shareholders for several years, and the proxy statement disclosure highlights changes made in 2013 and 2014, as well as those made more recently. A gradual change that ultimately had a great effect on bottom line numbers was consecutive decreases in size of equity awards to executives.
Vertex, where pay was also down 40%, noted that pay was supported “by 74% of the “Say-on-Pay” advisory votes cast by our shareholders in 2016, which was a significant increase in support compared to 2015.” Vertex made changes in equity awards, including performance-contingent restricted stock units. The board “approved annual cash bonuses at above target levels for 2016, but at significantly lower levels than those granted in 2015.”
SL Green, where pay declined by 25% made several significant changes. Among them changes to peer group, providing “only performance-based employment agreement equity awards for our Chief Executive Officer’s 2016 employment” and raised performance hurdles. The annual bonus, which had only been 60% formulaic in 2014 is now 100% formulaic. As the company notes, these changes made a significant difference, “The rigorous application of our pay-for-performance compensation principles resulted in the formulaic annual cash bonus program for our top three executives being earned at only 61%, and a reduction of our CEO’s total annual bonus by $250,000—4% below 2015 and 16% below 2014.”
Universal Insurance Holdings introduced a performance threshold to its cash incentive plan and performance thresholds to its PSUs as well. According to the company proxy statement, “The overall impact of these recent changes led to a reduction in total compensation for CEO Downes from $25,032,334 in 2015 to $16,336,223 in 2016, a reduction of $8,696,111 or 34.7%.”
Pay was also down significantly at American Express, AON, CVS, General Electric, General Motors, L Brands, Mylan and Tesero. At many of these companies and as well as at some mentioned above declines were driven in part by company performance. At L Brands TDC was also down by 47% the company, “Paid short-term incentive compensation below target for [executives] reflecting performance that did not meet our challenging goals.”
In past years poor performance was not necessarily a predictor of decline in pay as compensation committee often relied on discretion. To see pay decrease when metrics are not met shouldn’t be noteworthy, but in the context of CEO pay it may be.