Proxy published:  April 17, 2015

Meeting date: May 28, 2015

Blackrock was the only company that appeared in two sections of our report identifying overpaid CEOs and how mutual funds voted on them.  First, Blackrock CEO Larry Fink, with pay of over $22.9 million last year, he ranked as the 26th most overpaid CEO in the country (compared to his performance a regression analysis shows he is overpaid by at least $11 million a year.) Second, Blackrock as a fund manager votes on the pay of all the other CEOs of all the other companies that it invests in.

Blackrock controls the votes of over five percent of the shares in every company in America, probably more votes than any other fund manager in the world.

As the world’s largest asset manager Blackrock held 96 of the companies we identified, and approved compensation at nearly all of them.

As the CEO of Blackrock, Larry Fink received total disclosed compensation of $23,862,458.

Blackrock came out with new voting guidelines in February 2015 on how it votes on compensation and other issues at other companies which included a special appendix on “Our approach to say on pay.” The term excessive is mentioned only in the context of “relative to peers.

Thus it is worth looking further at discussion of peers in Blackrock’s proxy statement. Interestingly, the proxy states that Semler Bossy, the independent consultant hired by the compensation committee provided compensation data on publicly traded asset management companies, which were listed in the proxy. However, “Given the diversity and scale of our global platform, we do not believe that [these] companies represent a comparable peer group.” Instead of relying on the independent consultant data the company looked at data from management-hired McLagan Partners. According to the proxy statement, McLagan’s data “which include publicly traded companies as well as private companies, offers more suitable comparisons through which BlackRock can understand the competitiveness of its executive compensation programs overall, by functional business and by title/individual.”

That being said, the guidelines as a whole outlines some important principles, for example, “We are concerned about the potential ratchet effect of explicit benchmarking to peers. We therefore believe that companies should use peer groups to maintain an awareness of peer pay levels and practices so that pay is market competitive, while mitigating potential ratcheting of pay that is disconnected from actual performance.”

The company’s votes do not display the values they espouse. They have a disclosed preference for preferring discussions with issuers to voting against plans on the proxy.

We have no way of knowing how powerful these discussions may or may not be. We can tell there is a deleterious effect in not voting against packages: the high votes are used broadly by compensation consultants as a justification for the status quo. In fact at a meeting of the Council of Institutional Investors, consultant Ira Kay told an audience that high average votes reflect an “endorsement of the model” of current executive compensation. The fact that two of the largest equity holders, Blackrock and TIAA-CREF, rely on polite exchanges behind closed doors rather than voting distorts investors’ true opinions of compensation.

Finally, Larry Fink is a thoughtful man who has taken some positive and powerful steps, on the side of the long term investor. His annual letters to CEO’s of S&P 500 companies concisely challenge companies to invest in building sustainable business models and not over-using company cash on dividends and buybacks. It seems to me that Fink may have a blind spot when he lectures on activist investors but fails to consider how executive self-interest plays into these same issues. Many executives now hold a significant portion of their personal wealth in equity, and dividends and buybacks (in the absence of rigorous retention requirements), are very much in their personal self-interest. One intriguing chart, for example, shows that in 2013 and 2014 insider’s year-high selling closely aligned to company’s year-high buying.

We hope as Fink considers his letter for next year, and as the company votes their proxies this year, they will consider all of these points.

Multiple Companies of Concern

Multiple Companies of Concern

Our primary focus with the blog this year is looking at the 100 companies that appeared on our overpaid list in our report, but the overpaid companies from last year are not necessarily the ones from this year.  We have become aware of another S&P 500 companies with excessive or problematic pay packages this year, and wanted to quickly point them out.

CtW Investment Group called on shareholders to vote against advisory votes at Dominos Pizza and at Service Corporation International.  Vote no campaigns that include public appeals to shareholders are filed as PX14A6G. The letter on SCI critiques a detailed analysis of the company’s bloated pay structure, weak pay oversight, and flawed implementation of performance metrics.


Companies occasionally file defensive, and generally unconvincing, counter-arguments when they receive a recommendation against from one of the proxy voters. While ISS and Glass-Lewis analyses are available only through subscription, these documents are publicly available at the SEC as “Additional Definitive Proxy Soliciting Materials, or DEFA 14A.

For example, on April 14th, Yum Brands filed a letter to shareholders seeking support on its advisory compensation proposal and opposition to a shareholder proposal calling an end to accelerated vesting upon a change in control. One issue that ISS apparently raised concerns about was the fact that some performance awards would be paid out even if the company failed to achieve median TSR.  According to the proxy statement, for the 2014-2016 performance shares, the executives will receive have their target awards even if the company is out-performed by 59% of peers.  The company counters that, “However, 74% of relative TSR plans result in the target being earned at the 50th percentile or lower performance.”  If that is true, particularly regarding lower performance, shareholders need to carefully be reviewing these plans and voting against a higher portion of them. In any case, at Yum this tranche of awards are granted from a baseline at a time when the company under-performed peers.

The Chubb Group, where CEO John Finnegan had total disclosed compensation of $17,841,294 in 2014 also filed a DEFA14A in which it notes that company TSR exceeded that of peers on 7, 10 and 12 year annualized TSR, and that pay has not risen as much as TSR. Non-equity compensation alone was $5.5 million for 2014, however, and that did not cover the same time range. Finnegan owns 784,962 shares of stock, most of which were provided as part of equity compensation so he is adequately rewarded for long-term TSR through that format.

BB&T (meeting date April 28) also filed a DEFA14A in defense of its compensation, though it made no particular reference to ISS or Glass Lewis. The letter, written by Compensation Committee Chairman Joseph Howe, III, explicitly acknowledges that “TSR results on a relative basis slightly lagged our Peer Group in the one- and three-year comparisons,” but suggests that compensation decreased in 2014. However, in that assessment it excludes the significant increases in pension and deferred compensation value.  For CEO Kelly King, this represented $6.8 million out of a total package of $14.1 million.  King’s current pension value is approximately $26 million, a significant one, particularly given the industry.

Companies often search for and disclose the financial metric that puts them in the best possible light in comparison to peers, and I would speculate that the company considered a number of measures before including in the chart “Tangible book value per share” which, according to the company, “generally represents the amount of money an investor would theoretically receive for each share if a company were liquidated at the values stated on the company’s balance sheet, excluding goodwill and other intangibles.”

The company rebuts concerns about the fact that it targets total compensation between the median and 75th percentile of its peer group contending that it difficult to finding appropriate peers for comparison.

Teradata’s (meeting date April 28) defense of its compensation, filed on April 7, makes much of the effect poor company performance has had on compensation. No performance-based restricted shares were earned in the past two year, annual incentives paid below target, and the no payout is expected Long-Term Special 2016 Performance-Based Restricted Share Units.  The company also points out that many of the options granted executives are underwater, meaning the strike price is below the current price. From 2012 to 2014 the realizable pay of the CEO was only 32% of the targeted pay.  Shareholders have also suffered, of course, and may not be sympathetic to the CEO given the fact that his cash salary has increased by $100,000 over that same time frame. In addition, the company continues to give large option grants. If the executives can simply return stock to the price it was two years ago, the options granted in 2014 will be worth nearly $2 million dollars.

On April 8, Praxair  also filed a DEFA14A in which it urges shareholders to vote in support of the advisory vote and states that, “The ISS voting recommendations seem to be based primarily upon Praxair’s short-term Total Shareholder Return (“TSR”).”  However, ISS analysis always considers more than TSR.  In fact, last year, ISS recommended in favor of around 8 out of 10 of the companies with the lowest TSR because they felt that pay and performance were appropriately linked. All of these companies had a greater decline than the 5.9% TSR decline of Praxair. However, all of these companies reported total compensation below Stephen Angel’s $19,687,401.

The company also includes in its DEFA14A a chart that shows the heavy stock buybacks the company has participated in over the past decade, noting that it has “reduced share count by 10% and returned cumulative $10 B cash to shareholders through dividends and share repurchases since 2005.”  There has been increasing concern from a number of fronts, most recently including  an April 23, 2015 letter from Senator Tammie Baldwin to SEC Chairman White calling on a re-evaluation regarding buyback rules. A more lengthy discussion on buybacks and the role they play in the economy can be found in the Roosevelt Institute’s Taking Stock by William Lazonick.

In any case, total disclosed compensation for Angel increased by over $6 million from 2013 to 2014.  The company notes in the DEFA14A that “more than 20% of the increase is related to external factors that impact the value of employers’ pension obligations, including changes to the mortality tables issued by the Society of Actuaries in 2014 and a marked decrease in the discount rate used to value pension obligations during 2014.”  In addition, “nearly 60% of the change in pension is related to a legacy arrangement established fourteen years ago in connection with Mr. Angel’s recruitment to the Company in 2001, and the final portion of this legacy arrangement vests on January 1, 2016.” In the proxy statement itself, it is noted that to persuade Angel to depart from General Electric, Praxair agreed that he would receive an additional credit under the SRIP [Supplemental Retirement Income Plans] on January 1, 2011 for 10 years of service that he had with his prior employer. Expect to see high figures in this column next year as well: on January 1, 2016 he also will receive credit under the SRIP for an additional 11.64 years of General Electric service if he remains continuously employed with the Company until that date. The present value of his pension benefits is over $35 million dollars.


In addition to seeking out DEFA14As, I took a quick look at some of the companies with highest total disclosed compensation thus far in proxy season and took a very quick look at their proxy statements.

Compensation for CEO John Koraleski at Union Pacific reached $28,144,047, an increase of almost $11 million dollars. The bump was in part due to a change in pension value of over $13 million (it was $6 million last year). In February 2015, Koraleski became executive Chairman of the Board, and Lance Fritz became President and CEO.

Also of note, the estate of former Chairman and CEO James Young, who resigned in January 2014 and passed away in February 2014, received compensation of over $50 million. The company notes that Young’s “performance stock unit, retention stock unit and stock option awards were modified on January 31, 2014, to waive the continuous employment and service provisions and provide for vesting upon his retirement.”  While reasonable consideration and compassion is appropriate for any ill employee, the goals of compensation elements such as performance share should also be considered.  Young’s pension (over $16 million) and lifetime of savings would likely be sufficient to care for his heirs.

Finally, a look at Union Pacific’s proxy shows that the company has included in its peer group companies including unlikely peers include eight companies from our “Overpaid 100” list, including some that seem unlikely peers such as Altria and Time Warner Cable, as well as others that seem a more appropriate fit.  Even with that peer group, the company notes that the $4 million bonus was above the 75% percentile of its peers.


Proxy published: 4/6/2015

Meeting date: 5/21/2015

At the 2014 annual meeting only 46% of shares supported the advisory vote on pay at Hasbro.  This year, total compensation for CEO Brian Goldner fell from $27.4 million to $14.6 million.  The major decline was in the value of stock awards, which fell from $21 million to $7 million, but that was not based on a decision made by the compensation committee this year. The prior proxy statement included large grants under a 2012 revision of Goldners employment agreement.  For 2014, non-equity incentive pay rose from $1.8 to $2.3 million, and the change in pension value was up significantly.

Following the dismal level of support last year the “disappointed” board and CEO “mutually decided that they would take the unusual step of amending certain of the terms contained in Mr. Goldner’s existing employment agreement.”  The agreement, signed in 2012, was at the root of shareholder concern, it offered a high magnitude of pay, and provided for the award of aggregate of 587,294 restricted stock units.

Changes made this year to the agreement included decreasing the potential long term equity grant target level from 5 times to 4 times salary and eliminating the total shareholder return performance multiplier on the contingent stock performance awards granted to Goldner in 2013 and 2014. The company also added Return on Invested Capital (ROIC) as an additional performance metric under the contingent stock performance awards granted in 2015 to Goldner and other executives.

These changes did not address the primary concern As You Sow had with the agreement.  That concern, going beyond the sheer magnitude, was one that other shareholders also reportedly noted with the company: “stock price hurdles for the one-time restricted stock unit grant that could be achieved at a single point in time.”  Under the 2012 agreement four stock price thresholds ($45, $52, $56 and $60 per share) when met, resulted in earning a quarter of the special RSU awards. Such vesting can inspire risk taking. An executive is incentivized to do anything one can to raise the price, even if it is not sustainable over the long term.

The proposal by As You Sow that appears in the current proxy statement calls on the company to adopt a policy requiring that senior executives retain a significant percentage of shares acquired through equity compensation programs until two years following the termination of their employment (through retirement or otherwise), and to report to shareholders regarding the policy before Hasbro’s annual meeting of shareholders.

The board in defense of the proposal notes that. Goldner, “holds (inclusive of his wife’s holdings and shares held in trusts for his children) shares of Hasbro stock with a value almost eight times his annual base salary.”  Eight times Goldner’s salary is $10.4 million. This figure pales in comparison to the stock Goldner has sold: according to Equilar data, Goldner has sold over $53 million dollars’ worth of Hasbro shares in the past three years. Based on figures reported in proxy statements, at the end of the fiscal year, Goldner owned 1.7 million shares; two years ago he owned more than 2 million shares.

Equity compensation is designed to create long-term alignment between executives and shareholders.  Given Goldner’s propensity to sell shares, the RSU grants seemed unlikely to achieve that goal over the long term. While these shares do not fully vest until the agreement’s current end date in 2017, they had the potential to inspire short term thinking.

The recent revision of the employment agreement did make one change to the awards that had not yet reached the triggering price.  For the final two tranches of shares earned under the special restricted stock unit awards “if the Company achieves the $56 and $60 stock price hurdles will be adjusted if the trading price of the Company’s common stock is below those respective thresholds during the thirty-day trading period ending just prior to December 31, 2017, or the earlier termination of Mr. Goldner’s employment in certain situations.” A look at the employment agreement reveals that even if the stock price falls such that its average over those thirty days is less than $50 per share, Goldner would still receive half the awards earned when the stock price hit $60.  According to my calculations, then, even if the stock falls significantly below that level he would still receive stock awards worth approximately $14.5 million.

The long term impact of a poorly designed compensation program is difficult to ascertain.  For example, the company notes other contingent stock awards, available to a broader set of executives, failed to meet cumulative revenue and cumulative EPS targets so no shares were earned by any officers or employees under any of those awards. While this appears to be appropriate, it also highlights the disparity between compensation received by Goldner and the other officers, which may be an issue in succession planning.

Shareholders may appreciate the reforms the board has made to the employment agreement, while simultaneously continuing to have concerns about wisdom of the agreement in the first place.

L Brands

Proxy published: 04/09/15

Annual meeting: 05/21/15

Total compensation for L Brands CEO Leslie Wexner increased 52% to $24,094,036. A major component of the increase was provided through an increase in his cash incentive to $6,342,273 million dollars, although stock awards and options awards also increased.

One concern shareholders may have is that there are two bonus opportunities at L Brands each year. It is very unusual to have six month goals rather than annual awards. This may lead to an extremely short range focus.  The company states that it has, “Set short term incentive compensation goals at targets that require substantial growth in operating income over record fiscal 2013 results” and the results were achieved.”

However, retail consumers are notoriously fickle regarding brand names. Opinions and shopping practices seem to change constantly.  For this reason, a particular tie to long term equity should be an important component of pay at consumer brands.

The bonus this year is nearly $4 million above last year’s, a significant cash payment. Based on a survey of early proxy filings done by the Hay Group and published by the Wall Street Journal, this is one of the hot trends of the season. According to the article, of the companies looked at, “Cash was the fastest-growing component of pay for the surveyed CEOs last year. Their salaries and annual bonuses rose by a median 7.8%, up sharply from the previous year’s 1.2% and a decline in the year before that.”

Of course, cash is always in style. The question is whether shareholders will be satisfied with the pay ensemble compiled at L Brands this year.


Proxy published: 4/14/2015

Annual meeting: 5/27/2015

Oil price and stock price are down, and the company recently reported its worst quarterly cash flow  since 2009, but pay for Exxon CEO Rex Tillerson is up: increasing from $28.1 million in 2013 to $33.1 million for 2014.  As in years past, the major component of the package is stock awards, $21.4 million this year, nearly identical to the value of last year’s grant. The major increase in this year’s pay was $4 million in the change of his pension value.

A major focus of the proxy, supported by multiple tables and graphics is a distinction between realized compensation and the numbers reported in the summary compensation table.

Realized compensation is, to oversimplify a bit, the hard cold cash received. Equity valuation is always a complicated estimate, and when stock price goes down the value of equity incentives may not equal the original estimates. The converse is true as well – equity awards are often subsequently proven to be worth more than estimated — but that is rarely pointed out in proxies.

One of the chart’s included in the proxy statement shows realized pay as a percentage of reported pay, showing the ratio of the distinction since 2006. According to the chart actual realized pay has not exceeded 71% of disclosed pay over those years, and the average percentage was 46%.  For 2014, the company reports realized pay as 55% of the disclosed amount: $18.25 million.

One reason that executives at Exxon have not realized as much value (i.e. converted equity to cash) as at other companies is the company’s admirable stock retention policy. As noted, “a substantial portion of an NEO’s annual compensation in the form of performance-based restricted stock or stock units and restrict[s] the sale of these equity awards for periods of time far longer than the restrictions required by most companies across all industries.” In fact, half of the equity award may not be sold for 10 years from date of grant or until retirement, whichever is later, and the other half is restricted from sale for five years. This policy is one we applaud and wish were more widely adopted.

While the equity must be retained for a time period, to fail to consider its value – as an over-emphasis on realized pay does – is misleading. The equity still has great value. As of February 15, 2015, Tillerson held 1,855,784 shares of company stock (as well as additional unvested stock units). As the stock price has gone down the value of Tillerson’s fortune has declined, but he still has a fortune.  If the stock price lost half its value Tillerson’s current holdings would still be worth over $75 million.  Even if the stock price plummeted to $15 per share (a level it has not traded at in the past 20 years), Tillerson’s holdings – now worth over $150 million — would be worth approximately $28 million.

The board notes, “The executives’ inability to monetize equity compensation early is especially relevant in today’s price environment as executives, much like long-term shareholders, experience the impact of commodity price cycles.” The company’s reference to “commodity price cycles” is, obviously, a reference to the declining price of oil. (There’s a great deal of debate, of course, as to whether falling oil price is a cycle or whether the energy industry is in the midst of fundamental changes.)  Yet there does not appear to be a similar emphasis in the years when the rising price of a barrel of oil indirectly increased the value of compensation packages.

For the first time this year, the proxy statement discussed “unrealized pay” as well, which it says “includes the value based on each compensation benchmark company’s closing stock price at fiscal year-end 2013 of unvested restricted stock awards; unvested long-term share and cash performance awards, valued at target levels; and the “in the money” value of unexercised stock options (both vested and unvested).” This seems similar to what some others call “realizable pay,” basically the value of compensation if it could be converted to cash.  Realized and realizable are not universally disclosed so comparisons are difficult. The terms tend to obfuscate rather than enlighten, and the optional disclosure typically appears – as it does in this case – when it counters an otherwise high figure.

Consistent CEO salary increases

As the performance based pay becomes less valuable, it is of particular interest to see how energy companies handle fixed compensation, and at Exxon the salary is of particular notes. The proxy statement notes that as of January 1, 2015 Tillerson’s salary increased $180,000 per year to $3,047,000.  This increase comes on the heels of an increase last year of $150,000 increase the prior year.

Salary, designed as the company notes, “to provide a base level of income,” has risen every year for Tillerson. When he became CEO in 2006 hid salary was $1,500,000 (considerably below that of his notoriously highly-paid predecessor Lee Raymond) so it has more than doubled.

Such high salaries are not a tax efficient.  As noted in the proxy statement, “Salary (together with other compensation related to fringe benefits or perquisites) is not deductible by the Corporation to the extent that it exceeds $1 million for any Named Executive Officer (other than the PFO).”

Salary increases also inflate other forms of compensation downstream. Final average salary is used in pension determinations (The current accumulated benefit of Tillman’s pension at the end of the fiscal year was over $25 million. He had an additional $40 million in the Exxon Additional Payments plan). Likewise life insurance policies provided by the company are also based on salary (4 times base salary for the CEO). When Tillerson leaves Exxon, he will, like all U.S. salaried employees, be entitled to payment of salary for any accumulated but unused vacation days.

In every proxy statement since 2006 the compensation committee has noted a flexible approach to peer comparisons, including a version of this sentence that claims its policy “minimize[s] the potential for automatic ratcheting-up of salaries that could occur with an inflexible and narrow competitive target among benchmarked companies.” Yet ratchet the company has: each year since Tillerson became CEO his salary has increased by at over 5%.  The annual increases have ranged from 5.5% to 16.7%.

The increase is particularly striking this year in the context of falling oil prices.  Bloomberg Intelligence analyst Gregory Elders was recently quoted in a blog as saying, “The only people not hit by the drop in oil prices are the CEOs running the companies.”  While this may be something of an overstatement, Exxon’s recent disclosure does little to dispel that impression.


Proxy filed 4/2/15

 Meeting date 5/6/15

Like many companies in business of the exploration and production of crude oil and gas, Hess has seen a sharp decline in Total Shareholder Return over the past year.  In this case, it has been accompanied by an increase in CEO pay.  The total disclosed compensation for CEO John Hess increased from $16.1 million to $23.5 million.  A major component of the increase was an $8 million change in pension value.

The company has made significant changes in its compensation plan, lowering the CEO’s bonus target and issuing stock options for the first time in many years. The proxy statement notes that in March 2014, the compensation committee reduced Hess’ cash bonus target for 2014 by $1 million and “approved a corresponding increase in the value of his target LTI award for 2015 by $1 million.”  Thus the target annual bonus declined from 217% to 150% of Hess’s $1.5 million salary, in other words from $3.25 to $2.25 million.  His actual bonus paid for 2014, based on “enterprise results” that include environmental health and safety goals, proved reserve additions, as well as four additional metrics, was at 135% of target: $3 million.

In terms of long-term incentives (LTI), in 2014 the compensation committee decreased the weighting on time-based restricted stock from 50% to 20% of the LTI package, increased the weighting on performance share units (PSUs) from 50% to 60%, and re-introduced stock options at 20%. Payout of PSUs is contingent upon the company’s TSR compared with that of peer companies over a three-year period. However, even if Hess outperforms its peers, there will be no payout if total shareholder return is negative.

Shareholders at Hess also have an opportunity to vote on a proposal by As You Sow that urges Hess to prepare a scenario analysis report addressing the risk of stranded assets presented by global climate change and associated demand reductions for oil and gas, including analysis of long and short term financial and operational risks to the company.


Proxy published: 4/10/2015

Annual meeting: 5/21/2015

The country’s largest cable provider is also a top provider of large pay packages for its CEO.  Brian Roberts who received total disclosed pay of $32,961,056 in 2014.  There is one category in particular where Comcast consistently ranks high, that of “all other compensation.”  This catch-all category in the summary compensation table is for pay beyond salary, bonus, stock awards and options, and is typically six figures or less, representing perquisites.  Comcast this year provided all other pay of over $4 million.  This places it 2nd highest of all other S&P 500 companies for the year.  Over the past eight years Comcast has always been in the top 10 of all companies in this category, and been in the top 5 for five of these years.

Why?  In the case of Comcast the amount is due to unusually generous contributions to executive deferred compensation plans.  Deferred compensation is a tax-advantaged savings mechanism, allowing executives to avoid caps on 401k contributions. It is designed to allow executives to put some compensation aside to receive after retirement when they presumably will be in a lower tax bracket.  Originally designed as a retirement savings vehicles, for executives such as Roberts these packages have instead reach the point of becoming wealth accumulation vehicles. The total amount in Robert’s deferred compensation account at the end of the fiscal year was $96,641,079.

These plans themselves are not particularly unusual. Comcast describes its deferred compensation plan as “our primary retirement vehicle generally to all employees with base salaries of at least $250,000.”

What sets Comcast apart are the extravagant contributions it makes to the plans, most of which appear to be guaranteed under employment agreements. In 2014, the company made contributions of $3.6 million to Roberts deferred compensation plan. Roberts is guaranteed a contribution of $3.8 million in 2015.

The company reports $9.5 million in aggregate earnings in Roberts’ plan this year. This highlights another key feature that distinguishes the retirement savings of ordinary workers, (and even most ordinary executives) from those at Comcast: they receive a guaranteed rate of return. Of this $9.5 million, approximately $6.5 million are “the dollar value of interest earned on compensation deferred under our deferred compensation plans in excess of 120% of the long-term applicable federal rate. The interest crediting rates on deferred compensation were 9% or 12%.” Elsewhere the company notes that the guaranteed returns of 12% were lowered to 9% in 2014.  However, even a 9% guaranteed rate is beyond the hopes of most employees.

Beginning with compensation earned after January 1, 2014 the company set some limits on how much executives could defer.  Also, beginning for compensation earned on or after January 1, 2014, the interest crediting rate was reduced from 12% to 9%, but it remained at 12% on (i) compensation that was originally earned before January 1, 2014 (including any subsequent redeferrals) and (ii) certain other compensation earned on or after January 1, 2014. In other words, most of the current savings will continue to receive the 12% guaranteed rate.

This is not true simply for Roberts, but for the other named executive officers. In fact, the agreement with Stephen Burke, President and CEO of NBCUniversal, whose total compensation this year exceeds $33 million, provides for specifics amounts of deferred compensation each year through 2018, when the amount will also exceed $4 million.

These large pay package and the contributions come at a time when Comcast is trying to convince regulators to approve its proposed purchase of Time Warner Cable.  Comcast is also on a mission to improve its reputation.  A recent AP article notes that “Comcast is adding more social media representatives as it tries to work on its reputation for inefficient, unresponsive or just plain rude customer service.” The money used to increase Robert’s deferred compensation account could be used to hire more social media representatives, or perhaps even technicians to perform the actual service that service providers are supposed to provide.



Proxy published: 3/27/2015

Annual meeting:  5/7/2015

It is easiest to critique pay when performance is down, and easiest to accept it when short term performance is up.  Much trickier is making the distinction as to whether increases in pay are proportional to performance, and appropriate.  For 2014, CVS had a good year, with increases in net revenue, net income and operating income, and pay for CEO Larry Merlo increased to $32,350,733.

The major component of the total increase for CEO Larry Merlo was in the annual non-equity incentive pay which increased from $8.5 million to $11.4 million (of which $4.6 million was that annual cash incentive award, and the remainder was cash portion of the 2012 – 2014 LTIP cycle.)

For its Executive Incentive Plan (EIP) CVS creates a maximum pool that can be used to pay annual incentives to named executive officers. For 2014, the pool formula was 0.5% of Adjusted Net Income from Continuing Operations Attributable to CVS Health.  Then to evaluate how much to awards executives, the committee uses a Management Incentive plan (MIP) based 80% on operating profit and 20% on customer service and client satisfaction.  Given the company’s results the compensation committee used “MIP funding of 141% as its starting point for evaluating actual payments.”

For Merlo target as percent of salary was 200%; the maximum as percentage of pool was 30% (next highest 15%).  The maximum as percent of salary 500%.  This represents an increase in the maximum from last year when the maximum amount based on performance level was 400% of salary. Last year’s proxy also discloses a threshold, whereas this one does not. It is hard to know exactly what to make of this change.  In neither year did the company pay the maximum, though in both years it paid above the target.  Did having a higher maximum in place inspire the committee to increase the subjective portion of the analysis to a higher level?


Proxy published: 4/10/2015

Annual meeting: 5/21/2015

Pay for Cablevision’s CEO James Dolan increased from $15,987,539 to $23,702,403 in 2014. Pay for executive chairman Charles Dolan also increased to $15,347,097.

The compensation committee continues to include a practice that we highlighted in our report last year, a problem not just for shareholders of Cablevision but for shareholders of any company that uses Cablevision in its peer comparator group. As stated in the proxy: “The Compensation Committee set a general guideline for target total direct compensation based on a combination of internal and market considerations. . . Market considerations include referencing market pay levels and pay practices among a peer group of companies with a reference to the third quartile of the core peer group.”

There’s a phenomenon in compensation some call the Lake Wobegone effect: compensation committees seem to believe no CEOs should be paid below the average.  This is one factor that has driven up CEO pay at such a disproportionate rate.  In the case of Cablevision, the grading on a curve reaches a particularly alarming level. The compensation committee believes that the comparator point should be the top 25% of other highly paid CEOs.

There are other problematic features of pay at Cablevision, including stock awards guaranteed in employment agreements, and the fact that the company has a highly paid executive chairman.  James Dolan is the son of the company founder Charles Dolan.  According to the proxy statement, his brother Thomas C. Dolan, a director of the Company and Executive Vice President, Strategy and Development — Office of the Chairman also earned a base salary of $868,528 and a bonus of $521,100 in 2014 and was granted a $500,000 cash performance award and 30,300 shares of restricted stock. .

It should also be noted that in April 2011, Thomas C. Dolan filed a lawsuit against Cablevision and its wholly-owned subsidiary, Rainbow Media Holdings LLC, in New York Supreme Court. The proxy states that “the lawsuit raises compensation-related claims (seeking approximately $11 million) related to events in 2005. The matter is being handled under the direction of the Independent Committee of the Board of Directors of the Company.”

Cablevision is a controlled company. Under the terms of it Amended and Restated Certificate of Incorporation, the holders of the Company’s Class B common stock have the right to elect up to 75% of the members of our Board and there is no requirement that any of those directors be independent or be chosen independently.  The executive officers and directors as a group control 72.9% of the voting power, it is unlikely that shareholders will see any changes to compensation practices at the company.

Wynn Resorts

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.