Roundup: Executive Bonuses Scrutinized
The U.S. Senate has voted 96-3 to ban executives at government-controlled mortgage companies Fannie Mae and Freddie Mac from receiving bonuses, a measure introduced after the Federal Housing Finance Agency approved nearly $13 million in bonuses to 10 executives. “There are many examples of intelligent, well-qualified, patriotic individuals working in our federal government who make significantly less than the top executives at Fannie and Freddie with just as much responsibility,” said Senator John McCain (R-AZ), who proposed the bill with John Rockefeller (D-WV).
Royal Bank of Scotland CEO Stephen Hester, one of many top executives whose bonus was challenged. (David Moir/Reuters)
Bonuses in 2011 at some of the country’s largest public companies were also scrutinized and decreased. Morgan Stanley CEO James Gorman’s stock-based bonus was cut by about half over 2010, to $5.1 million. JPMorgan Chase CEO Jamie Dimon received the same stock bonus, valued at $17 million, in 2011 as in 2010, despite record profits. The cuts even hit below the executive suite, with some Goldman Sachs bankers and traders receiving no bonus at all. Goldman CEO Lloyd Blankfein was awarded a $7 million restricted- stock bonus, down from $12.6 million in 2010. Bank of America opted to freeze base salary levels and limit some bankers’ cash bonuses to $150,000.
Overseas banks are feeling a similar pinch. Marking the first time a British bank exercised a clawback provision, Lloyds Banking Group took away portions of 13 directors’ bonuses totaling about £2 million ($3.16 million) as punishment for their role in selling payment protection insurance, a scandal which cost the company £3.2 billion ($5.05 billion). This included former CEO Eric Daniels, who had to forfeit 40 percent of his £1.45 million ($2.29 million) 2010 salary. Senior bankers at Credit Suisse were told total compensation would be 30 percent lower, on average, compared to 2010. Royal Bank of Scotland’s plans to give CEO Stephen Hester a $1.5 million bonus drew extensive criticism in Britain, and within days Hester opted not to accept the bonus. The controversy led to a number of politicians calling for binding say-on-pay provisions in the United Kingdom.
“Shareholders need new powers to hold the board (of companies) to account and I will consult shortly on specific proposals to reform the current voting arrangements and give shareholders a binding vote, enabling them to exert more pressure on boards,” U.K. Business Secretary Vince Cable told Parliament.
Losing Face on Diversity
Facebook filed its long-awaited IPO, providing a glimpse into the notoriously secretive company’s executive suite and board. California State Teachers’ Retirement System (CalSTRS) penned a letter to Chief Executive Mark Zuckerberg urging him to add women to the all-male board, currently populated by Zuckerberg, technology executive Marc Andreessen, venture capitalist Jim Breyer, Washington Post CEO Donald Graham, Netflix CEO Reed Hastings, former White House Chief of Staff Erskine Bowles and venture capitalist Peter Thiel. “This is particularly glaring at a time when there is clear evidence that companies with diverse boards perform far better than the companies with more homogenous boards,” CalSTRS Director of Corporate Governance Anne Sheehan wrote.
The IPO, projected to put the social network’s market value as high as $100 billion, will create enormous benefits for long-time employees and investors. An estimated 900 people stand to become millionaires in stock value alone. Research firm PrivCo finds that 11 executives and investors will hold half of the company’s value after it goes public. Zuckerberg holds 57 percent control of the voting power, and has requested a $1-per-year salary starting Jan. 1, 2013. The IPO filing reports the company’s 2011 revenue at $3.7 billion, with $1 billion in profit.
Hacker Exposes Boardroom Vulnerability
HD Moore found a path into the Goldman Sachs boardroom in early January, but not by becoming a director. Moore is a hacker and chief security officer at Rapid7, a Boston-based security systems purveyor. Moore discovered that a number of videoconferencing systems are vulnerable to hackers, who could use the systems to both see and hear what happens in the boardroom, with enough picture quality to zoom in and read reports on the tables in front of participants. “The entry bar has fallen to the floor,” Mike Tuchen, chief executive of Rapid7, told The New York Times. “These are literally some of the world’s most important boardrooms—this is where their most critical meetings take place—and there could be silent attendees in all of them.”
Oracle of Omaha Says Successor Is In Sight
Warren Buffett, chief executive officer of Berkshire Hathaway Inc. for more than four decades, revealed the board has picked his eventual replacement. Buffett didn’t identify the choice in his annual letter to shareholders Feb. 25, saying instead that directors were “enthusiastic” and have had “a great deal of exposure” to the person designated to take over as CEO. Buffett, 81, didn’t specify a timeline for the switch.
Apple Adopts Majority Voting
In response to investor demands, Apple told shareholders at the company’s annual meeting on Feb. 23 that the board had agreed to adopt majority voting in director elections. Apple originally opposed a majority voting resolution filed by the California Public Employees’ Retirement System. A similar CalPERS proposal received 73.6 percent support at Apple in 2011.
CalPERS, which has been an active proponent of majority voting, has called on 17 other large-cap firms to implement this reform. Overall, 79 percent of S&P 500 companies have adopted a majority vote standard for uncontested board elections, usually in conjunction with a director resignation policy, according to Institutional Shareholder Services’ (ISS) 2012 Board Practices study, which includes data through June 30, 2011.
There has been a nine-percentage point increase in majority voting among large-cap firms since 2010. This practice remains far less common at smaller companies. As of June 30, 2011, 34 percent of S&P Mid Cap companies and 15 percent of S&P Small Cap firms had adopted a majority vote standard—with or without a director resignation policy—according to the ISS study.
Exodus From Yahoo! Board
Following in the footsteps of departed Yahoo! CEO Jerry Yang, four board members, including Chairman Roy Bostock, will not standing for re-election at the company’s annual meeting. “The board has concluded that in order to accelerate the company’s transformation, the combination of a new chief executive officer with an enhanced team of independent directors would provide Yahoo! with the expertise and perspectives necessary to drive innovation and growth going forward,” Bostock said in a letter to shareholders. Also leaving the board are Vyomesh Joshi, Arthur Kern and Gary Wilson.
DoJ Investigates Purported Collusion of Tech Firms
The U.S. Justice Department has launched a probe into at least seven companies who kept “do not call” lists to avoid recruiting former employees of competitors, alleging a conspiracy to keep salaries low by blacklisting other companies’ employees. The investigation alleges that senior executives from Adobe, Apple, Google, Intel, Intuit, Lucasfilm and Pixar used the lists to decrease employee compensation by 10 to 15 percent, and seeks restitution for lost compensation and treble damages for salaried employees from the companies between 2005 and 2010.
Shareholders Approve Jacobs Engineering Pay
Jacobs Engineering’s shareholder vote was closely watched this year to see how investors would respond to a reformed compensation plan from the first company to fail a say-on-pay vote since they were established under the Dodd-Frank Act. Shareholders overwhelmingly approved the company’s compensation plans this year, with 82 percent of votes cast “yes,” up from 45 percent approval at last year’s meeting. Following the 2011failed vote, Jacobs engaged with investors and revamped its compensation plans, tying pay more closely to performance and decreasing total CEO pay.
An Alliance in Exec Comp
Glass, Lewis & Co., an independent governance services firm, and Equilar, the executive compensation benchmarking firm, forged a strategic partnership to provide institutional investors and corporate issuers with enhanced analysis of executive compensation and corporate governance matters. As part of the partnership, Glass Lewis’ Proxy Paper research will be available to corporate issuers on the Equilar platform. In addition, Glass Lewis will work with Equilar to integrate its “market-based peer groups” and realizable pay data into Glass Lewis’ new version of P4P, a proprietary analysis of pay for performance at public companies. Glass Lewis’ P4P model examines seven indicators of shareholder wealth and business performance and analyzes two compensation data points (the chief executive’s total compensation and the top five executives’ total compensation). Each of these nine metrics is compared against those of the company’s peers to create a weighted-average executive compensation and performance scores. Glass Lewis’ P4P will begin incorporating market-based peer groups developed using Equilar’s algorithm to create a network of peers.
Corporate Taxes Fall Lower Than 1972 Levels
Corporate tax receipts as a share of profits have fallen to their lowest levels in 40 years, the Congressional Budget Office reports, with total corporate federal taxes paid amounting to 12.1 percent of U.S. profits in the fiscal year ending Sept. 30, 2011. Between 1987 and 2008, companies paid an average of 25.6 percent of profits in taxes. Companies paid $181 billion in federal corporate taxes in 2011, in contrast to the $1.1 trillion individuals paid in income taxes. The “bonus depreciation” tax break, which allows companies to write off investments on significant supplies, was cited by The Wall Street Journal as a key component in the drop.
Carbon Disclosures Fuel Stocks
Companies who voluntarily issued press releases disclosing carbon emissions information saw an average of just under half a percent increase in stock price in the five-day span around the release, finds a University of California study. The smallest of the 172 companies studied between 2000 and 2010 saw the greatest benefits, with price increases of 2.32 percent.
Geithner Plans to Leave by 2013
Treasury Secretary Timothy F. Geithner said in a recent interview with Bloomberg Television that he is “confident” current President Barack Obama will be staying on for a second term, but that he is also “pretty confident” that Obama will not ask him to remain as secretary. In August, an administration official said Geithner would remain in his current role at least through the election after Geithner told White House officials that he was considering leaving following contentious debt-limit negotiations. In the same interview, Geithner also expressed confidence in Congress and the administration to successfully reform the corporate tax system.
2012 The World’s Most Sustainable Corporations (The top 20 of 100)
1. Novo Nordisk
2. Natura Cosmeticos
3. Statoil
4. Novozymes
5. ASML Holding
6. BG Group
7. Vivendi
8. Umicore
9. Norsk Hydro
10. Atlas Copco
11. Sims Metal Management
12. Koninklijke Philips Electronics
13. Teliasonera
14. Westpac Banking
15. Life Technologies
16. Credit Agricole
17. Henkel AG & Co.
18. Intel Corp.
19. Neste Oil Oyj
20. Swisscom
Source: CorporateKnights.com
Greenpeace Approved
Each year, Greenpeace International pitches global IT companies against each other to find who comes out on top in the fight to stop climate change. The 5th edition of Leaderboard compares firms on their IT climate solutions, IT energy impact and political advocacy, and publishes a ranking.
1. Google
2. Cisco
3. Ericsson (tie)
3. Fujitsu (tie)
5. Vodafone
6. Alcatel-Lucent
7. Sharp (tie)
7. Softbank (tie)
9. IBM
10. Hewlett-Packard
11. Wipro
12. Dell
13. Microsoft (tie)
13. SAP (tie)
15. AT&T
16. HCL
17. NTT
18. NEC
19. Telefónica (tie)
19. TCS (tie)
21. Oracle
Source: Greenpeace International
