Regulation and Investor Expectations: A corporate governance insight paper

Key corporate governance areas are examined to determine the extent of impact on UK and Irish companies, and the wider potential risks going into the 2020 AGM season.

Regulation and Investor Expectations: A white paper ahead of the 2020 AGM season

What should UK and Irish companies expect in the 2020 AGM season?

Over the past five years the focus on corporate governance has become particularly pronounced. With the 2018 iteration of the UK Corporate Governance Code and the capabilities of institutional investors increasing, 2019 saw significant change in a number of key areas.

An analysis of these key areas is examined by FTI Consulting and CGLytics to determine the extent of impact on UK and Irish companies, and the wider potential risks going into the 2020 AGM season.

Areas examined in the white paper include:

  • – Pension schemes
  • – Chair tenure
  • – Women in leadership positions
  • – Workforce engagement
  • – Remuneration policies
  • – Restricted shares
  • – ESG & Proxy Voting
  • – Overboarding

 

Download the report to learn more

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Pay for Performance: The Largest Institutional Investors’ View

Pay for Performance: The Largest Institutional Investors’ View   Executive compensation has been one of the trickiest issues within the corporate governance space as of late. Across the board, there seems to be no end in sight to finding the perfect compensation package or philosophy for corporate executives. In this article, we will discuss the … Continue reading “Pay for Performance: The Largest Institutional Investors’ View”

How to design your peer group for compensation benchmarking

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CEO Pay Continues to Increase, but Performance Often Lags

Shareholders, including large institutional investors, are continuing the growing momentum to link executive pay to company performance.

Shareholders, including large institutional investors, are continuing the growing momentum to link executive pay to company performance.

The UK Investment Association, which represents more than £7 trillion ($9 trillion) in assets, responded to investor dissent of FTSE350 companies not acting on executive pay concerns by issuing a new version of executive pay guidelines for disclosures in 2019. With a statement claiming, “companies need to demonstrate the link between pay and company performance. If they don’t, they should brace themselves for more shareholder revolts”. It is clear from this statement that executive pay and pay regimes are still hot topics.

In the US, the Council of Institutional Investors (CII) have also commented in the past on the “excessive complexity in U.S. executive pay plans, and questions on the effectiveness of approaches to pay-for performance.”

There are indeed vast disparities between compensation at select companies within the S&P500 index and their Total Shareholder Return (TSR).  CGLytics, as part of its S&P 500 CEO/Executive Compensation review, has developed an extremely granular view of CEO pay in comparison with performance for the index, helping to focus the debate on the issue.  The review examines different aspects of CEO pay among the constituents of the S&P 500index, including fixed v. variable compensation mix, overview of Pay vs. TSR, and a pay for performance review on a one- and three-year basis.

Realized Pay Correlates with Growth

CEOs received an average of $14,748,284 in Total Granted Compensation (TGC) and $19,276,476 in Total Realized Compensation (TRC) in 2018, the report shows.  Yet the average TSR for S&P 500 companies in 2018 was -6 percent. While this is an improvement from 2008, in which average TSR was -39 percent (average granted pay was $9,563,165 and average realized pay was $10,318,656), it is not a result that is likely to satisfy shareholders.

Indeed, the report indicates a trend that supports the need for performance-related incentives: Granted pay steadily increases from year to year while realized pay tends to coincide with absolute growth.

 

That need is further supported by the comparison of CEO pay with TSR. Naturally a zero-percent margin or zero disparity between a CEO’s realized pay and the company’s TSR is considered perfect alignment.

Historic number of shareholders oppose boards on executive pay

Companies such as Michael Kors Holdings Limited, NVIDIA Corporation, Constellation Brands, Inc., Goldman Sachs Group, and Capital One Financial Corporation all had CEOs rank in the top of their sectors for Total Realized Compensation in 2018. Yet, each of these companies also had a 2018 TSR in the bottom 20 percent of their industry.

Not surprisingly, this leads to shareholders questioning the pay practices of the board, and, in fact, opposition from shareholders for executive compensation issues is at an all-time high. In total, about six percent of director nominees have received less than 80 percent support, and 0.3 percent have not secured majority support. Eight percent of Say on Pay votes have secured less than 70 percent support, and two percent have not achieved majority support.

These numbers may seem small, but they are actually historic in significance compared with previous years’ levels of opposition for related AGM items. It is clear that large passive investors have become more hesitant to approve large one-time retention awards, unrestricted equity to executives, and executive incentive grant with no performance criteria.

To learn more about the Say on Pay landscape of the S&P 500 index, click here to download the full report.

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Pay for Performance: The Largest Institutional Investors’ View

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Glass Lewis New Peer Group Methodology for Say on Pay

Due to Glass Lewis now using CGLytics data to power their Say on Pay recommendations and adapting their methodology to peer-based approach, what is the impact on companies’ pay for performance gradings?

Glass Lewis and CGLytics recently held a webinar to explain Glass Lewis’ new peer group methodology, taking effect from January 1 this year.

The new model implemented by Glass Lewis changes the way peer groups are determined for the Say on Pay recommendations in their proxy papers. During the webinar Glass Lewis’ Julian Hamud, Senior Director of Executive Compensation Research, explains:

“The new partnership with CGLytics has given the opportunity to provide better research for our clients. We are moving from a market-based approach to a proven peer-approach, which will improve our say on pay and compensation analysis.”

Hamud goes on to explain in detail the problems they encountered with the previous model including rigidity with no ability for manual adjustments to the peer algorithm when unique context of a company is justified, and large industry favoritism.

The impact on pay for performance grades and recommendations is also highlighted with a case study detailed by Aaron Bertinetti, Senior Vice President, Research and Engagement, Glass Lewis.

Using the example of Franklin Resources Annual General Meeting (AGM) being held on February 12, 2020,  Bertinetti shows the difference in pay for performance grades awarded using both the old and new Glass Lewis model and peer methodology. This example reveals an improved Grade C, whereas using the previous peer groups and model it would result in a Grade D.

Due to the change of Glass Lewis now using CGLytics data to power their Say on Pay recommendations, and adapting their methodology to peer-based approach, companies need to understand:

  • • How the Glass Lewis peer groups are now constructed,
  • • Why you and your company should care, and
  • • The benefits of the new peer group methodology.

 

To learn more, click here to watch the webinar by Glass Lewis and CGLytics.

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CGLytics S&P 500 Executive Compensation Review

Executive Compensation Review: Which S&P 500 companies showed the greatest Pay for Performance misalignment and conservative practice in 2019?

S&P 500 Executive Compensation Review

Which S&P 500 companies showed the greatest Pay for Performance misalignment and conservative practice in 2019?

CGLytics has released its inaugural S&P 500 Executive Compensation Review. For companies and investors to be fully prepared with insights for the upcoming proxy season, it is imperative to know what concerned shareholders in 2019 and trends to look out for in 2020.

Download the CGLytics S&P 500 Executive Compensation Review and learn:

  • • What are the hottest topics surrounding executive compensation?
  • • Which companies saw the greatest pushback on their Say on Pay proposals?
  • • How does CEO granted and realized pay compare across industries?
  • • What to expect in the upcoming 2020 Proxy Season?
  • • Plus, a deep dive of companies in the materials sector and how they have aligned their pay for performance practices.

Download the report to learn more.

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Gender diversity in Spanish boardrooms

In Spain, the Comision Nacional de Mercado de Valores (CNMV), has put a series of changes to the corporate governance code of public companies under consultation. This is widely regarded as one of the most relevant proposed amendments relating to gender diversity in boardrooms.

In Spain, the Comision Nacional de Mercado de Valores (CNMV), has put a series of changes to the corporate governance code of public companies under consultation. This is widely regarded as one of the most relevant proposed amendments relating to gender diversity in boardrooms.

The new proposal is moving from a “mere” recommendation to a “direct” recommendation of a minimum of a 40% presence of females in boardrooms, significantly up from the current 30%. Besides, the CNMV also acknowledges that the current recommendation hasn’t been given enough attention by Spanish corporates. To address the issue, the new proposal recommends to include executive selection policies and processes in order to promote diversity of knowledge, experience and gender.

Considering these substantial and at the same time exciting changes, I decided to take a look at the current state of gender diversity in Spanish boardrooms, selecting both the IBEX35 and the remainder constituents of the IGBM. The result of the analysis is as follows:

Within the IBEX35, only 3 constituents already meet the new recommendation of the CNMV. Much worse is that only 43% meet the current threshold that has been introduced in 2015, and 20% have less than 20% of females on their board.

Within the rest of constituents of the IGBM (82 corporates), the situation is mixed:

  • • 2 corporates have already achieved real gender parity
  • • 3 corporates meet or exceed the new threshold of 40%
  • • 18 corporates are already above or meet the current recommendation
  • • 59 corporates are below or significantly below the current recommended 30%. Within this group, there are 11 companies which have no females at all in their boardrooms. Following Larry Fink’s latest letter, it is likely that these companies will be facing tougher environments and questioning from investors and stakeholders in the future, as well as higher financing costs.
chart2
Source: CGLytics Data and Analytics

Considering that the current recommendation was set by the CNMV in 2015, it is clear to see that companies will have a challenging future ahead if they want to meet the new recommendation for gender diversity, either via succession planning or boardroom expansions.

In view of the above, how can CGLytics support public corporates’ growing demand for board diversity and effective succession planning, at the required pace?

Whilst at the same time guarantee they achieve a well-balanced board, paramount to maintaining good corporate governance for long-term success?

CGLytics’ Nominations & Governance solution is the answer. Basically, Nominations is a strategic tool through which nomination committees and HR teams are empowered to maintain a pulse on how the board composition of their organisations measures up against peers, investors’ requirements and market standards.

Using Nominations & Governance, nomination committees and HR teams can benchmark the skillset of their boards versus peers and competitors, prepare for investors’ pressure related to board composition, identify the right skills needed now and in the future to best serve the board’s ability to make the right decisions and build a talent pipeline, getting instant access to 125.000+ (including over 20.000 females) global executive profiles of key decision-makers from listed companies, including comprehensive biographies containing employment, compensation, education and extracurricular activities, to search, find, engage and network with the best-quality prospects for boardroom recruitment and succession planning.

Please get in touch should you want to know more.

Would you like to gain instant insights into more than 5,500 globally listed companies’ board composition, diversity, expertise and skills?

Or access the same CEO pay for performance insights used by Glass Lewis in their proxy papers?

Request a demo to learn more about CGLytics’ boardroom intelligence capabilities and executive remuneration analytics, currently utilized by world-leading institutional investors, activist investors and advisors.

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About the Author

Francisco Lopez, Regional Sales Director

Francisco Lopez is a senior sales professional with two decades of successful experience in delivering growth to organizations and building long-lasting, profitable and sustainable relationships with clients and stakeholders worldwide. Francisco has developed his career in the market intelligence, information services and technologies industries, having fulfilled senior business development positions at blue-chip organizations such as Nielsen and GfK. Prior to joining CGLytics, Francisco was the global head of the Industrials sector at a global supplier of SaaS solutions for third-party risk & performance management. Francisco holds a Master’s degree in Business Administration from the Complutense University of Madrid.

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About the author

Edna Frimpong: Lead EU Research Analyst

Edna holds a degree in LLM Finance and Law Programme from the Duisenberg School of Finance. In addition she completed her Bachelor’s Degree in Administration in Accra, Ghana. She gained work experience during her internships as a research analyst at Sustainalytics and as a finance and business development intern at Carnomise SAS.

Randstad make data-based decisions going into the AGM season

“At Randstad we are looking at the remuneration policy on a continual basis and it’s an important topic. Prior to the AGM we want to fully understand how all our stakeholders look at our remuneration policy. “

Randstad N.V. is a leading global HR services company. The company, which is headquartered in Diemen, Netherlands, provides work for more than 670,000 people
around the world each day.

With anything less than 80% of approval from shareholders on remuneration policies now deemed as negative by stakeholders (compared to 50% five years ago), and justification requirements increasing (inpart due to implementation of the Shareholders’ Right Directive II in Europe), companies’ remuneration policies are coming
under greater scrutiny.

Going into the next proxy season, Randstad wants to know which KPIs are being used by other companies to form their own opinion and they also want to compare executive remuneration against peers’ and understand how they will be perceived by proxy advisors like ISS and Glass Lewis.

Read the full story here and find out why Ranstad now goes into their AGMS with greater confidence and how they are able to make data-based decisions rather than assumptions.

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Thiam Tidjane exits Credit Suisse

On February 7, 2020, Credit Suisse Group AG announced that CEO Tidjane Thiam has resigned. The announcement came amid allegations that Credit Suisse spied on former board members, a scandal that led to the departure of Pierre-Olivier Bouée, its Chief Operating Officer in October 2019.

On February 7, 2020, Credit Suisse Group AG announced that CEO Tidjane Thiam has resigned, effective Feb. 14, 2020. The company appointed Thomas Gottstein, Head of Unit Credit Suisse (Schweiz) AG, as his successor and their current Head of Institutional Relations, Andre Helfelstein as Gottstein’s replacement.

The announcement came amid allegations that Credit Suisse spied on former board members, a scandal that led to the departure of Pierre-Olivier Bouée, its Chief Operating Officer in October 2019.

Background and timeline

In March 2015, Credit Suisse recruited Cote d’Ivoire native Tidjane Thiam from Prudential plc. He replaced Brady Dougan as the company’s Chief Executive. The market responded favorably to the news and the company’s share price increased significantly.

From the strategy Thiam had, it was evident that he wanted to refocus the bank on wealth management. In October 2015, Thiam promoted Iqbal Khan to the management board in charge of International Wealth Management. Khan had a steady rise in the company giving him the reputation as the “crown prince” to succeed Thiam in the near future.

The company nevertheless had a share price slide in November 2017 which led the CEO to take charge and begin a restructuring initiative. Following this initiative, the company’s share price rose again, approaching an almost two-year high.

 

The relationship decline

However, in January 2019, Thiam and Khan, who had become residential neighbors, got into an altercation at a party held in Thiam’s home. Though this was not public knowledge, the altercation led to Khan complaining to the company’s board which led to a fall out between the two men.

In February that same year, Khan was passed over in a restructuring/reorganization in the company that saw two of his colleagues promoted.  In a very interesting move, Khan resigned from Credit Suisse to join rival UBS in July 2019, with a start date in October 1, 2019. Two months later, Zurich prosecutors launched criminal investigation after Khan complained that he was being threatened by unidentified people.

Speculations were that Credit Suisse had decided to keep tabs on Khan after he agreed to join UBS, hoping to prevent him from poaching private bankers. Within days, Credit Suisse’s board began their own inquiry into the surveillance. Thiam and Urs Rohner, Chairman of the Board, vowed that the “truth will emerge.”

Outspoken U.S. investor David Herro, one of Credit Suisse’s biggest shareholders, says it would be “damaging” to expel any senior manager over the potential shadowing of Khan. Former Credit Suisse and UBS chief Oswald Gruebel took the opposite stance, stating that Thiam should be fired if the reports were confirmed.

By the end of the month the scandal claimed that another victim, a contractor for Credit Suisse, had committed suicide.

 

Credit Suisse ousts Chief Operating Officer and right-hand man of Thiam

In October 2019, right about the time the police were investigating the death of the contractor, Credit Suisse absolved Thiam and ousted Chief Operating Officer Pierre-Olivier Bouée, who had been his chief lieutenant at three companies for more than a decade. The bank in its statement said that Bouée had acted alone in ordering the surveillance of Khan and had informed neither Thiam nor the board of his intentions. Rohner apologized to Khan and his family and reaffirmed that Thiam had the board’s backing.

The bank that month announced mixed third-quarter earnings. The lender’s financial statements and presentations were overshadowed by questions about the scandal. In his first public comments on TV, CEO, Thiam reiterated that he didn’t order the undercover work and called it “inappropriate” and “disproportionate.” Interestingly, of his longtime colleague Bouée he added, “I’m not sure you can describe him as a friend… He is somebody I respect. I value him as a professional.”

 

Second spying accusation emerges in December 2019

In December 2019, another spying attempt was revealed. This time, the company’s former Chief Human Resources Officer Peter Goerke, was the target. Again, former COO Bouée was blamed for the incident. The financial institution swiftly declared that he was fired for cause. Bouée was painted by Credit Suisse as a rogue operative who kept all executives and directors in the dark about his actions.

Chairman Rohner however began to take a different stance saying that this new case has changed the situation, as a pattern had started to emerge.

Around the same time, Credit Suisse was trying to fend off a third accusation that had arisen. This time, it was related to a U.S. employee who had left the corporation years earlier. In a case dating from 2017, Colleen Graham, a former senior compliance executive in the U.S., alleged in a court filing that the bank had her followed.

Credit Suisse said it had investigated Graham’s claims “and found them to be entirely baseless,” and said the U.S. Department of Labor also dismissed her claims. However, it came to light that the company’s lawyer, it turns out, still met with Graham as recently as the first week in February 2020 to discuss her claims.

 

Regulators step in

In January 2020, Swiss regulators begun looking into the matter. The regulators hired an independent auditor. The investigations revealed that in 2018, Thiam asked Khan to collect “dirty material” on Claudio De Sanctis, a top private banker who left for Deutsche Bank that same year. Thiam took to social media site Instagram to reject the findings calling it “entirely false and defamatory”.

On February 10, 2020, it emerged that Switzerland’s markets regulator will continue its investigation into corporate governance issues despite the resignation of Thiam. A spokesman for the Swiss Financial Market Supervisory Authority, or FINMA, said the regulator is continuing its probe into the bank to “clarify matters related to supervision,” according to the report.

 

Power struggle between Tidjane Thiam and Urs Rohner emerges

Though Credit Suisse’s chairman and CEO always projected a united front, signs of a possible rift and cracks were first seen around 2015.

During that year, there was a huge trading loss which prompted Thiam to publicly complain that he was caught unaware by his traders. Interestingly, the chairman Rohner took the position that Thiam should have seen it coming. The rift deepened after the spying scandal which saw the exit of then COO, which the bank struggled to contain.

Openly, the chairman was on the defensive. Confidentially, he was lining up backing from other investors, including Qatar’s sovereign wealth fund and the world’s largest asset manager, BlackRock, Inc. Rohner was also counting on the board’s support in his defensive posturing. It was also reported that he was lining up a team of possible successors to Thiam.

However, reports have suggested that the ousting of Thiam was not unanimously supported by all.

Specifically, David Herro (Harris Associates’ deputy chairman), Silchester International Investors (which owns around 8.42% of Credit Suisse) and Eminence Capital warned the board of directors that if there was a choice to be made, Rohner should be the one to go. The power struggle at the time appear to be tilting in favor of the CEO. But as mentioned before, the Chair was rallying support from other shareholders.

 

New CEO steps into a likely difficult situation

From the look of the situation, incoming CEO, Gosstein is most likely stepping into quite a difficult situation currently at the bank. On Friday February 7, 2020, the company’s share price dropped by around 5% when the changes were announced suggesting that investors were not happy with the directional change.

Reports suggest that he will need to both heal internal wounds at the bank following the high-profile power struggle and figure out how to reverse its more than 50% share price decline over the past five years.

Again, there is another school of thought that believes that the investors which were loyal to Thiam are not likely to disappear into the background. David Herro, Harris Associates, is quoted to have told Bloomberg TV on February 7, 2020 that while he believes Gottstein is “talented,” the bank still has “a chairman who is less capable and talented and a board who seems to just mimic, just follows blindly whatever

Utilizing CGLytics’ risk rating tool, we find that Credit Suisse’s Board effectiveness is scored 73 points, earning the financial company a rank on the 42nd percentile in the Switzerland’s largest cap index(SMI) which may not be considered a good ranking.

Understanding the board’s skills and expertise

Using CGLytics’ board expertise and skills matrix online application, we are able to gain insights into Credit Suisse current expertise and possibly what the new matrix will look like when the changes are effected.

Utilizing the process as outlined above, we find that the while board chairman Urs Rohner has Executive, Leadership, Non-Executive, Industry, International and Governance expertise, he lacks Financial and Technology expertise which is quite critical to his role and for a scandal of this nature.

Per CGLytics’ methodology, outgoing CEO Thiam also lacks Technology expertise which means for all the other remaining expertise in our classification are owing to his executive roles at Aviva and Prudential as well as his Non-Executive experience from his role at Fox Corporation, which also ended in May 2019.

Incoming CEO Thomas Gottstein, from CGLytics’ expertise classification, does not yet have any Non-Executive, Governance, International and Technology expertise.

Current Board Expertise and Skills of Credit Suisse

creditsuiessboardexpertise
Source: CGLytics Data and Analytics

Data from CGLytics suggests that expertise of the current board of Credit Suisse are concentrated in Leadership, International, Industry/Sector and Executive. A significant number of their directors also seems to have Non-Executive expertise. Interestingly, Governance and Technology does not seem to be the area of greatest emphasis.

Board expertise and skills of Credit Suisse after February 14

While performing a scenario analysis, we see that from February 14, 2020, when the anticipated change takes effect, the board’s strongest skills stills remain concentrated in Leadership, International, Industry/Sector and Executive expertise.

creditsuiessboardexpertise2

From CGLytics’ data, it reveals that since Thiam took over in 2015, the company’s revenue and share price fell steadily from 2015 to 2017. However, both indicators improved in 2018 and is expected to rise again when the closing books of 2019 are announced.

Specifically, from 2014 to 2018, revenue has dropped by 21% and share price has more than halved in the same period.  Revenue is however expected to rise by 3% and the 2019 closing share price also depicts a rise of 21% within the same period.

Credit Suisse revenue vs share price development

shareprice
Source: CGLytics Data and Analytics

Final pay day for Thiam

According to Swiss media reports, following his departure from Credit Suisse, Thiam may walk off with an amount of CHF 20M to CHF 30M. Based on the CEO’s granted pay of CHF 12.65M in 2018, as well as the deferred payments currently totaling about CHF 11.8M, CGLytics’ data indicates that Thiam stands to walk away from his position as CEO with approximately CHF 24M.

Would you like to gain instant insights into more than 5,500 globally listed companies’ board composition, diversity, expertise and skills?

Or access the same CEO pay for performance insights used by Glass Lewis in their proxy papers?

Request a demo to learn more about CGLytics’ boardroom intelligence capabilities and executive remuneration analytics, currently utilized by world-leading institutional investors, activist investors and advisors.

Request a Demo

About the Author

Edna Twumwaa Frimpong: Lead EU Research Analyst

Edna holds a degree in LLM Finance and Law Programme from the Duisenberg School of Finance. In addition she completed her Bachelor’s Degree in Administration in Accra, Ghana. She gained work experience during her internships as a research analyst at Sustainalytics and as a finance and business development intern at Carnomise SAS.

Latest Industry News, Views & Information

Understanding ESG & Annual Incentive Plan

Understanding ESG & Annual Incentive Plan ESG refers to a series of environmental, social and governance criteria taken into consideration by the funds during the investing process. Investing in ESG funds allows shareholders to support companies in transition, that wish to act and develop in a more sustainable and responsible manner. In practice, many indicators … Continue reading “Understanding ESG & Annual Incentive Plan”

Pay for Performance: The Largest Institutional Investors’ View

Pay for Performance: The Largest Institutional Investors’ View   Executive compensation has been one of the trickiest issues within the corporate governance space as of late. Across the board, there seems to be no end in sight to finding the perfect compensation package or philosophy for corporate executives. In this article, we will discuss the … Continue reading “Pay for Performance: The Largest Institutional Investors’ View”

How to design your peer group for compensation benchmarking

How to design your peer group for compensation benchmarking   Given the scrutiny on executive compensation in recent years, it is critical to make sure that your company’s executive pay reflects its performance and aligns with the market. Therefore, it is essential for companies to have an appropriate peer group for performance benchmarking, compensation program … Continue reading "How to design your peer group for compensation benchmarking"

About the author

Edna Frimpong: Lead EU Research Analyst

Edna holds a degree in LLM Finance and Law Programme from the Duisenberg School of Finance. In addition she completed her Bachelor’s Degree in Administration in Accra, Ghana. She gained work experience during her internships as a research analyst at Sustainalytics and as a finance and business development intern at Carnomise SAS.

Reflection on 2019 Executive Pay: Belgium and Luxembourg

In the recent report published by PwC, using CGLytics data and analytics, the critical trends from the 2019 proxy season for Belgium and Luxembourg listed companies surrounding executive compensation were revealed.

In the recent report published by PwC, using CGLytics data and analytics, the critical trends from the 2019 proxy season for Belgium and Luxembourg listed companies surrounding executive compensation were revealed.

Analysis of votes on remuneration items shows an increasing focus on making sure companies have sustainable value creation and a growing expectation of increased disclosure of financial and non-financial information. Shareholders have become more active over the past few years and the average CEO total realised compensation seems to show a decreasing trend and is adapting slowly to the evolution of the total shareholder return.

Belgian companies see more revolt on remuneration items

Belgium listed companies were seen to be more active compared to shareholders of Luxembourg listed companies. The data of the Selected Index of 49 companies indicates that Belgian listed companies were more affected by shareholder revolt on remuneration items than Luxembourg companies.

Shareholder Rights Directive 

Luxembourg successfully implementing SRD II, however Belgium failed to transpose the revised Shareholders Rights Directive to national law by the 10 June 2019 cutoff. Draft law implementing SRD II is being discussed in the Belgian Chamber of Representatives

The new Belgian Corporate Governance Code

The report sheds light on the new Belgian 2020 Corporate Governance Code (‘CGC’) compared to the 2009 CGC, which includes positive steps such as: 

  • • A cap being placed on short-term variable remuneration awarded to executive management; and 
  • • The principle that non-executive board members should receive part of their remuneration in the form of shares in the company.
  • • Particular attention to be paid to diversity, talent development and succession planning

 

Compensation design: Ratio of fixed versus variable remuneration

The report reveals that there is an increasing focus on long-term sustainable value creation.

The proportion of short-term incentives (STI) decreased from 2013 and continued to stagnate over the past few years. Next year’s analysis will tell whether the recent regulatory developments (the introduction of a cap on STI in the 2020 Belgian Corporate Governance Code) will impact the proportion of pay components.

 

To learn more about:

  • • The implementation of the revised Shareholder Rights Directive (SRD II) into Belgian and Luxembourg law,
  • • Evolution of votes on remuneration items,
  • • Shareholder revolt seen in 2019,
  • • Detailed insights into the CEO compensation mix (Base Salary, STIs, LTIs), and
  • • CEO Pay for Performance alignment of the Selected Index

 

Download the report here

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Corporate governance and executive pay. Reflection on the 2019 proxy season. A joint report with PwC

This report by PwC Belgium and CGLytics takes a closer look at votes on remuneration items and reviews the critical trends of the 2019 voting results in Belgium and Luxembourg. Download the report to better prepare for the 2020 proxy season.

Corporate Governance and Executive Pay. A joint report with PwC

The 2019 proxy season has come to a close. This report by PwC Belgium and CGLytics takes a closer look at votes on remuneration items and reviews the critical trends of the 2019 voting results in Belgium and Luxembourg.

Download the report to better prepare for the 2020 proxy season and learn about:

  • • The 2020 Belgian Corporate Governance Code and how it has changed since 2009
  • • The effects of the implementation of the revised Shareholder Rights Directive (SRD II) into national law
  • • Feedback and results of the 2019 general meetings
  • • Remuneration – A Shareholders Revolt?
  • • The evolution of base salary, short term incentives and long term incentives
  • • Key governance themes for boards, such as Pay-for-Performance and board diversity

DOWNLOAD THE REPORT

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Sims Metal Management: Tracking Pay for Performance Over Time

A key element in an assessment of remuneration outcomes is the payout track record and payout variability over several years. Sophisticated remuneration structures should result in pay outcomes which vary in line with performance.

CGI Glass Lewis assesses both executive remuneration structure and outcomes, which is highly valuable when considering our support for remuneration reports of ASX-listed entities.

Concepts of appropriate structure and appropriate outcomes are related, given that strong remuneration structures should result in appropriate remuneration outcomes. However, we have found that a) the complexity of remuneration structures, b) challenges in measuring performance, and c) a large degree of discretion built in to remuneration structures (whether visible or not) often stretch this relationship.  To compensate, CGI Glass Lewis will often consider remuneration structure and remuneration outcomes independently so as to have each component act as a cross-check of the other.

A key element in an assessment of remuneration outcomes is the payout track record and payout variability over several years. Sophisticated remuneration structures should result in pay outcomes which vary in line with performance. Furthermore, the relationship between pay and performance should persist over longer periods as a result of common short-term incentives and long-term incentive remuneration structures.

CGLytics data has allowed us to consider the relationship between executive pay and company performance over a five-year period and has been a key element in our remuneration reports.

CGLytics in use

Sims Metal Management (“SGM”) buys and processes scrap metal from businesses, other recyclers and the general public with over 250 processing facilities in the United States, United Kingdom and Australasia.

CGLytics captures the total realizable pay of ASX300 CEO’s, including for SGM, where total realizable pay is the value of awards vested to the CEO in any given year. CGLytics tools have allowed the charting of realizable pay for the CEO of SGM against realizable pay for CEO’s of peer entities. CGLytics also captures the EBITDA performance for SGM and peers.

The CGLytics analysis, which is included in our Proxy Paper for the SGM 2019 AGM is presented below:

SGM Peer Groups

Looking at the charts, SGM has outperformed its peers on an EBITDA basis between 2015 and 2018 and the CEO’s realizable pay rose to match that.  In FY2019, EBITDA has dipped, which is matched by a significant drop in the CEO’s take home pay—notwithstanding the payout is still above those of peer groups.

We are please to see this relationship between performance and pay and can easily see the variability in pay outcomes over time, which corresponds to company performance as measured by EBITDA.

As SGM has no obvious direct peers listed on the ASX, a diversified approach to peer groups is used.  The first peer group, Country, is a group of 10 peer entities which are similar to SGM in terms of market capitalisation, revenues and employee numbers.  Similarly, the second peer group, Industry, is a group of 10 peer entities with similar size as in the Country peer group, but with the addition of a further industry filter.

A common problem for ASX-listed entities is the sourcing of appropriate peers. The use of the two sets of companies addresses the shortcomings of using a single peer group and allows us to see if trends and patterns persist when moving from one peer group to another.

Conclusion

CGI Glass Lewis assessed SGM’s 2019 remuneration structure as Fair following application of our Good/Fair/Poor assessment options.  This has historically been our assessment of SGM’s remuneration structure.

After reviewing of remuneration outcomes, including CGLytics charts which enable us to see historic payout variation and an ongoing relationship between pay and performance, we were comfortable in supporting the remuneration report proposal at the 2019 AGM.  In this case, using an assessment of remuneration outcomes has supported a Fair grading of remuneration structure and has given us confidence in SGM’s remuneration report.

Ultimately, the 2019 AGM held on November 14, 2019, SGM’s remuneration report proposal received support from 92.80% of votes cast.

 

Access Glass Lewis’ Say on Pay analysis – Available through CGLytics

For the 2020 proxy season, CGLytics data will provide the basis of Glass Lewis’ Say on Pay recommendations.

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