The Billionaire Battle Over Oil Part 2: The Oil Giant’s Resolve

In the second part of The Billionaire Battle Over Oil, we look at the outcome of the proposed deal between Occidental Petroleum and Anadarko.

After a contentious few weeks between Carl Icahn’s continuing proxy war against the Occidental Petroleum (Oxy)-Anadarko deal and the awaiting of the passing vote from shareholders in order for the acquisition to be completed, news has once again been made. Not surprisingly, the proposal passed with a 99% vote in favour of the deal that gives them $72.34 per share (based on last Wednesday’s price); Oxy and Anadarko secured the largest deal in the oil and gas industry since Royal Dutch Shell and BG Group.

However, with big deals come big costs, and the aforementioned is no exception. It adds over USD 40 billion to Oxy’s capital structure and leaves the company “with less flexibility to confront commodity price volatility” in the future. It is no surprise that Icahn chose to launch a proxy war and call for a replacement of board members in the wake of the deal.

Not to mention, Occidental Petroleum is selling USD 13 billion of debt to finance the acquisition after receiving more than USD 75 billion in orders for the deal at its peak. That’s the biggest demand for a debt sale since Aramco, but how will this play out?

Occidental will carry out the bond sale in 10 parts, the longest portion being a 30-year bond that yields around 2.25%. Further, to aid in the USD 10-15 billion divestment plan, Oxy has decided to sell off Anadarko assets in Africa to Total SA of France. The company is also searching for a buyer to hold majority control in the pipeline operator Western Midstream Partners LP, which Occidental is slated to inherit after the takeover.

The first week of August saw Occidental hedge nearly 40% of its combined oil production into 2020 as well, all in an attempt to reassure shareholders that dividend payouts will be possible while taking on an increased debt load.

While the deal may be a win from the company’s perspective, analysts and the market have voiced otherwise. Company ratings from analysts covering Occidental shifted, with the most telling from Evercore ISI “The company’s ‘Pledge’ for greater capital discipline and enhanced corporate governance proved fleeting with ROCE to decline significantly due to the Anadarko transaction. The commensurate decline in valuation places OXY at a 10-year low in the equity market.” The deal is claimed to be value-destructive, and the market bared its teeth towards Occidental and its antics; Year to date (YTD) shares are down nearly 26%, off more than 41% from the trailing twelve-month period, and down 30% since the acquisition was announced.

Generally, good financial stewardship hedges against overvalued, high-impact dealings. Thus, it begs the question: how could such a complex deal be so vigorously accepted internally, despite market kickback and open disagreement?

Viewing Occidental’s board of directors and their relevant skills and expertise within CGLytics’ platform, it is apparent that financial expertise and oversight is lacking.

Occidental Petroleum Corporation’s Board Expertise

Source: CGLytics Data and Analytics

It is possible that the lack of financial oversight was manifested when Occidental Petroleum decided to move forward with its acquisition and outbid Chevron for Anadarko. Increased financial responsibility may have produced different results, but the oil industry is ridden with mergers, acquisitions, and deals that walk a fine line in terms of good corporate governance practices.

It begs the question if the oil industry is in need of a corporate governance overhaul in the near future, as the story of Oxy-Anadarko is a tell-tale sign that a lack of expertise can lead to a less-than-stellar outcome.

Corporate boards and executive teams increasingly require insights and analytical tools to identify any potential areas of reputational risk. Without this oversight, companies may be targets of activist campaigns and cannot proactively prepare.

To learn more about how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you identify these areas of risk, click here.

Did you miss it? Read the article of The Billionaire Battle over Anadarko (Part 1) here.

About the Author

Rollin Buffington

US Research Analyst

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Barrick Gold Corp, Acacia Mining and Turbulence in Tanzania

Issues involving the mining industry and corporate governance practices are nothing new. And Barrick Gold’s recently deal with Acacia Mining is no exception. After multiple negotiations and tradeoffs in the past, Acacia Mining has agreed to Barrick, the majority shareholder, buying out the remaining minority shareholders.

Barrick Gold Corporation, based in Canada, is one of the largest gold mining companies in the world. It currently holds 262,246,950 shares of Acacia Mining (64% stake in share capital). To gain the remaining 36%, Barrick has proposed a 24.2% premium on the closing price of Acacia shares on July 18. The deal comes in at USD 430 million and will take the company private.

The Acacia CEO, after finally reaching an agreement, stated: “Given all the circumstances, this is possibly the best outcome.”

Perhaps more importantly, is that the deal aims to resolve many of the longstanding public issues between the Tanzanian government and Acacia that have plagued the mining company’s operations.

Two years ago, the Tanzanian government banned the export of mineral concentrates. This movement was due in part because the government believed they had not received a fair share of profits from mining in the country. Two of Acacia’s units came under fire, being handed a USD 190 billion tax bill from the government. This tax bill has since been reduced to USD 300 million.

Additionally, Tanzania recently demanded that Acacia cease use of a waste-storage facility at a core gold mine. These disruptions have crippled operations and caused Acacia’s shares to fall 50% since 2017.

After facing external pressures and at the insistence of minority shareholders, Barrick CEO, Mark Bristow, proposed a higher offer than what was initially proposed to Acacia in May. This was recently accepted.

Shareholder awareness proved a worthy factor here; Acacia shares rallied 20% on the deal and a positive response was received from the Tanzanian government. This is a fine example of shareholders prioritizing the survival of a company.

Delving into Acacia Mining’s board composition, by utilizing CGLytics’ board effectiveness tools in the online platform, provides insights into why the company may not have managed issues as effectively as possible.

Acacia Mining plc’s Board Expertise

Source: CGLytics Data and Analytics

The board expertise and skills matrix from CGLytics show that experience in the area of governance severely lacks, however industry and sector, and financial expertise is heavily present. This may provide an explanation to the problematic relations they experienced with the Tanzanian governance. It generates a question of if more governance experience was present on the board, would the situation have been different? While the survival of the company and acceptance of the “best-we-can-get” deal could be attributed to the strong presence of industry and financial expertise.

The recent movements have rekindled, if only just, a better relationship with the government. Because of Barrick’s increased involvement, the Tanzanian government agreed to receive USD 300 million for the tax debt as a gesture of goodwill. The company was also given the option to pay in installments, with an upfront cost of USD 100 million to be paid out in addition.

Furthermore, Barrick was able to negotiate an agreement in which payment to the Tanzanian government is dependent on the export ban being lifted from Acacia and its subsidiaries in the country. In a “give and take” action, the Tanzanian government also claimed a 16% stake in Acacia in the form of Class B shares.

The complex strategy devised is a clear manifestation of the board leveraging its expertise and abilities to secure a better position. Had there been more Governance oversight, perhaps the company would not have encountered such trifles. The devastating government backlash will certainly continue to have an effect for years to come. Nonetheless the Board can rest easy knowing that it has found the best outcome to a longstanding battle, one that could’ve left Acacia and Barrick incapable of recovering.

CGLytics offers the broadest, up to date global data set and powerful benchmarking tools to conduct comprehensive analysis for executive compensation decisions and risk oversight. CGLytics is Glass Lewis’ source for global compensation data and analytics. These analytics power Glass Lewis’ voting recommendations in both their proxy papers and their custom policy engine service. To find out more click here.

About the Author

Rollin Buffington

US Research Analyst

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Proxy Season Lookback: CGG marks first binding ‘non’ on pay in France – A guest blog by Glass Lewis

The 2019 season marked the second opportunity for French shareholders’ to cast retrospective binding votes on executive compensation. And for the first time, shareholder votes prevented the payment of a bonus award, as well as the implementation of a new pay policy.

A guest blog by

The 2019 season marked the second opportunity for French shareholders’ to cast retrospective binding votes on executive compensation. And for the first time, shareholder votes prevented the payment of a bonus award, as well as the implementation of a new pay policy.

In many markets a say-on-pay vote is offered, but under Sapin II legislation, which came fully into effect in 2018, French shareholders get several “says” on remuneration arrangements. The variable payments due to each executive are subject to a series of “ex-post” binding votes (one for each executive) and there is an annual “ex-ante” binding vote on the intended remuneration policy for the current year. In addition, shareholders also get forward-looking advisory votes on severance arrangements.

It’s the binding “ex-post” vote that has drawn the most attention — in particular, the potential implications of how a rejection could affect the organisation, with several possible scenarios. How would an executive react to such a public rebuke from shareholders? To losing the bonus they thought they had earned? Would the board take emergency measures and what could these be, or would continued service prove untenable, prompting an immediate resignation? In 2018 there were several backward-looking compensation proposals that came close to providing answers, with Teleperformance, Vinci, Renault, Technicolor and Atos coming close to failing. But it wasn’t until this year’s shareholder meeting of SBF120 listed CGG, specializing in geophysical services, that shareholders got to see the implications of voting down a CEO’s pay. Well, sort-of.

After changing CEO early in the fiscal year, CGG had a number of proposals covering executive pay on the agenda. Shareholders received two binding, backward-looking votes, covering the FY2018 variable remuneration due to both the current and former CEOs, as well as one binding, forward looking vote, covering the proposed FY2019 remuneration policy of the current CEO, and one advisory forward looking vote on post-termination severance arrangements.

Shareholders voiced their dissent across the board. Support for executive pay proposals ranged from a high of just 56.65% to a low of 38.63%, with two voted down. These were the ex-post, binding vote on the remuneration due to the former CEO Jean-Georges Malcor for fiscal year 2018, and the ex-ante, binding vote on the 2019 remuneration policy for the current CEO, Sophie Zurquiyah.

Besides being historic, the ex-post rejection was somewhat surprising. Mr. Malcor’s variable package contained no surprises and only represented a small fraction of his total quantum for the year. Payment of a €75,000 extraordinary award in respect of a successful debt restructuring may have been viewed as somewhat questionable, especially after CGG decided to pursue a new strategy after his departure in order to recover from a record of poor financial performance. However, the payment was relatively modest, particularly in comparison to the total of €1,626,673, that Mr. Malcor received in respect of fixed salary and a non-competition agreement (the ex-post votes under Sapin II do not cover fixed remuneration). Also surprising was that the award was not unexpected, having been clearly disclosed as part of Mr. Malcor’s forward-looking binding remuneration proposal, which received 96.90% support at the 2018 meeting.

With only 53.52% support, the binding proposal covering variable remuneration due to the current CEO, Sophie Zurquiyah, narrowly avoided the same fate. The binding, forward-looking proposal covering the remuneration policy intended to apply for the current fiscal year was not so fortunate, garnering just 44.3% support. The consequences of this vote are more transparent, and nowhere near as potentially far-reaching, as that of the “ex-post” vote. Instead of the policy terms that had been proposed, Ms. Zurquiyah’s remuneration will continue to be determined by the company’s existing policy, previously approved by shareholders at the 2018 AGM. That may ultimately suit shareholders – while the company had not proposed any material changes to the existing policy, specific details of the 2019 iteration were not fully disclosed.

The company has issued a press release acknowledging the vote results and stating that the board “will consider the adjustments to be made to the Chief Executive Officer’s remuneration policy in order to obtain the shareholders’ approval at the next General Meeting.” It’s unclear if that consideration will include an engagement programme to garner feedback from investors – or what will happen if and when French shareholders reject the variable pay due to a current, rather than former, CEO.

This article was originally published on the Glass Lewis website, 23/07/2019. You can read the article here: https://www.glasslewis.com/proxy-season-lookback-cgg-marks-first-binding-non-on-pay-in-france/ 

About the Author

1030648

Iris Bucelli
Senior Research Analyst at Glass Lewis & Co.,

Irene joined Glass Lewis as Corporate Governance Analyst for Continental Europe in 2017. She specialises in executive compensation analysis of French blue-chip and mid-cap companies. After completing a Masters Degree at the University of Bologna, she worked on international projects in Italy, France and Spain, before landing in Ireland.

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

Glass Lewis uses CGLytics as it’s global compensation data provider. For the 2020 proxy season our data will provide the basis of Glass Lewis’ Say on Pay recommendations.

 

Learn More

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Correcting Founder’s Syndrome: Executive Compensation Practices at Ralph Lauren

Ahead of the Ralph Lauren AGM, CGLytics looks at how CEO pay has changed since the founder’s exit, and how the nominations change the board composition.

Ralph Lauren Corporation, a global leader of premium lifestyle products, is scheduled to hold its 2019 Annual General Meeting of Shareholders (AGM) on August 1, 2019. Shareholders attending the AGM will vote on the following resolutions:

  • The election of 4 directors to serve until the 2020 Annual General Meeting of Shareholders;
  • The ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 28, 2020;
  • The approval, on an advisory basis, the compensation of the Company’s named executive officers and the Company’s compensation philosophy, policies, and practices;
  • The adoption of the Company’s 2019 Long-Term Stock Incentive Plan.

 

Election of Directors:

Ralph Lauren has two classes of directors, Class A and Class B. At the upcoming AGM, four Class A directors will be proposed for election: Frank A. Bennack, Joel L. Fleishman, Michael A. George, and Hubert Joly. We note that in 2018, Ralph Lauren increased the size of its Board with the appointment of three new directors, namely Michael A. George, Angela Ahrendts, and Linda Findley Kozlowski, ostensibly to expand the Board’s “diversity of skills and experiences”. These three directors bring to the Board Leadership, Executive, and Industry/Sector expertise, with Michael A. George and Linda Findley Kozlowski being active CEOs in two retail companies and Angela Ahrendts being a former executive of Apple, Burberry Group plc and Kate Spade & Company. In terms of skills, the three individuals bring about Marketing, Sales and Operations knowledge. Nevertheless, the Board still appears to lack Technology and Financial expertise.

However, in addition to the diversity of skills that the addition of the new directors has brought to the board, the company also now maintains a gender diversity level of 50%, well above the market standard for the United States.

Source: CGLytics Data and Analytics

Executive Compensation:

The third resolution in the agenda is a shareholders’ advisory vote to approve the Company’s executive compensation.

After the Founder, Ralph Lauren, stepped down from his position as CEO, Ralph Lauren has gone through two CEO changes, with Stefan Larsson serving from November 2015 to May 2017, and Patrice Louvet serving since July 2017. As can be seen from the absolute comparison chart generated by CGLytics’ Pay for Performance module, there appears to be a misalignment between CEO compensation and one-year total shareholder return between 2008 and 2015. However, it appears that this misalignment has reduced since Mr. Lauren left the position of CEO. Furthermore, we also see that the total realized compensation for the CEO thereafter has been reduced significantly.

Source: CGLytics' P4P Modeler

CGLytics’ data and analytics are trusted and used worldwide by Glass Lewis, the leading independent proxy advisor, as a basis for their research on companies

CEO Compensation Package Breakdown

Historically, the CEO’s compensation package has primarily focused on his STI opportunity (between 2009 and 2012). However, since then, the CEOs compensation package breakdown has shifted towards long-terms incentives, which now form a greater component of the CEO’s compensation package.

Additionally, in 2017 the performance measures of LTI grants shifted from 3-year Cumulative Operating Margin and Operating Margin to 3-year Cumulative Return on Invested Capital (ROIC) and 3-year Relative Total Shareholder Return (TSR) in 2018. Ralph Lauren also added Global digital revenue as a new measure for STI grants, a modifying KPI that could result in an “adjustment of bonuses upwards or downwards by 10%.”

Source: CGLytics' P4P Modeler

Relative Positioning

In comparison to Ralph Lauren’s own disclosed peer goup, the Company’s CEO pay appears now to be line with its peers. Additionally, when reviewing the company’s relative positioning among its peers, there also appears to be a pay for performance alignment between Ralph Lauren’s 3-year TSR and compensation paid to its CEO.

RalphLauren4
Source: CGLytics' P4P Modeler

Ralph Lauren also proposes adopting a 2019 Long-Term Stock Incentive Plan, under which the Company awards equity compensation to executive officers, to replace the current Ralph Lauren Corporation 2010 Amended and Restated Long-Term Stock Incentive Plan. Under the new plan, LTI awards will be determined based on 3-year Cumulative Return on Invested Capital (ROIC) and 3-year Relative Total Shareholder Return (TSR).

Overall, we find that although the company has seen shifts in executive leadership over the past few years after Mr. Lauren left the reigns of the company to his successor, we also find that the company’s executive compensation programs have fallen more in line with market norms, correcting a former pay for performance misalignment that extended under Mr. Lauren’s leadership.

To learn how companies can become proactive and support modern governance decision-making, with access to the same insights as activist investors and proxy advisors, click here.

Sources

CGLYTICS DATA AND ANALYTICS   RALPH LAUREN 2019 PROXY STATEMENT

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2019 CEO Pay Review: The Top 50 Highest Paid CEOs

As proxy season progresses and companies file their annual reports, CGLytics surveys the world’s highest paid CEOs (so far) and looks at how executive compensation has grown since the last year.

CEO Pay continued to dominate the AGM season in 2019. As we take a break over the summer, it’s worth reviewing the top 50 highest paid CEOs and seeing how this has changed from 2018.

We also take a look at how the performance of these companies has increased to understand how executives are rewarded for performance.

Key CEO pay take aways from the first half of 2019 :

  • The top 50 total granted compensation has increased by over 300% from 2018 to 2019 ($4.49bn compared to $1.12bn).
  • Although over 50% of the $4.4bn is attributable to one individual’s granted compensation (Elon Musk, Tesla: $2.28bn).
  • Even discounting this outlier, total granted executive compensation increased by 97%.
  • Meanwhile the average growth in market capitalisation was around 3% from 2018.
  • And 1 year Total Shareholder Return (TSR) actually shrank by 1%.

 

Given these significant increases in total granted compensation compared to the value being delivered to shareholders, it’s easy to see why CEO pay and compensation continues to dominate AGM discussions.

Trending Top 50 CEOs

Ranking

CEO

Company

Total Granted
Compensation

Total Realised Pay

TSR in %

TSR 1YR growth in
%point

1

Musk, Elon

Tesla, Inc.

$2,284,044,884
(
54575310%)

$56,380 (513%)

57%

515%

2

Smith, Patrick

Axon Enterprise, Inc.

$246,026,710
(
56433%)

$25,488,720
(
5472%)

565%

592%

3

Zaslav, David

Discovery Communications, Inc.

$129,499,005
(
5207%)

$33,498,259
(
662%)

511%

543%

4

Glancey, Stephen

C&C Group plc

$119,819,023
(
510%)

$1,643,004
(
536%)

50%

62%

5

Hodler, Bernhard

Julius Baer Group Ltd.

$78,813,367
(
54694%)

$2,979,804
(
581%)

640%

639%

6

Levine, Jay

OneMain Holdings, Inc.

$71,532,583
(
516913%)

$71,532,583
(
516913%)

67%

62%

7

Schwarzman, Stephen

The Blackstone Group L.P.

$69,147,028
(
645%)

$69,147,028
(
645%)

50%

51%

8

Legere, John

T-Mobile US, Inc.

$66,538,206
(
5270%)

$42,071,611
(
5243%)

50%

57%

9

Iger, Robert

The Walt Disney Company

$65,645,214
(
581%)

$66,065,073
(
68%)

54%

56%

10

Steele, Gary

Proofpoint, Inc.

$64,730,296
(
5892%)

$54,931,367
(
528%)

66%

510%

11

Charlès, Bernard

Dassault Systèmes SE

$51,098,970
(
577%)

$65,983,199
(
578%)

518%

517%

12

Alber, Laura

Williams-Sonoma, Inc.

$50,758,332
(
5252%)

$28,830,401
(
5224%)

51%

63%

13

Heppelmann, James

PTC Inc.

$49,969,163
(
5403%)

$17,041,464
(
5107%)

536%

546%

14

Freda, Fabrizio

The Estée Lauder Companies Inc.

$48,753,819
(
50%)

$9,387,109
(
683%)

53%

56%

15

Buckley, Henry

Uni-Select Inc.

$47,774,090
(
52687%)

$47,012,426
(
53416%)

630%

634%

16

Handler, Richard

Jefferies Financial Group Inc.

$44,674,213
(
5105%)

$5,951,709
(
5339%)

633%

638%

17

Kilroy, John

Kilroy Realty Corporation

$43,624,774
(
5282%)

$18,204,958
(
622%)

614%

610%

18

Bird, Lewis

At Home Group Inc.

$43,089,790
(
52477%)

$1,614,791
(
63%)

639%

632%

19

Lebda, Douglas

LendingTree, Inc.

$42,318,238
(
629%)

$164,584,011
(
53682%)

636%

628%

20

MacMillan, Stephen

Hologic, Inc.

$42,040,142
(
5275%)

$12,231,622
(
656%)

64%

56%

21

Hogan, Joseph

Align Technology, Inc.

$41,758,338
(
5256%)

$69,763,660
(
5504%)

66%

61%

22

Schulman, Daniel

PayPal Holdings, Inc.

$37,764,588
(
596%)

$41,295,115
(
5328%)

514%

517%

23

Hastings, Reed

Netflix, Inc.

$36,080,417
(
548%)

$4,064,854
(
698%)

539%

547%

24

Roberts, Brian

Comcast Corporation

$35,026,207
(
58%)

$47,400,117
(
640%)

613%

613%

25

Jellison, Brian

Roper Technologies, Inc.

$34,931,318
(
520%)

$142,847,568
(
5103%)

54%

59%

26

Wenig, Devin

eBay Inc.

$34,842,832
(
597%)

$19,946,164
(
566%)

626%

628%

27

Thiry, Kent

DaVita Inc.

$32,017,501
(
5109%)

$13,983,054
(
610%)

629%

632%

28

Kotick, Robert

Activision Blizzard, Inc.

$30,841,004
(
57%)

$4,307,586
(
697%)

626%

622%

29

Wichmann, David

UnitedHealth Group Incorporated

$30,824,112
(
577%)

$22,558,157
(
673%)

515%

518%

30

Dimon, James

JPMorgan Chase & Co.

$30,033,745
(
56%)

$18,136,934
(
687%)

67%

68%

31

Lutnick, Howard

BGC Partners, Inc.

$29,694,152
(
589%)

$17,791,850
(
511%)

643%

659%

32

Stephenson, Randall

AT&T Inc.

$29,118,118
(
51%)

$21,606,548
(
614%)

622%

69%

33

Narayen, Shantanu

Adobe Systems Incorporated

$28,397,528
(
529%)

$67,297,455
(
555%)

529%

534%

 

Benioff, Marc

salesforce.com, inc.

$28,391,846
(
5510%)

$44,183,075
(
662%)

534%

549%

35

Moghadam, Hamid

Prologis, Inc.

$28,201,397
(
546%)

$35,887,540
(
56%)

66%

516%

36

Gorman, James

Morgan Stanley

$28,168,639
(
515%)

$19,299,856
(
652%)

623%

624%

37

Florance, Andrew

CoStar Group, Inc.

$27,555,954
(
5159%)

$18,644,383
(
517%)

514%

520%

38

Greenberg, Robert

Skechers U.S.A., Inc.

$27,361,406
(
5252%)

$11,157,656
(
515%)

640%

637%

39

Umpleby, D.

Caterpillar Inc.

$27,289,513
(
594%)

$14,840,544
(
5171%)

618%

616%

40

Fink, Laurence

BlackRock, Inc.

$26,543,344
(
64%)

$51,471,260
(
561%)

622%

621%

41

Schleifer, Leonard

Regeneron Pharmaceuticals, Inc.

$26,520,555
(
50%)

$117,840,017
(
524%)

61%

56%

42

Chenault, Kenneth

American Express Company

$24,208,661
(
530%)

$54,431,474
(
642%)

63%

61%

43

Holmes, Stephen

Wyndham Worldwide Corporation

$21,479,166
(
542%)

$50,161,004
(
553%)

629%

669%

44

Johnson, R.

HCA Healthcare, Inc.

$21,419,906
(
524%)

$109,050,692
(
51407%)

543%

544%

45

Banga, Ajaypal

MasterCard Incorporated

$20,379,353
(
59%)

$60,704,447
(
5145%)

525%

528%

46

Brown, Gregory

Motorola Solutions, Inc.

$20,348,558
(
533%)

$69,555,180
(
5137%)

530%

535%

47

Minogue, Michael

ABIOMED, Inc.

$19,243,230
(
587%)

$123,043,867
(
5907%)

573%

585%

48

Casper, Marc

Thermo Fisher Scientific Inc.

$18,607,103
(
616%)

$85,476,755
(
5161%)

518%

524%

49

Meyer, James

Sirius XM Holdings Inc.

$17,633,953
(
582%)

$50,452,233
(
5331%)

57%

56%

50

Fairbank, Richard

Capital One Financial Corporation

$17,333,796
(
57%)

$108,527,637
(
557%)

623%

622%

[1] Compensation in USD – exchange rates based on single point of time, end of tax year 2018.

[2] Excludes executives appointed since 2017 season.

Latest Industry News, Views & Information

Are companies incorporating ESG factors into executive remuneration?

The last decade has seen a steady increase in the focus on Environmental, Social and Governance (ESG) factors from a range of stakeholders and that growing scrutiny appears to have reached a crescendo over the past 18 months. Only the topic of executive remuneration continues to be discussed as frequently as ESG.

FTI & CGLytics have conducted an analysis to determine whether those two topics are increasingly converging. Download the white paper to find out more.

How to take testing of equity-based compensation plans into your own hands?

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Deutsche Bank: How CGLytics Tools Inform Glass Lewis’ Pay and Governance Analysis

Glass Lewis’ assessment of executive remuneration reflects a balance of quantitative and qualitative considerations, with CGLytics’ suite of tools underpinning the quantitative component. In the following discussion, we review the quantitative assessment with respect to Deutsche Bank, using CGLytics’ analytical tools.

FirstGroup Take Another Ride on the Activist Train

Over the past nine months, FirstGroup plc has been the target of an activist campaign from New York-based hedge fund, Coast Capital. One of the main critiques by the activist investor was regarding the governance structure, specifically the composition of the board. Utilizing CGLytics’ analytics and tools in its platform, we show how FirstGroup could have spotted governance red flags to possibly avoid this situation.

As the dust settles from FirstGroup plc’s latest engagement from activist investor Coast Capital, CGlytics looks at the timeline and the reasons why the company was a target of shareholder activism. This was not FirstGroup’s first experience as a target of activism. In 2013, Sandell, which owned a little over three percent of FirstGroup, wrote to the directors urging them to spin off and list the U.S. business unit separately on the stock market. Sandell, at the time said the break-up would enable the company to fund a much-needed investment program in its British bus business. FirstGroup fended off the proposal, with the notion that it contained structural flaws and inaccuracies.

Where this activist ride began

Over the past nine months, FirstGroup has been the target of activism from New York-based hedge fund, Coast Capital. The back and forth between the issuer and the investor date back to November 2018 when the Non-Executive Chairman of FirstGroup’s board, Dr. Wolfhart Hauser, responded in a letter written to the latter. The letter from Coast Capital included demands for management change and included criticism over the company’s failure to pay a dividend.

On May 17, 2019, FirstGroup received a letter from Coast Capital requesting an EGM to remove six of the current directors, increase the size of the board by one seat, and elect Coast Capital’s seven nominees. Coast Capital criticized the board saying that its directors lacked sector and industry expertise with reference to the CEO, Matthew Gregory, and Chairman of the Board, Hauser. Again, the activist investor pushed for a separation of the US and UK businesses, having declared FirstGroup’s strategy – and particularly its UK rail investment – as “extraordinarily destructive of capital”.

In June 2019, FirstGroup seemed to be taking heed to the investor pressure and announced that it will be selling off its bus division and possibly withdrawing from UK rail operations. The company also announced that it will focus on the US, although stating that it plans to sell off the famous Greyhound coach line.

The board’s expertise

One of the main critiques by Coast Capital was regarding the governance structure, specifically the composition of the board. Utilizing the Board Expertise functionality in CGlytics’ platform, insights are revealed as to the current board’s skills and expertise makeup. In particular, the Skills Matrix functionality in CGLytics’ solution aids companies to identify any skills gaps within their current board.

For FirstGroup, of the 11 directors currently sitting on the board, the graph shows that the strongest levels of expertise present on the board are International, Leadership and Executive. According to the Skills Matrix, it appears that the company lacks directors with expertise in the areas of Finance and Technology.

FirstGroup plc's Board Expertise and Skills Matrix
FirstGroup's Board Expertise and Skills Matrix
Source: CGLytics Executive Compensation Models

Pay for Performance

According to the pay policy of FirstGroup, the company aims to align its pay with performance and also with best corporate governance global practice. The company currently uses three performance criteria in the determination of its long-term incentive plans:

– Total Shareholder Return (TSR),
– Earnings Per Share (EPS), and
– ROCE.

Of which, the first two are equally weighted at 40% and the latter accounts for the remaining 20%.  The CGlytics Absolute Positioning tool sheds light on the relationship between the EPS performance component and the CEO’s realized compensation from 2013 to 2018.

CGLytics’ data and analytics are trusted and used worldwide by Glass Lewis, the leading independent proxy advisor, as a basis for their research on companies

 

As indicated in the graph below, there exists significant volatility in the movements of EPS and CEO pay. From 2016 to 2018, although both indicators fell, there seems to suggest that EPS had a much steeper fall compared to that of the CEO pay.

Specifically, while CEO pay reduced by 20% over the period, EPS fell by 43%. The CGlytics Relative Positioning Pay for Performance Evaluation tool compares FirstGroup’s CEO Realized Compensation with that of the company’s own peer group disclosed in the 2019 annual report against the peer group’s one year TSR.

The Pay for Performance evaluation reveals that the CEO’s Total Realized Compensation appears aligned with its performance indicator relative to its peers. The company’s Total Realized Pay ranks at lower decile at 18th percentile while TSR ranks in the 32nd percentile. It is also worth noting that the low pay stems from the fact that the company failed to meet its performance measures, and so the LTI part of the Total Compensation vested at only 12.5%.

Source: CGLytics Executive Compensation Models

Before, During and After the EGM

With Coast Capital’s request for an EGM, FirstGroup published a notice for the shareholders’ meeting to vote on the removal of six directors of the current board (including the Chairman, CEO and four other independent Directors). Additionally, appoint seven directors who are nominees of Coast Capital. Expectedly, in the EGM notice of meeting, the board recommended to vote against all the resolutions, believing that they the right strategy to take the company forward.

They added that Coast Capital’s director nominees do not have current relevant experience and also put forward plans that will leave the group with higher debts.

Interestingly, the movement and arguments garnered support from other leading shareholders.

Columbia Threadneedle, with a 10% stake, said it will join in voting against the reappointment of Wolfhart Hauser, the FirstGroup chairman since 2015. Schroders, with a 9% holding, was also seen to have taken sides with Coast Capital.

In a rather unexpected turn of events, one of the director nominees by Coast Capital, David Martin, missed the nomination affirmation deadline and was withdrawn ahead of the general meeting. Speculations suggested that David Martin, who is the former boss of Arriva, a transport company rival and one of the fund’s key nominees, decided not to run for a board seat because he had other projects under consideration.

At the general meeting which was held on June 25, 2019, the shareholders (on average) voted more than 20% in favor of the resolutions. The resolution to remove the Chairman Wolfhalt Hauser was supported by 29.33%, the resolution to remove the CEO was also approved by 25.15%. The resolutions to remove independent directors Imelda Mary, Stephen William Lawrence Gunning, James Frank Winestock and Martha Cecilia Poulter received votes of 31%, 25%, 46% and 25% respectively.

Not one of the directors put forward by the activist investor received the requisite votes to be appointed to the board.

Aftermath: Searching for a New Chairman

Despite receiving enough support to stay on the board, Wolfhart Hauser announced that he will not be seeking re-election to the board during the AGM, which is expected to come off on July 25, 2019. According to the company, senior independent director David Robbie will take on the role of chairman on an interim basis with effect from July 25, overseeing the search for a new chair.

To learn how companies can become proactive and support modern governance decision-making, with access to the same insights as activist investors and proxy advisors, click here.

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Deutsche Bank: How CGLytics Tools Inform Glass Lewis’ Pay and Governance Analysis

Glass Lewis’ assessment of executive remuneration reflects a balance of quantitative and qualitative considerations, with CGLytics’ suite of tools underpinning the quantitative component. In the following discussion, we review the quantitative assessment with respect to Deutsche Bank, using CGLytics’ analytical tools.

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Glass Lewis takes a look at the recent proposed amendment to the Shutterfly equity compensation program and the response from shareholders.

The Billionaire Battle over Anadarko

Much noise has been made around the USD 38 billion hard-fought acquisition of Anadarko Petroleum by Occidental Petroleum and the hotbed of disagreement. An analysis of Occidental’s board, using CGLytics board insight tool, yields telling results.

Much noise has been made around the USD 38 billion hard-fought acquisition of Anadarko Petroleum by Occidental Petroleum (Oxy). Occidental’s CEO Vicki Hollub, in her race to beat Chevron for the acquisition, secured funding from Warren Buffett—USD 10 billion to be exact at 78% cash and 22% stock. This then allows Buffett to acquire 100,000 shares of cumulative perpetual preferred stock and an 8% dividend payout annually.

The deal was born out of Occidental’s board preferring to bypass an extraordinary shareholder meeting, wherein which the initial deal would have required a change of the Company Charter and a slim chance at a passing vote. Enter the second billionaire to the mix: Carl Icahn.

After getting wind of the deal, Icahn launched a lawsuit against Oxy on the grounds that the proposed acquisition was “fundamentally misguided and hugely overpriced.” There may be some truth to his assertion, with Oxy opening nearly 6% lower after the acquisition announcement.

Icahn accused Buffett of exploiting Oxy’s need for cash. Buffett is set to receive an 8% yield, far above Oxy’s pre-bidding 4.7%. This equates to a pre-tax cost of debt of around 10%, which is three times Oxy’s bond yield, and would put the company debt up to USD 40 billion.

In addition, Chevron decided against a counteroffer for Anandarko; thus, the company must now pay USD 1 billion in breakup fees to Chevron. It is also critical to note that this comes at a time when shareholders are calling for spending cuts and improved dividends.

As such, and perhaps the most glaring issue in the governance field, is the clear bypassing of shareholders’ voice by attempting to avoid an Extraordinary General Meeting of Shareholders (EGM).

Because of Buffett’s funding, Hollub and Oxy were able to exclude shareholder votes (as aforementioned). According to Icahn, this move was “disturbing” and “usurped the fundamental and critical role of the stockholders.”

Icahn, acting as the poster child for agitated shareholders, is calling for a restructuring of the board with seats of his own in order to ensure that Oxy acts in the best interest of shareholders. It seems apparent that the market and shareholders alike strongly disagree.

In current market conditions, Icahn has stated that the deal is a bet on the price of oil. Should oil prices fall below USD 45 per barrel, Occidental could be forced to cut dividends and once again defy shareholders. In turn, both Icahn and T. Rowe Price have agreed that the potential to put stockholder dividends at risk should first be cleared with the stockholders themselves.

An analysis of Occidental’s board, using CGLytics’ board effective and insights tool, yields telling results.

Occidental Petroleum Corporation’s Board Expertise

Source: CGLytics’ Board Effectiveness and Insights

Occidental’s board lacks significant expertise in two key areas extremely relevant to the recent deal; Financial and Industry/Sector. While there are a few financial experts, Audit and Capital Management skills particularly stand out as lacking in board discussions. Further, the lack of Financial expertise may certainly have ineffectively prepared the board to examine management’s agenda as well as properly evaluating the financial implications that come with the deal. Additionally, the Industry and Sector expertise appears inadequate; especially when considering the size of this acquisition.

The hotbed of disagreement over the deal is sure to play out in the coming weeks. It is possible that Hollub and Oxy avoided shareholder approval of such an acquisition of this scale because of the risk of disapproval at an EGM. Notwithstanding, Oxy resolved this issue by consulting Buffett.

Buffett saw opportunity arise out of the Company’s dilemma and divvied out premium funding. Now, Icahn demands a justification and correction of this supposed breach in shareholder rights. Following Icahn’s demand, Oxy will be holding a shareholder meeting on August 8th to determine the sentiment on this year’s biggest oil and gas deal. It is improbable that Icahn will win out on a lawsuit of this magnitude, especially when asking to gain seats on the board to prevent such deals in the future; but then again, it was equally unexpected that Occidental would attempt a merger with Anadarko.

Corporate boards and executive teams increasingly require insights and analytical tools to identify any potential areas of reputational risk. Without this oversight, companies may be targets of activist campaigns and cannot proactively prepare.

To learn more about how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you identify these areas of risk, click here.

SOURCES

THE MARKET REALIST
YAHOO FINANCE
CNBC

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Deutsche Bank: How CGLytics Tools Inform Glass Lewis’ Pay and Governance Analysis

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Glass Lewis takes a look at the recent proposed amendment to the Shutterfly equity compensation program and the response from shareholders.

A glance into Slack’s CEO pay

Slack Technologies recently started trading on the NYSE. In the company’s S-1 statement, the company does not disclose precisely what the pay structure will be for the coming year. Utilizing CGLytics’ Peer Composer tool, a hypothetical peer group from a data universe coverage of over 5,500 global companies was constructed for Slack, to determine the possible pay structure.

Slack Technologies recently started trading on the NYSE on June 20th, 2019. In the company’s S-1 statement, the company does not disclose precisely what the pay structure will be for the coming year, as this responsibility will be held by the incoming board of directors. However, it is expected that all such information will be disclosed at the company’s first AGM.

In Slack’s S-1 report, they make it clear that they intend to prioritize pay for performance as stated:

“Although we do not have a formal policy with respect to the grant of equity incentive awards to our executive officers, we believe that equity grants provide our executives with a strong link to our long-term performance, create an ownership culture, and help to align the interests of our executives and our stockholders”.

Slack’s S-1 does not disclose their own selected peer group for compensation. Utilizing CGLytics’ Peer Composer tool, a hypothetical peer group from a data universe coverage of over 5,500 global companies was constructed for Slack.

As the company is regarded as an enterprise technology company, parameters were defined to select comparable companies’ as reference points, namely 8×8 Inc. Using this approach, the following peer group of 20 companies was constructed:

Selected Peer Group for Slack:

Pegasus Systems, Inc. Nutanix, Inc.
Brightcove, inc. Blackline, Inc.
8×8, Inc. PROS Holdings, Inc.
Agilysys, Inc. Benefitfocus, Inc.
LivePerson, Inc. Instructure, Inc.
Synchronos Technologies, Inc. MobileIron, Inc.
Yext, Inc. Telenav, Inc
Cloudera, Inc. Varonis Systems, Inc.
FourScout Technologies, Inc. Q2 Holdings, Inc.
FireEye, Inc. Model N, Inc
Box, Inc. Carbon Black, Inc.
FireEye, Inc. Model N, Inc.
A10 Networks, Inc.

Source: CGLytics’ Peer Composer

Although Slack’s product can be regarded as novel, 8×8 is regarded as a suitable peer due to both companies specializing in providing communication solutions to corporates.

CGLytics’ data and analytics are trusted and used worldwide by Glass Lewis, the leading independent proxy advisor, as a basis for their research on companies.

 

As displayed in the chart below, this hypothetical peer group was used to gain insights into the average CEO remuneration breakdown, benchmarked against key performance indicator such as TSR, EBITDA and free cash flow.

Source: CGLytics Data and Analytics

The groups free cash flow and EBITDA appear somewhat of a divergent relationship where as TSR has remained relatively constant. The stacked bar chart above breaks down the average CEO group remuneration for each year and identifies LTI as the biggest contributor to CEO pay. Moreover, as the above bar chart illustrates, there exists in total seven components of pay which Slack may consider taking into consideration.

The components are:

– Base Salary; generally cash compensation levels for executives will increase after the IPO in somewhat of a “re-balancing act” to account for the equity offered up in the IPO. This is particularly true for venture backed start-ups where the majority of cash at hand will be spent on the operations of the business. Slack listed their 2018 fiscal salary compensation for their CEO as USD 356,952, comparatively, the average base salary for the peer group was USD 437,130.

– STIs; short-term incentives are typically benchmarked using operationally based performance measures and are subject to annual change. The compensation committee will need to take into consideration the specific company strategy as well as market conditions when determining what these will be.

– LTIs; these are most commonly equity-based incentives which take the form of stock options, restricted shares/RSUs and performance share plans. Both before and following an IPO, most companies rely on stock options as a means to incentivize the executives to drive the company share price above the exercise price. After a few years when companies have established themselves in the marketplace they tend to introduce a cyclical executive LTI plan. Slack has already detailed a “2019 Stock Option and Incentive Plan” which will allow the company the authority to grant equity to their executives.

Since Slack commenced trading, its share price has failed to gain momentum. It remains to be seen precisely how Slack’s pay structure for its executives will evolve post-IPO, and if future changes to the company’s executive incentive plan will push towards share-price based KPIs in order to swing the company’s low momentum out of its current doldrums.

CGLytics offers the broadest, up to date global data set and powerful benchmarking tools to conduct comprehensive analysis for executive compensation decisions and risk oversight. CGLytics is Glass Lewis’ source for global compensation data and analytics. These analytics power Glass Lewis’ voting recommendations in both their proxy papers and their custom policy engine service. To find out more click here.

Sources:

CGLYTICS DATA AND ANALYTICS   SLACK TECHNOLOGIES S-1  

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CSR Limited: Strike One on Remuneration Report

At the CSR Limited AGM in June 2019, the remuneration report received 34% of votes cast against which constitutes a first strike for the purposes of the corporations ACT 2001. CGLytics looks at the alignment of pay against performance and some of the key drivers behind the investor response.

CSR Limited, a major Australian industrial company held its Annual General Meeting on June 26, 2019. The board presented three ordinary resolutions and one special resolution to its shareholders. Included in the ordinary business proposal was to consider the re-election of non-executive director, Matthew Quinn, this year. The company also sought to receive shareholders’ support for the financial report, the director’s report and the auditor’s report for the financial year. Another ordinary resolution that was proposed by the board was to approve and adopt the remuneration report for the financial year ended March 31, 2019.

For the special resolution, the board advised shareholders to consider the granting of long-term incentives for Julie Coates, who will be taking up the position of managing director this September 2019.

The board’s expertise ahead of the AGM

CSR’s corporate governance states that the company seeks to maintain a board composed of directors that have a range of collective skills and experience to ensure corporate development. CSR also elaborates that it considers individuals that are highly-experienced in manufacturing, finance, law and other sectors that the company seeks to pursue in the future.

CSR Board Skills Matrix
Source: CGLytics Data and Analytics

Using the Board Expertise functionality of CGLytics’ platform, we were able to gain insight on the current skills of the members of the board. The Skills Matrix functionality also aids companies to identify any skills gaps in its current matrix. For CSR, of the six directors currently sitting on the board, the graph shows that CSR’s strongest expertise is Finance. The second strongest suits of expertise include Corporate Development, Operations, Project Management and Sales. One area where the company is missing a director with specific expertise is in Governance. The company also lacks directors that have any relevant company Industry and Sector experience. However, the upcoming appointment of a new managing director on September 2019, Julie Coates, may be able to alleviate this missing element to the board’s skill set.

Julie Coates’ Expertise from the CGLytics platform

Board Expertise

Pay for Performance

Another board resolution the company was seeking approval on was the remuneration report and financial report. CSR promotes consistency in the remuneration of senior executives by ensuring that the company and individual performance are aligned with their incentives. The company focuses on compensation that generates long-term value for senior executives. The company only uses two performance criteria in the determination of executive compensation: Total Shareholder Return (TSR) and Earnings Per Share (EPS) for the long-term incentive plan in which both have equal weight of 50 percent.

The board states that absolute TSR instead of relative TSR helps align shareholder interests by keeping senior executives focused on increasing earnings and share price. On the other hand, the EPS helps measure the continued growth in earnings of the company and is parallel to the interests of the shareholders.

The CGlytics Absolute Positioning tool allows insight into the relationship between the two performance conditions and the Managing Director’s granted compensation from 2013 to 2018. As indicated in the graph below, there exists significant volatility in the movements of all performance criteria used in the determination of executive pay: TSR and EPS. From 2015 to 2016, CEO pay, EPS and TSR increased. The latter especially increased by 91.6%. From 2017 to 2018, CEO pay increased by 48% and TSR fell by 46.5%.

CSR CEO pay vs EPS and TSR
Source: CGLytics Data and Analytics

CGLytics’ data and analytics are trusted and used worldwide by Glass Lewis, the leading independent proxy advisor, as a basis for their research on companies. Find out more.

The CGLytics Relative Positioning Pay for Performance Evaluation tool compares CSR’s CEO compensation with that of the company’s own peer group against the peer group’s three-year TSR. The Pay for Performance evaluation demonstrates that CSR’s Total Realized Compensation appears misaligned compared to its peers. The company’s Total Realized Pay ranks above median at 69th percentile while three-year TSR ranks in the 15th percentile.

Source: CGLytics Data and Analytics

Granting of Rights

In the Annual report for the financial year ended March 31, 2019, CSR disclosed that it developed a performance-related pay which includes both the Short-Term Incentive (STI) and Long-Term Incentive (LTI) plans, both of which are measured against performance conditions.

The plan would utilize the same performance criteria as mentioned above: TSR and Earning Per Share (EPS) over a three-year performance period (April 1, 2019- March 31, 2022) in financial year-end 2020. The two performance conditions will be weighted at 50 per cent of the overall grant.

The board uses an annual growth rate of 14 percent for 75 percent vesting and an 18 percent stretch for a full vesting of rights for the TSR condition. The board also uses a compound growth rate of 5 percent target for a 50 percent vesting and 10 percent stretch for a 100 percent vesting for EPS condition. There was no change in the hurdles applied in 2017, 2018 and 2019.

The board is seeking for the granting of 360,241 performance rights for Julie Coates, the newly appointed managing director. The amount is pro-rata of her one-year long-term incentive remuneration based on her date of appointment on September 2, 2019. The board also proposes that Ms. Coates is entitled to a maximum LTI award of up to 120 percent of her total fixed remuneration.

Highlights of the AGM

At the AGM which took place on June 26, 2019, all the resolutions were passed as ordinary resolutions. However, as suggest in the potential Pay For Performance misalignment demonstrated above, the remuneration report received 34% of votes cast against which constitutes a first strike for the purposes of the corporations ACT 2001.

CGLytics offers the broadest, up to date global data set and powerful benchmarking tools to conduct comprehensive analysis for executive compensation decisions and risk oversight. CGLytics is Glass Lewis’ source for global compensation data and analytics. These analytics power Glass Lewis’ voting recommendations in both their proxy papers and their custom policy engine service.

For more information on how CGLytics’ can support modern governance decision-making and potentially identify any areas of risk, click here.

 

Sources:

CGLYTICS DATA AND ANALYTICS

CSR LTD 2019 NOTICE OF MEETING

CSR LIMITED ANNUAL REPORT

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Glass Lewis’ assessment of executive remuneration reflects a balance of quantitative and qualitative considerations, with CGLytics’ suite of tools underpinning the quantitative component. In the following discussion, we review the quantitative assessment with respect to Deutsche Bank, using CGLytics’ analytical tools.

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Bed Bath & Beyond: Cleaning House

New Jersey-based company Bed Bath & Beyond has recently become the target of an activist campaign. CGLytics examines the drivers, the response and the outcomes of this campaign.

New Jersey-based company Bed Bath & Beyond operates 1,533 retail stores as of March 2, 2019. The company has recently become the target of an activist campaign initiative led by a trio of activist investors: Legion Partners Asset Management LLC, Macellum Advisors GP LLC and Ancora Advisors LLC. Jointly, this group of investors owns about 5.2% of the company.

After initially filing for a potential proxy fight, in late April 2019, the activist campaign at Bed Bath & Beyond kicked off with a lengthy presentation from the above entities to the company’s investor base. This presentation criticized almost every facet of the company’s management; from executive pay to individual store design.  The presentation focused particularly on their CEO Steven Temares’ compensation package, which totaled USD 14,605,042 in 2018, while the remaining Named Executive Officers collectively made USD 30,271,726. Temares, who had served in the role since 2003, resigned shortly thereafter.

In response to this campaign, the company’s board has recently seen a significant reshuffle. In May 2019 alone, nine new directors joined the board, five being appointed on May 1, 2019 : Harriet Edelman, Harsha Ramalingam, Andrea Weiss, Mary A. Winston and Ann Yerger. In addition to these new members, another four were appointed to the board effective May 29, 2019, pursuant to an agreement with the activist group: John E. Fleming, Sue E. Gove, Jeffrey A. Kirwan and Joshua E. Schechter. The addition of these new members results in an almost complete board turnover during the past two years, with 12 of the 13 members having joined within that timeframe. Moreover, former directors and co-founders, Warren Eisenberg and Leonard Feinstein were displaced from their positions as co-Chairmen of the board, and granted the status of co-Chairmen Emeriti, with no entitlement to attend board meetings and no voting powers at such meetings.

While the activist campaign calling for an increase in value creation is not new in the field of corporate governance, conflicting ideas about how to best create that value has been a core issue between boards, executive teams, and investors across the business world for years. So why, in this particular case, was the activist campaign successful?

We do note that the company reported its first decrease in sales in conjunction with its first net loss for the FY 2019. However, the company has been lagging behind the median of its own disclosed peer group in several key financial performance indicators such as net income, enterprise value, three-year TSR, and economic profit since at least 2016. Moreover, the CEO’s compensation has outpaced that of the median of the company’s peer group, as displayed in the graph below:

Bed Bath and Beyond’s Disclosed Compensation Peer Group (2018)
Dillard’s, Inc. AutoZone, Inc.
Burlington Stores, Inc. Williams-Sonoma, Inc.
Dick’s Sporting Goods, Inc. Nordstrom, Inc.
Big Lots, Inc. Macy’s, Inc.
Advance Auto Parts, Inc. L Brands, Inc.
Tractor Supply Company Kohl’s Corporation
Ross Stores, Inc. The Gap, Inc.
O’Reilly Automotive, Inc. Foot Locker, Inc.
Dollar Tree Dollar General Corporation
Office Depot, Inc.
Source: CGLytics Data and Analytics

Moreover, we find that the activists’ criticisms of the CEO’s remuneration may have gained traction when comparing the company CEO’s Total Realized Pay versus its own disclosed peer group for FY 2018. Bed, Bath and Beyond’s Total Realised Pay appears to be out of alignment with the company’s performance.

 

CGLytics’ data and analytics are trusted and used worldwide by Glass Lewis, the leading independent proxy advisor, as a basis for their research on companies

bedbath&beyond2
Source: CGLytics Data and Analytics

The CGLytics research team has also taken a deeper look to evaluate the current board. Utilizing CGLytics’ governance and data analytics platform we find that after all changes recently undergone to the board, Bed Bath & Beyond scores extremely well in nearly every category, except for the Director Interlocks and Nationality Dispersion metrics. The board does have several director interlocks, and diversity of nationality also appears low, as 92% of the board is local to the US.

All other effectiveness attributes score high, with most of them having a score of 100, driving the overall health score of the company at 85 points (Excellent), 10 points above the sector average.

These metrics show that the board contains an age gender diverse group of directors with experience and expertise in all areas measured by the CGLytics platform.

bedbath&beyond3
bedbath&beyond4
Source: CGLytics Data

The effectiveness attributes in the chart above are based on the company in question’s governance practices compared to the corporate governance code of the market in which it is primarily based (in this instance, the NYSE Governance Guidelines). The thresholds above are set by empirical research performed by CGLytics. Each attribute receives a score from 0 to 100, with a score of 100 reflecting the best governance practices

In summary, as Bed Bath & Beyond’s stock price has fallen approximately 80% over a five-year span due to potential mismanagement, ineffective business strategy, and a lack of innovation, the recent changes within the structure of the management and advisory team provide a potential clean slate for the company. Interim Chief Executive Officer, Mary Winston will be at the helm looking to captain the ship as the company searches for stability after an intense period of significant upheaval.

Corporate boards and executive teams increasingly require a broader range of analytical tools to identify potential areas of reputational risk, even for controlled companies, which could make them the target for activist campaigns. For more information regarding how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you identify these areas of risk, click here.

CGLytics offers the broadest, up to date global data set and powerful benchmarking tools to conduct comprehensive analysis for executive compensation decisions and risk oversight. CGLytics is Glass Lewis’ source for global compensation data and analytics. These analytics power Glass Lewis’ voting recommendations in both their proxy papers and their custom policy engine service.

Sources

CGYLTICS DATA AND ANALYTICS

Proxy 2018       Proxy 2017       Fox Business       Business Insider       Wall Street journal      Motley Fool

Header Image: Bed Bath and Beyond store by Anthony92931  licensed under the Creative Commons license.

Latest Industry News, Views & Information

The increasing trend of shareholder opposition to executive pay

Votes against executive remuneration are growing. In this article we look at this change in the European indices and the S&P500.

Deutsche Bank: How CGLytics Tools Inform Glass Lewis’ Pay and Governance Analysis

Glass Lewis’ assessment of executive remuneration reflects a balance of quantitative and qualitative considerations, with CGLytics’ suite of tools underpinning the quantitative component. In the following discussion, we review the quantitative assessment with respect to Deutsche Bank, using CGLytics’ analytical tools.

Shutterfly: A Glass Lewis Use Case

Glass Lewis takes a look at the recent proposed amendment to the Shutterfly equity compensation program and the response from shareholders.