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.

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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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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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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  

About the Author

Jaco Fourie: U.S. Research Analyst

Jaco holds a Bachelor of Science degree in Accounting and Finance from the University of Reading. He has gained experience as a research analyst from his enrollment at the Henley Business School and the International Capital Market Association Centre.

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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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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.

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Facebook: Increasing Shareholder Pressure Exerted on Zuckerberg’s Role as Chairman

In this article, CGLytics examines the increasing pressure on Facebook to split the roles of Chair and CEO from founder Mark Zuckerberg and the implications on the company’s future.

Mark Zuckerberg has been Chief Executive Officer of Facebook, Inc. since he founded the company in 2004 and has held the combined position of CEO/Chair since the Company’s IPO in 2012. Shareholders have increasingly voiced their concerns regarding the combination of both roles. Those opposing the combined CEO/Chair position state that it gives Zuckerberg too much control over the company, where minority shareholders already have very little influence. Founder Mark Zuckerberg controls over 51% of the vote although he owns only 13% of the economic value of the firm. Additionally, headlines surround the billionaire founder, as Zuckerberg again failed to address a committee of international lawmakers who are amid an investigation into Facebook’s disinformation, antitrust, and privacy scandals.

Shareholders Try to Force Zuckerberg’s Hand…Again

In light of the above, several investors have banded together and filed multiple shareholder proposals for consideration at the company’s 2019 AGM, which took place on May 30th, 2019, aimed to alleviate their concerns over Zuckerberg’s influence and lack of oversight of the company. Of interest were proposal five and six filed.

Proposal Five: Proposed primarily by NorthStar Asset Management, in conjunction with other groups of shareholders, requesting that each share be given an equal vote. Currently, Class B shares (controlled by Zuckerberg and a small group of others) have 10 times the voting power of Class A shares. They continued in their supporting statement noting “since July 2018, Facebook value dropped as much as 40% due to Management and Board decisions that have not protected shareholder value. By allowing unequal voting power, our company takes public shareholder money but does not provide us an equal voice in our company’s governance…”

Proposal Six: Recommended that the Chair of the Board of Directors operates as an Independent Member of the Board. The supporting statement offers that there exists no form of checks and balances in order to limit Mr. Zuckerberg’s power. The statement continues, “we believe this weakens Facebook’s governance and oversight of management. Selecting an independent Chair would free the CEO to focus on managing the Company and enable the Chairperson to focus on oversight and strategic guidance.” It’s of importance to note that nearly 60% of the S&P 1500 has separated the roles of Chief Executive Officer and Chairperson as of April 2018. This proposal received the public support of both the Council of Institutional Investors (CII), as well as Trillium Asset Management.

Unsurprisingly, the Board of Directors has concluded with a recommendation to vote against all stockholder proposals mentioned above. However, the requests made through these proposals heavily resemble several that have been proposed in past years.

CGLytics has taken a deeper look into Facebook’s board composition and effectiveness when compared to all other companies in the US market. Utilizing CGLytics’ governance data and analytics in the specialized platform it was discovered that the key area where the company is underperforming, compared to the sector average, lies primarily in the combination of the role of CEO and Chairman.

Facebook Effectiveness Attributes
Source: CGLytics’ board effectiveness data and analysis

The zero score for the CEO/Chair criterion is in sync with the concerns of the shareholders who are seeking the dissolution of the combined position. This is also supported from the NYSE Stewardship guidelines, where the separation of the CEO/Chair position is required. However, taking all other factors into consideration, Facebook’s board composition and effectiveness is rated ‘Very Good’ and higher than the sector average. Even though the CEO/Chair combination has a score of 0, the majority of the other effectiveness attributes rank above the sector average.

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 stewardship 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.

The health score of Facebook and of the market is calculated as the average scoring of all of the effectiveness attributes, respectively. Facebook has an average score of 76, with three effectiveness attributes (Nationality Dispersion, Board Independence and CEO/Chair combined) falling under 60, two effectiveness attribute (Gender Equality, Director Interlocks) at 60 points, and the rest of the effectiveness attributes at 100 points.

Source: CGLytics’

Given the repeated failure of such proposals at the company’s most recent AGM, the future of Facebook seems to remain in the hands of Mark Zuckerberg. It comes as no surprise that these proposals would have similar results as those at previous AGMs, given Zuckerberg’s voting power at the firm. However, the increasing regularity of these types of proposals have been making headlines around the company’s governance structure and posing serious questions to the general public regarding Zuckerberg’s current and future role at the company.

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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

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In the Spotlight – Burberry, the fashion house’s say on pay in focus

Ahead of the Burberry AGM later this month, CGLytics examines the executive compensation components of the proxy vote proposals.

CGLytics, a leading global provider of governance data and analytics, looks at Burberry’s proxy statement, in connection with its compensation proxy vote proposals, ahead of its 2019 Annual Meeting of Shareholders (the “Annual Meeting”), scheduled for July 17, 2019

Included in the Agenda for this year is the approval of the advisory remuneration report. At the Annual General Meeting, a total of Nine directors will be seeking re-election at the meeting. Two long Serving directors of the Board have been announced not to be seeking re-election at the meeting and hence will be retiring at the end of the Annual General Meeting. This year, the Board is proposing a total of sixteen ordinary resolutions and three other special resolutions.

Executive Pay and remuneration report vote outcomes

The Annual General Meeting of Burberry historically had some stand-offs with shareholders and proxy advisors. The remuneration report for the financial year ended March 31, 2014 received only 47.32% of votes in favor. In 2014, then CEO, Christopher Bailey received a realized pay of GBP 7.5 million, which the company admitted that it was a lot of money but was necessary to retain the CEO.  On his appointment, he was also given 500,000 shares in the company, which was worth more than GBP 7 million in 2014. In addition, investors expressed concerns about 1.35 million shares he was allocated before becoming Chief Executive, which had no performance criteria attached to them.  Ahead of the AGM, that year, PIRC (Pensions and Investment Research Consultants) advised its members to vote against the company’s 2014 remuneration report.

For the financial year 2015, Christopher Bailey took a pay cut, in which he received a total pay of GBP 1.9 million as compared to GBP 7.5 million in 2014.  At their 2017 AGM, the remuneration report for the financial year ended March 31, 2017 had 68.52% of votes in support from shareholders who participated in the AGM. Due to the revolt on the remuneration report, Julie Brown who joined the company as Chief Financial Officer in 2017 decided to waive GBP 2.4 million of the remuneration package she agreed a year prior. This included benefits of a GBP 800,000 share award that related to a potential performance payment from her former employer, Smith and Nephew, which was worth less than the Burberry board had previously assumed. Interestingly, advisory group ISS had recommended shareholders to vote down the remuneration report at the Annual General Meeting, declaring unsatisfaction with Ms. Brown’s pay package.

Source: CGLytics Data and Analytics

The Remuneration Policy in the spotlight

In line with the UK’s corporate governance code, Burberry submitted its first remuneration policy for shareholders voting at their 2014 Annual General Meeting. The Remuneration policy received 83.92% in support. Before the AGM, The Investment Management Association (IMA), issued a warning about Burberry’s pay policy.

2017 was the last AGM where the remuneration policy was submitted for shareholders’ voting. During the AGM, the remuneration policy had a support of 93.4% votes in favor, which was an improvement on the prior remuneration policy voting outcome.

Ahead of their AGM, the board revised the remuneration policy to avert a possible shareholders’ rebellion. Burberry reduced its executive’s bonus pay and Christopher Bailey also refused his bonus for the 2016/17 financial year. In the Annual report for the financial year ending March 31, 2017, the company disclosed plans to lower the maximum annual salary increase for its top executives from 15% to 10% and proposed that bonus pay outs to be capped at twice the base salary compared to 2.25 times under the previous policy.

In addition, compensation under the executive share plan awards for ‘exceptional performance’ will be reduced from 6 times the salary to 3.75 times, while the maximum award for ‘normal’ performance will fall to 3.25 times the base salary from 4 times under the previous policy. Burberry also reduced pension contributions for new external executive directors from 30% to 20% of salary and scraped ‘sign on’ bonuses. The Shareholding guideline was however maintained at 500,000 shares for the CEO and increased from two times to three times base salary for other executives.

In line with the UK Corporate Code, the remuneration policy is therefore not being submitted for shareholders’ approval given the overwhelming support it received in 2017. The remuneration policy will therefore be put forward for shareholders voting in 2020’s AGM.

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

Pay for performance

Utilizing CGlytics’ peer composer and pay for performance modeler, we replicated the peer group that Burberry disclosed in its annual report in 2014 and performed a compensation benchmark. The analysis shows that Burberry’s CEO realized compensation was above the median of its peer companies in 2013. In the same year, Burberry’s TSR outperformed its peer companies.

In 2017, Burberry’s CEO compensation practice showed a pay for performance misalignment relative to its peers. The CEO received a compensation package in the amount of GBP 19 million while the peer median pay was GBP 9 million. The company’s total shareholder return for 2017 was 26.6% compared to the median TSR of 32.4% for its peers.

For the financial year 2018, the CEO of Burberry, Marco Gobetti’s, received a total payment of GBP 4.3 million. This is above the median of the FTSE 100 CEO pay of GBP 3.7 million and Burberry’s peer group which is at GBP 4.2 million.

Source: CGLytics Data and Analytics

Burberry’s Long-term incentive plan performance metrics are currently weighted as; 50% on Revenue, 25% each on Adjusted Profit before Tax and Adjusted Retail Return on Invested Capital (ROIC).

When comparing Burberry’s CEO pay practice relative to its disclosed peer group, using CGlytics’ pay for performance modeler, it shows a pay for performance misalignment between Revenue and compensation.

Burberry’s CEO 2018 total realised pay ranks below median at the 46th percentile whiles its revenue ranks bottom quartile at the 23rd percentile.

­­Comparing Burberry to its FTSE 100 industry peers, the company again shows a pay for performance misalignment. The CEO’s total realized pay ranks 71st percentile (upper quartile) while revenue ranks in the 29th percentile (bottom quartile).

The analysis performed by CGLytics, may suggest that the company is over-compensating their CEO relative to its peers and the industry.

Source: CGLytics Data and Analytics

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 regarding how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you make better decisions, click here.

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Data puts CEO rewards into perspective in the Netherlands

In this article, originally published in Dutch in Mgmt. Scope, CGLytics examines CEO pay in the Netherlands and how it is one of the hottest topics in shareholder discussions.

This article on CEO pay in the Netherlands first appeared in Dutch in Mgmt. Scope on 27th May 2019: https://managementscope.nl/online/data-zet-beloning-ceo-in-perspectief

Shareholders are making themselves heard more than ever about the strategy of the company. Certainly the remuneration of directors has gained much attention. Corporate governance analytics – the specialization of CGLytics – helps to separate the facts from the opinions in regards to remuneration policies. This is also not a superfluous luxury: data shows that shareholders are quite rightly concerned.

In recent years, shareholders have been expressing themselves more and more emphatically at General Meetings of Shareholders (AGMs). In 2018, the average number of votes cast at the AGMs of AEX companies reached a record level of 72.4 percent. Never before have shareholders voted so massively on the issues that concern them. The most important topic from a distance: the remuneration of directors. The figures for 2019 are not yet complete, but the same picture emerges.

Remuneration of directors

What does the data say? The remuneration policy, and certainly the alignment of the CEO’s remuneration, keeps the minds of shareholders busy. The average percentage of votes against the remuneration policy of all Dutch listed companies rose to 16.5 percent in 2018. That is more than double the average for the combined years of 2015, 2016 and 2017. The media is also paying more and more attention to the remuneration policy of companies. These are important reasons to take any adjustments to the remuneration policy very seriously. Paying attention to remuneration fits in with the development of corporate social responsibility (ESG practices). Companies must be able to indicate how the remuneration of the CEO contributes to long-term value creation. They must also be willing to discuss their performance in this area. For example, in the amended corporate governance code, the disclosure of the relationship between the remuneration of CEOs and the average employee is already mandatory. The legislation is expected to follow soon.

Pay for performance

An important indicator for value creation in the long term is pay for performance, or the ratio between remuneration and performance. There is still a lot for companies to do in this area. Data from CGLytics shows that the financial performance of companies and the rewards of their CEOs are poorly aligned. 44 percent of the 25 AEX companies – measured over the 2017 financial year – have an imbalance between remuneration and performance. Which means the CEO’s remuneration is higher than expected based on the company’s performance. Over a three-year period, 2015-2017, this is 38 percent. There is also good news. Over the past five years, AEX companies have found a better mix between fixed, short-term and long-term bonuses in their remuneration policy for directors. The average basic salary and the long-term bonuses increased, while the size of the short-term bonuses decreased. It is generally accepted that a fixed compensation and long-term bonuses do more for long-term value creation for stakeholders.

Data provides insight

Data therefore offers important insights; not just for shareholders. It is not for nothing that an increasing number of directors, supervisors, remuneration committees and investors use corporate governance data to test the remuneration policy. Data helps determine an adequate remuneration structure and makes it possible to distinguish the facts from the opinions.

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In the spotlight: EQT Corporation Proxy Statement

In this article, CGLytics takes a look at the upcoming EQT Corporation AGM resolutions and how the CGLytics platform analytics can help promote engagement between the company and shareholders.

EQT Corporation AGM

As proxy season in the United States is winding down, only a handful of companies are still left to host their Annual General Meeting (AGM).  EQT Corporation, the largest natural-gas producer in the US, will host its AGM on July 10 and has subsequently invited its shareholders to attend and vote on four resolutions. Namely:

  1. The election to the Company’s Board of Directors of the 12 directors nominated by the Board to serve for one-year terms
  2. The approval of a non-binding resolution regarding the compensation of the Company’s named executive officers for 2018
  3. The approval of the EQT Corporation 2019 Long-Term Incentive Plan
  4. The ratification of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019

Contested Election

With twelve incumbent management nominees, “Rice Group” has also put forward six nominees for election utilizing the universal proxy card, which the board adopted in 2019. Toby Rice, partner of Rice Investment Group, elaborated on individual nominations by saying “We believe a comprehensive solution is required to effect the fundamental course correction needed to deliver full value to shareholders”. In response the leadership team at EQT has urged voters to disregard the plea from the Rice Group by arguing that the nominations would “immediately jeopardize the value of [the] investment by installing their friends”.

CGLytics’ Board expertise analytics shows that, given the current board’s composition, the board currently lacks expertise in the following sectors: Technology, Financial, Governance, International, and Industry/Sector.

Source: CGLytics Data and Analytics

EQT Corporation proposes the election of the following three individuals: Janet L. Carrig, James T. McManus and Valera A. Mitchell.  If elected, the areas of expertise the three nominees would bring to EQT’s Board would be Governance, Executive, Non-Executive, Leadership and International. This also means that post-election of these director nominees, the board would remain unbalanced in regard to Technology and Financial Expertise. However, when reviewing the background of just three of the six nominees from the Rice Group, Lydia I. Beebe, Lee M. Canaan and Kathryn J. Jackson, their aggregate expertise is comprised of Non-Executive, Executive, Leadership, and most notably, Governance, Financial expertise and Technology.

CGLytics does not advocate for or against the election of any of the individuals, however governance matters should entail a certain level of scrutiny. The data analytics available on the CGLytics platform provides for a new and unparalleled insight into governance issues which helps place agency back in the hands of the shareholder and helps companies to better understand their practice against market norms.

Executive Compensation

Earlier in 2018, EQT underwent several key management changes including the appointment of a new CEO and CFO. In March 2018 Steven Schlotterbeck stepped down as CEO for personal reasons and was succeeded by interim CEO David Porges. In November in the same year Robert McNally, previously CFO, was appointed as CEO and Jimmi Sue Smith took over as CFO. Several board members were also appointed to replace departing directors.

Item 2 on the agenda dictates a vote on the approval of the compensation of the company’s named executive officers. When reviewing the CEO’s compensation proposal with CGLytics’ executive compensation and pay for performance modeler, we find a potential misalignment between CEO remuneration and one-year total shareholder return.

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.

Like most U.S. corporations, EQT Corporations proxy statement describes their compensation packages as “weighted in favor of performance-based, at-risk compensation through annual and long-term performance-based incentive programs”. Delving further into the pay-structure of the CEO, this philosophy seems to hold true as most of the remuneration is derived from Long term and short-term incentives (LTIs and STIs). Stock awards account for the majority of the LTIs for the CEO where the largest contributor in dollar amount is the Incentive PSU program, with TSR being the highest weighted performance criterion. In particular, considering EQT’s emphasis on TSR, it is important to note the long-term diverging trend between the company’s one-year TSR and CEO remuneration. More specifically, executive pay from 2016 and onwards has been on the rise while TSR has been declining and currently sits at its lowest point over the last 10 years.

Source: CGLytics P4P Modeler

Moreover, when comparing EQT’s CEO pay practise relative to its disclosed peer group, as disclosed in the graphs below, we see a pay for performance misalignment between TSR and compensation over both a one -year and five-year period.

Source: CGLytics P4P Modeler

Item 3 on the agenda entails the approval of the 2019 Long-Term Incentive Plan which enables the company to grant stock awards to its executive officers. The granting of these awards will be based on the achievement of certain performance measures, namely relative TSR (50% weight), operating efficiency (25% weight), and development efficiency (25% weight). Moreover, the ultimate payout under the award plan is subject to a modifier based on achieved ROCE, which could push executives’ payout as high as 1.1 times higher than based on achievement of the three preceding performance criteria alone.

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 regarding how CGLytics’ deep, global data set and unparalleled analytical screening tools can potentially help you make better decisions, click here.

Sources:

CGLYTICS DATA AND ANALYTICS   EQT 2019 PROXY STATEMENT

About the Author

Jaco Fourie: U.S. Research Analyst

Jaco holds a Bachelor of Science degree in Accounting and Finance from the University of Reading. He has gained experience as a research analyst from his enrollment at the Henley Business School and the International Capital Market Association Centre.

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