WeWork’s initial public offering

WeWork has had a tumultuous build-up to their IPO. Many investors were hesitant to back the company as their corporate governance policies did not meet their standards. CGLytics looks at some of the key factors that created controversy.

Preparing for an initial public offering (IPO) is often a strenuous undertaking. Companies strive to ensure that all their affairs are in order before they submit their S-1 filing to the SEC. This is done primarily to make sure that the initial public offering IPO is well received by investors.

WeWork

WeWork first filed its prospectus on August 14th 2019. Two main components of the filing prompted investor backlash. First and foremost, investors were alarmed at WeWork’s consecutive and increasing financial losses over the past three years. Secondly, investors took note of the company’s unusual governance practices. Although a justification could be provided for the financial losses, namely that they were essential to their growth strategy, no justification could be provided for the latter. With lazy governance practices increasingly linked to poor company performance, WeWork responded by making sweeping changes to assuage concerns.

Women on Boards

Gender diversity on boards has become a prominent issue in recent years. Some major investors, such as Blackrock, have even updated their voting guidelines to try and work towards a more equal representation. In light of this, investors were surprised and disappointed when WeWork’s initial filing included seven board members, all of which were male. In response, WeWork quickly recruited renowned culture coach Frances Frei to their board.

Frei earned her reputation when she was hired by Uber to help fix their “Bro Culture”. Although this a step in the right direction, WeWork might benefit from adding more women to their portfolio of directors. Using CGLytics data and intelligence a trendline can be made, in the S&P 500 real estate industry, between the percentage of women on boards and a company’s Average 1-year Total Shareholder Return (TSR).

Women on boards versus average 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

 

Voting Rights

Also included in WeWorks initial filing were plans to award the company’s founders and early investors 20 votes for each share of Class Stock. This would grant unchecked power to the CEO. Moreover, in the event that the Chief Executive Officer, Adam Neumann, would become incapacitated, then his wife, Rebekah Neumann, and two directors would decide who the successor would be.

This plan has subsequently been scrapped and been replaced by a more contemporary policy where the Board of Directors holds the power to pick a successor. In regard to the voting rights, the number of votes for each share of Class A stock will now only account for 10 votes each.

WeWork has had a tumultuous build-up to their IPO. Many investors were hesitant to back the company as their corporate governance policies did not meet their standards. WeWork is just one example of many where Corporate Governance plays an integral role in the health and viability of a company, especially when third parties are involved.

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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The increasing trend of shareholder opposition to executive pay

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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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Equity Incentive Schemes: Examining the rationale behind shareholder rejection

Two historical examples of organizations that have had their stock option plans rejected by shareholders include Red Lion Hotels and HomeAway. How could they have reduced the likelihood of rejected plans? Read to find out

The approval for equity-based incentive plans, or amendments to current plans, is a critical part of many organizations strategies to acquire and retain premium talent. Opposition or even rejection by shareholders can derail these efforts.

In this article we look at two historical examples of organizations that have had their equity incentive plans rejected and explore the reasons behind and impact of shareholder opposition.

When Red Lion Hotels was punished for lack of clear strategy

In 2019, Red Lion Hotels Corporation’s (NYSE: RLH) shareholders delivered a blow to the company by voting overwhelmingly (70% opposed) against the proposed amendment to the 2015 stock incentive plan.

Shareholders were troubled by, what they perceived, as the board’s continued inability to fulfil its obligations and the absence of a clear strategy (Vindico Capital LLC – letter to the board). Flat performance of the stock over time and significant underperformance against the market and industry peers were particular points of concern for shareholders.

When HomeAway was sent packing

In 2015, HomeAway (NASDAQ: AWAY) had their amended equity incentive plan rejected. Investors felt equity awards continued to be granted despite diminishing returns for investors over time. While the Market Capitalization of HomeAway had remained relatively steady over two years, the rest of the index saw significant gains. Total Shareholder Return was perceived as minimal in this context and the equity awards were seen to be rewarding poor performance. Ultimately HomeAway was acquired shortly afterwards and incorporated into one of the largest travel industry players, Expedia.

Trends in the opposition

When shareholders are considering the impact of diluting their holdings, they require that any potential value lost by the equity incentive plan is offset by the value the business gains by meeting the qualifying KPIs. Whether this is Market Capitalization, Total Shareholder Return, EBITDA or free cashflow, there has to be a compelling strategic rationale for the award of equity. Further, the remuneration committee must ensure that the organization behaves is a prudent manner, even after the plan is agreed to.

Test your equity compensation plans with Glass Lewis’ Equity Compensation Model

Reduce the likelihood of shareholder rejection on your stock option plans and proposals with Glass Lewis’ new  Equity Compensation Model (ECM) application. Now available exclusively via CGLytics. Providing unprecedented transparency to the U.S. market in one powerful online application, both companies and investors can use the same 11 key criteria as the leading proxy advisor to assess equity incentive plans.

Click here to experience Glass Lewis’ new application.

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

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The Effect of Executive Departures on Company Performance

The Executive Management Team plays a pivotal role in the performance of a company. The dismissal or exit of one or more executives is often accompanied by a change in strategy. However, this isn’t always perceived as a positive change by investors.

The Executive Management Team plays a pivotal role in the performance of a company. Collectively they make strategic decisions which steer the company in a certain direction. The dismissal or exit of one or more executives is often accompanied by a change in strategy. However, this isn’t always perceived as a positive change by investors.

Executive Turnover and Performance

Using CGLytics data and intelligence it is possible to assess how executive departures may affect the Total Shareholder Return (TSR) of a company. In constructing the graph, the average TSR is taken across all years for each different number of Executive departures. The results below reveal that having more than one executive (CEO, CFO or COO) depart in a year causes a decline in TSR, whereas having just one executive depart may be seen as less of a concern.

However, when three or more executives depart there is a stark contrast, and TSR decreases significantly. Three executive departures in one year may indicate the cause for concern to investors and subsequently diminish investor confidence and with it, shareholder value.

Executive Departures from S&P 500 Companies and Average 1-year TSR (2013-2018)*

*The average 1-year TSR is calculated across six years (2013-2018) and the number of departures is calculated across all S&P500 companies during these six years.

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

 

A change in leadership inevitably means that the way a company is managed will be altered. The extent to which this alteration will permeate the company and affect its performance is contingent on the influence of the leadership position.

The most influential managerial position at a company is indisputably that of the CEO, closely followed by other executive positions such as COO or CFO. When there is a change in one of these positions it can be considered routine. Investors may not feel any apprehension over the future of the company as the majority of the executive team remains the same.

However, this is not the case when 3 or more executives depart the company. In such an event, investors may become uncertain over the future of the company. As aforementioned, this uncertainty is derived from investors losing their sense of familiarity with the management team. They may no longer feel they can comfortably predict the strategic decisions which management will undertake. This then casts doubt over the future performance of the company.

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.

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

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Capri Holdings – A Glass Lewis Use Case into Executive Compensation Benchmarking

In this use case, Glass Lewis examine the “additional considerations” regarding the quantitative examination with respect to Capri Holdings, Inc. (formerly Michael Kors Holdings Ltd.) using CGLytics’ analytical tools.

Glass Lewis’ two-pronged approach to executive compensation analysis in the North American market is delineated between the quantitative analysis and a qualitative assessment. The quantitative portion, while anchored by the pay for performance grade, incorporates additional considerations to supplement the standardized pay for performance analysis.

CGLytics’ suite of tools is fast becoming an integral part of the quantitative analysis for the North American market. In July 2019, the Compensation Analysis section became a part of Glass Lewis’ Proxy Paper for S&P 1500 companies in the U.S. and Canada. The page illustrates total realized compensation of CEOs based on data provided by CGLytics. Covering the past three years, realized CEO pay is presented on both an absolute basis and relative to country and industry peer groups developed by Glass Lewis using CGLytics tools.

In the following discussion, we examine the aforementioned “additional considerations” regarding the quantitative examination with respect to Capri Holdings, Inc. (formerly Michael Kors Holdings Ltd.) using CGLytics’ analytical tools.

Review of Capri Holdings’ Compensation Program

On August 1, shareholders gave their appraisals of executive pay practices at Capri Holdings, casting votes in favor or against the compensation packages of its named executive officers. The company is one of the few in the broader markets where multiple named executive officers receive pay at the CEO level or higher. Michael Kors as chief creative officer (CCO) and honorary chair and John Idol as CEO have received largely equivalent pay packages for most if not all of Capri Holdings’ history as a publicly traded company.

Multiple CEO-level pay recipients at individual companies have drawn the ire of shareholders in the past and no doubt will continue to do so in the future. However, executives from the apparel industry who engaged with Glass Lewis note that the industry is distinct in that the parity between chief executive and chief creative officer pay is not uncommon, but CCO pay is rarely reported on the Summary Compensation Table as these officers are not typically considered executives. In Capri Holdings’ case, however, perhaps because of his additional title of honorary chair, Mr. Kors is thus a named executive officer whose pay is subject to scrutiny at the Company’s annual advisory say on pay vote.

Overview of the Pay For Performance Grade and the Compensation Analysis Page:

Despite its dual CEO pay level executives, Capri Holdings received a “C” grade under Glass Lewis’ pay for performance model in each year from fiscal years 2015 to 2018, indicating adequate alignment. But in fiscal 2019, the company received a “D” grade after a jump in equity compensation to Messrs. Kors and Idol pushed Capri Holdings’ three-year weighted average compensation levels up – a move unsupported by the company’s weighted average performance that dipped in this year’s analysis. The analysis concluded that the company paid moderately more than its peers but performed moderately worse compared to peers.

Unique situations such as Capri Holdings’ case demonstrate the benefits that additional quantitative  analyses have had in Glass Lewis’ approach to executive compensation. One might contend that the pay for performance grade penalized Capri Holdings for common industry pay practices of chief creative officer pay, boosting total named executive officer pay above peers that do not also list their chief creative officer as a top executive.

The CGLytics-powered Compensation Analysis page in Glass Lewis’ research provided additional perspective to help consider Capri Holdings’ executive pay situation. Its focus on CEO pay underscored concerns flagged by the pay for performance analysis. In the same year that the company granted $7.5 million in equity incentives to each of Messrs. Kors and Idol, Mr. Idol’s fiscal 2019 total realized pay increased by 210% from $22.2 million to $68.9 million. At the same time, the Compensation Analysis reported that the median CEO total realized pay among industry peers remained relatively stagnant, highlighting the stark difference in realized pay levels for the CEO position at Capri Holdings compared to peers. While many companies often cite retention concerns due to low realized or realizable pay as reasons for significant increases in equity grants, the analysis using CGLytics indicated this to not be the case, at least for realized pay to the CEO.

Additional Perspectives Through CGLytics:

Beyond the Compensation Analysis page, by focusing on CEO pay using the CGLytics’ broader suite of tools, Glass Lewis found evidence to suggest deeper concerns with pay-setting for the short-term incentive. While the company provided Mr. Idol with no LTIP award in 2018 and only $1 million in 2017, the company’s incentives focused on short-term performance made up for the deficiency. Using CGLytics we can observe the following short-term incentive payout comparison to the industry peer median for most of Capri Holdings’ history as a publicly traded company where 2018 represents the most recently completed fiscal year for the company:

In our view, excessive upside opportunities under a bonus plan may unduly incentivize short-term performance and may undermine a long-term focus on company performance among executives. In fact, Mr. Idol received his maximum payout opportunity under the short-term incentive every year since 2012.

Switching gears in 2019, the Company decided to grant Mr. Idol $7.5 million in long-term incentives. Indeed, the grant resuscitated the level of Mr. Idol’s outstanding compensation following the exercise of a significant number of stock options. Mr. Idol exercised options to acquire 906,076 shares in fiscal 2019 – a value of $58.3 million according to the company’s proxy statement. The following chart shows the change in Mr. Idol’s total outstanding awards with the 2018 data representing the company’s fiscal 2019 and showing the net effect of his exercise of options and increased levels of long-term incentive grants during that year:

The effects of the long-term grant on total CEO pay was quite pronounced as seen in the graph below:

Review of GL recommendation:

In the end, an 89% year-over-year jump in Mr. Idol pay placed it at the 85th percentile of CEO compensation compared to the company’s self-disclosed peer group. The pay decisions for fiscal 2019 degraded the alignment between pay and performance in our analysis. Additional analysis into in the quantum of pay for Mr. Idol through CGLytics compounded our concerns. That Mr. Kors’ pay presented similar issues as Mr. Idol’s was also considered.

A deeper dive beyond our initial pay for performance analysis into the CEO’s total direct compensation uncovered a history of over-focus on short-term performance. Capri Holdings’ short-term incentive payouts rose well above the industry median since 2013. Due to the equity grants made to Mr. Idol during the most recently completed fiscal year, his pay spiked 1.2 times the median industry peer level, according to CGLytics’ multiple of median analysis.

As a result of these concerns, and following a qualitative assessment of the pay program, Glass Lewis recommended against supporting Capri Holdings’ executive compensation proposal for the 2019 annual meeting.

Conclusion:

Overall, the additional quantitative analysis using CGLytics underscored the concerns initially highlighted by Glass Lewis’ pay for performance grade by illustrating issues with pay regardless of the impact of Mr. Kors’ compensation on total NEO pay.

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

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.

CGLytics supports responsible investing with NN Investment Partners

CGLytics supports responsible investing with NN Investment Partners (NN IP) helping investors to deliver attractive returns and build a sustainable future.

NN Investment Partners (NN IP) is helping investors to realise their responsible investing goals, deliver attractive returns and helps build a sustainable future.

NN IP is a leader in responsible investing, monitoring assets for a diverse group of clients worldwide. NN IP sees responsible investing as the best way to enhance risk-adjusted returns and to contribute to society as a whole. With a founding belief that companies with sustainable business practices and high standards of corporate governance will become the success stories of the future, they produce their annual Responsible Investing Report.

In their latest report NN IP highlight their responsible investing approach, show how they help their clients achieve their financial and sustainable goals, and what they can look forward to in the future.

CGLytics is proud to support NN IP with governance data and analytics for the ESG research and reporting in their 2018 report.

Download NN Investment Partners Responsible Investing Report 2018 here.

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.