How to independently and efficiently benchmark executive compensation for Say-on-Pay

There are many software applications and tools now available to support compensation decisions, but what should be taken into consideration before purchasing? This 5-minute guide details what Compensation Committees, Heads of Reward and Compensation Professionals should take into account when selecting software and tools for Say-on-Pay decisions.

08.04.2020

A 5-minute guide to support Compensation Committees, Heads of Reward and Compensation Professionals when selecting software and tools for compensation decisions. Read and learn about the four considerations that should be taken into account before purchasing.

1. Look for tools that support peer group modeling functionality

2. Access the same peer groups as leading proxy advisor Glass Lewis

3. Ensure Pay-for-Performance alignment and benchmarking tools are included

4. Check the quality of data available in the software platform you choose

We live in a digital age where access to information has never been easier. No longer having to scroll through complex and endless spreadsheets and obtain an analytical degree to understand trends – insights and information is at our fingertips.

For Compensation Committees, Heads of Rewards and Benefits, and Compensation Professionals it is no different.

Ensuring executive compensation, bonuses, and incentives are in line with market standards, has never been so important.

Activist activity has increased in 2020, with traditional investors changing their position from passive to active engagement and focusing on executive pay. In a recent article by the Financial Times, it was reported that misalignment of incentives and negative say-on-pay votes at annual meetings increase the likelihood of a company suffering share price underperformance.

Software that provides flexibility for assessing compensation in comparison to peers, and supports say-on-pay resolutions, is available and increasingly implemented by companies, activist investors, and proxy advisors.

When a user begins searching for compensation software there are questions typically asked:

  • – Does it contain information on the executive pay practices of my peers and competitors?
  • – How does is support benchmarking my company’s executive compensation practices?
  • – Does it show me how my company’s compensation practices are perceived in the market?
  • – Can I find tailored insights in seconds to be sure my company’s CEO, NEO and Director pay is aligned to market standard and company performance?

 

Sustainable and justifiable decisions surrounding executive compensation has kept rewards and benefits professionals up at night, with additional key questions that should be asked:

  • – How can I access high-quality, reliable executive compensation information that I do not need to maintain?
  • – Where can I find standardized compensation information for efficient comparison and instant benchmarking?
  • – What software and tools are available in the market that other compensation professionals, activist investors, proxy advisors and compensation consultants currently use?

 

How to utilize software and tools for fast, efficient, and flexible executive compensation and rewards benchmarking.

 

Greater scrutiny calls for companies and their boards to be one step ahead

Transparency encourages market confidence. With the current pandemic causing havoc on stock prices and resulting in employee layoffs, salary and bonuses paid to executives has again been pushed to the front and center.

Compensation policies and reporting are continuing to come under scrutiny from investors, shareholders, employees and the media. Boards must have clear and transparent compensation processes in place that allow for investors to see a fair comparison has been made of executive payouts and promised rewards, against peers and taking into account the broader market context.

How peer companies are adapting their executive compensation practices and adopting new measures needs to be clearly understood for socially responsible decisions about executive pay – continuing to be highlighted again by the events and happenings of 2020.

Decisions made need to be based on fact, not fiction, with easy to understand explanations for investors to digest. Granted, no one wants to become a media headline or attract attention from activist investors.

 

How can Compensation Committees, Heads of Reward and Compensation Professionals model different scenarios with software tools, and benchmark against their companies’ peers?

 

1. Look for tools that support peer group modeling functionality

 

Generating your own peer groups allows for benchmarking and comparison on a like for like basis. Companies that have very few similar peers in their region, index and sector might need to look further afield to design an appropriate group to justify the competitiveness of pay plans. Modeling against different peers can significantly change the scenario and perception of pay. Using CGLytics platform, fit-for-purpose peer groups can be created in seconds with access to 5,900+ globally listed companies, for instant comparison of compensation practices.

2. Access the same peer groups as leading proxy advisor Glass Lewis

 

Do you know how your compensation is viewed by activist investors and proxy advisors? As Glass Lewis and large activist investors are already using data and software provided by CGLytics, Compensation Committees should be doing the same. This allows Compensation Committees and Heads of Reward to proactively plan for, and justify, any compensation decisions that may attract unwanted attention.

Glass Lewis CEO and Executive Compensation analysis (used in their proxy papers globally) is found in the CGLytics platform ready for companies use.

As stated in the recent webinar by Glass Lewis’ SVP & Global Head, Research & Engagement, Aaron Bertinetti:

“All the data that we now use, whether it’s compensation data, peer data, or other types of governance data that we may need…we exclusively source from CGLytics. Not just within the United States but globally. The only other firm outside of Glass Lewis that has access to our methodology is CGLytics.”

Using the same data set, peer modeling and analytical tools as Glass Lewis, and leading institutional investors, for reviewing public company CEO compensation and Say on Pay proposals, results in Compensation Committees being market intelligent and one step ahead. This fosters better dialogue with stakeholders and data-based decisions justified with relevant and real-time information.

Learn how Glass Lewis Europe improved their executive compensation analysis with governance data from CGLytics

3. Ensure Pay-for-Performance alignment and benchmarking tools are included

 

Compensation Committees and HR Professionals are empowered by modeling scenarios against different KPIs and measurements using software tools. With the recent volatility in market performance, justifying indictors used to design compensation plans mitigates risk. Boards need to be equipped with in-depth analysis of their company’s pay practice and compare against their peers to preempt say on pay risk.

As mentioned by Ronald Kliphuis, Global Head of Rewards at Randstad (a large market leading global HR company):

“In the past only consultants had access to the information that CGLytics provides. We can now play with data and information and make fair comparisons. We understand the potential risks and vulnerabilities a lot better.”

Learn more about Randstad’s Head of Rewards making data-based decisions going into the AGM

Powerful pay-for-performance benchmarking tools allow for efficient comparison and automated output of CEO and executive compensation against competitors and peers.

4. Check the quality of data available in the software platform you choose

 

Where the data is sourced from and how often it is updated should be a concern when deciding on insights to trust for effective engagement. In addition to how many years of compensation data is recorded in the software platform. A wealth of global and structured data for meaningful comparison of executive compensation practices across industries and borders, should be a large consideration of tools purchased to support compensation decisions.

Compensation Committees, Head of Rewards and Benefits, and other HR Professionals can ensure reliability when using CGLytics software with executive compensation data sourced from millions of publicly listed company filings, proxy materials and social networks, which undergoes rigorous checks by a dedicated team of equity market research analysts 24/7. More than 10 years of historical compensation data is standardized for efficient comparison of 5,900+ companies’ pay and rewards across different regions, industries, and sectors.

Downloadable data and insights in an array of formats (such as excel) allow compensation professionals to model and easily transport charts directly into their board decks and presentations, for the ultimate time and cost savings.

 

CGLytics offers the broadest and deepest global compensation data set in the market for reviewing corporate executive compensation plans, assessing Say on Pay vote proposals and performing benchmarking analysis.

Contact CGLytics and learn about the governance tools available and currently used by institutional investors, activist investors and leading proxy advisor Glass Lewis for recommendations in their proxy papers.

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How to independently and efficiently benchmark executive remuneration for Say-on-Pay

There are many software applications and tools now available to support remuneration decisions, but what should be taken into consideration before purchasing? This 5-minute guide details what Remuneration Committees, Heads of Reward and Compensation Professionals should take into account when selecting software and tools for remuneration decisions.

07.28.2020

A 5-minute guide to support Remuneration Committees, Heads of Reward and Compensation Professionals when selecting software and tools for remuneration decisions. Read and learn about the four considerations that should be taken into account before purchasing.

1. Look for tools that support peer group modeling functionality

2. Access the same peer groups as leading proxy advisor Glass Lewis

3. Ensure Pay-for-Performance alignment and benchmarking tools are included

4. Check the quality of data available in the software platform you choose

We live in a digital age where access to information has never been easier. No longer having to scroll through complex and endless spreadsheets and obtain an analytical degree to understand trends – insights and information is at our fingertips.

For Remuneration Committees, Heads of Rewards and Benefits, and Compensation Professionals it is no different.

Ensuring executive remuneration, bonuses, and incentives are in line with market standards, has never been under such scrutiny.

Activist activity has increased in 2020, with traditional investors changing their position from passive to active engagement and focusing on executive pay. In a recent article by the Financial Times, it was reported that misalignment of incentives and negative say-on-pay votes at annual meetings increase the likelihood of a company suffering share price underperformance.

Software that provides flexibility for assessing remuneration in comparison to peers, and supports say-on-pay resolutions, is available and increasingly implemented by companies, activist investors, and proxy advisors.

When a user begins searching for remuneration software there are questions typically asked:

  • – Does it contain information on the executive remuneration practices of – peers and competitors?
  • – How does is support benchmarking my company’s executive remuneration practices?
  • – Does it show me how my company’s remuneration practices are perceived in the market?
  • – Can I find tailored insights in seconds to be sure my company’s CEO, NEO and Director pay is aligned to market standard and company performance?

 

Sustainable and justifiable decisions surrounding executive remuneration has kept compensation professionals up at night, with additional key questions that should be asked:

  • – How can I access high-quality, reliable executive compensation information that I do not need to maintain?
  • – Where can I find standardized remuneration information for efficient comparison and instant benchmarking?
  • – What software and tools are available in the market that other compensation professionals, activist investors, proxy advisors and compensation consultants currently use?

 

How to utilize software for fast, efficient, and flexible executive remuneration and rewards benchmarking, and the tools that are available.

 

Greater scrutiny calls for companies and their boards to be one step ahead

Transparency encourages market confidence. With the current pandemic causing havoc on stock prices and resulting in employee layoffs, salary and bonuses paid to executives has again been pushed to the front and center.

Remuneration policies and reporting are continuing to come under scrutiny from investors, shareholders, employees and the media. Boards must have clear and transparent remuneration processes in place that allow for investors to see a fair comparison has been made of executive payouts and promised rewards, against peers and taking into account the broader market context.

How peer companies are adapting their executive remuneration practices and adopting new measures needs to be clearly understood for socially responsible decisions about executive pay – continuing to be highlighted again by the events and happenings of 2020.

Decisions made need to be based on fact, not fiction, with easy to understand explanations for investors to digest. Granted, no one wants to become a media headline or attract attention from activist investors.

 

How can Remuneration Committees, Heads of Reward and Compensation Professionals model different scenarios with software tools, and benchmark against their companies’ peers?

 

1. Look for tools that support peer group modeling functionality

 

Generating your own peer groups allows for benchmarking and comparison on a like for like basis. Companies that have very few similar peers in their region, index and sector might need to look further afield to design an appropriate group to justify the competitiveness of pay plans. Modeling against different peers can significantly change the scenario and perception of pay. Using CGLytics platform, fit-for-purpose peer groups can be created in seconds with access to 5,900+ globally listed companies, for instant comparison of remuneration practices.

2. Access the same peer groups as leading proxy advisor Glass Lewis

 

Do you know how your compensation is viewed by activist investors and proxy advisors? As Glass Lewis and large activist investors are already using data and software provided by CGLytics, Remuneration Committees should be doing the same. This allows Remuneration Committees and Heads of Reward to proactively plan for, and justify, any compensation decisions that may attract unwanted attention.

Glass Lewis CEO and Executive Compensation analysis (used in their proxy papers globally) is found in the CGLytics platform ready for companies use.

As stated in the recent webinar by Glass Lewis’ SVP & Global Head, Research & Engagement, Aaron Bertinetti:

“All the data that we now use, whether it’s compensation data, peer data, or other types of governance data that we may need…we exclusively source from CGLytics. Not just within the United States but globally. The only other firm outside of Glass Lewis that has access to our methodology is CGLytics.”

Using the same data set, peer modeling and analytical tools as Glass Lewis, and leading institutional investors, for reviewing public company CEO compensation and Say on Pay proposals, results in Remuneration Committees being market intelligent and one step ahead. This fosters better dialogue with stakeholders and data-based decisions justified with relevant and real-time information.

learn how Glass Lewis Europe improved their executive compensation analysis with governance data from CGLytics

3. Ensure Pay-for-Performance alignment and benchmarking tools are included

 

Remuneration Committees and Compensation Professionals are empowered by modeling scenarios against different KPIs and measurements using software tools. With the recent volatility in market performance, justifying indictors used to design compensation plans mitigates risk. Boards need to be equipped with in-depth analysis of their company’s pay practice and compare against their peers to preempt say on pay risk.

As mentioned by Ronald Kliphuis, Global Head of Rewards at Randstad (a large market leading global HR company):

“In the past only consultants had access to the information that CGLytics provides. We can now play with data and information and make fair comparisons. We understand the potential risks and vulnerabilities a lot better.”

Learn more about Randstad’s Head of Rewards making data-based decisions going into the AGM

Powerful pay-for-performance benchmarking tools allow for efficient comparison and automated output of CEO and executive compensation against competitors and peers.

4. Check the quality of data available in the software platform you choose

 

Where the data is sourced from and how often it is updated should be a concern when deciding on insights to trust for effective engagement. In addition to how many years of compensation data is recorded in the software platform. A wealth of global and structured data for meaningful comparison of executive compensation practices across industries and borders, should be a large consideration of tools purchased to support remuneration decisions.

Remuneration Committees, Head of Rewards and Benefits, and other Compensation Professionals can ensure reliability when using CGLytics software with executive compensation data sourced from millions of publicly listed company filings, proxy materials and social networks, which undergoes rigorous checks by a dedicated team of equity market research analysts 24/7. More than 10 years of historical compensation data is standardized for efficient comparison of 5,900+ companies’ pay and rewards across different regions, industries, and sectors.

Downloadable data and insights in an array of formats (such as excel) allow compensation professionals to model and easily transport charts directly into their board decks and presentations, for the ultimate time and cost savings.

 

CGLytics offers the broadest and deepest global remuneration data set in the market for reviewing corporate executive remuneration plans, assessing Say on Pay vote proposals and performing benchmarking analysis.

Contact CGLytics and learn about the governance tools available and currently used by institutional investors, activist investors and leading proxy advisor Glass Lewis for recommendations in their proxy papers.

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Ubisoft’s sexual misconduct scandal reveals governance gaps

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Ontex Group’s remuneration report voted down for the fourth consecutive year

With shareholders voting against the Ontex Group’s remuneration report for four consecutive years, CGLytics has conducted a review of the company’s CEO pay for performance against peers.

CNBC Report: More activist investors to focus on corporate governance and executive pay

This week CGLytics CEO discussed the increase in activist investor activity with CNBC Street Signs. New research from CGLytics reveals that activist investors are broadening their focus.

Ontex Group’s remuneration report voted down for the fourth consecutive year

With shareholders voting against the Ontex Group’s remuneration report for four consecutive years, CGLytics has conducted a review of the company’s CEO pay for performance against peers.

07.27.2020

Ontex Group’s remuneration report has been voted down by its shareholders for the fourth consecutive year. So, what is it about Ontex’s CEO compensation strategy that rubs shareholders up the wrong way?

Ontex trades on the Belgium stock market and operates in the sector of disposable personal hygiene solutions for baby, feminine and adult care. It manufactures and sells its products throughout Western Europe, Eastern Europe, the Americas, and has a general global presence.

Since Ontex’s introduction on the stock market in 2014, shareholders have been unconvinced about the company’s remuneration practices. In 2015 at the company’s first Annual General Meeting since being listed, 10 % of its shareholders voted against the remuneration report.

The following year would see the number increase to a 12% disapproval. By their 2017 Annual General Meeting, the majority (51%) of its shareholders voted against the report and the numbers have not dropped since. The highest number of votes against the remuneration report came at the recent 2020 general shareholders meeting with a resounding 64% of shareholders voting against, which is a 7% increase relative to their 2019 proxy season.

Ontex’s Chairman and Member of the Remuneration Committee, Mr. Luc Missorten, resigned at the 2020 AGM and stated that:

“The company acknowledged the disapproval of the remuneration report and has taken the signals by shareholders seriously and as a consequence, going forward, will increase transparency within the report and intensify the dialogue with shareholders about the remuneration principles”[1]

CGLytics has taken Ontex’s remuneration report voting outcomes from its governance data base, accessible in the market-leading platform, and analyzed the results from the past six years. The below graphical representation reveals how the voting outcomes have evolved.

Ontex Group's Remuneration Report Voting Outcomes

Remuneration voting outcomes
Source: CGLytics Data and Analytics

The remuneration (through the lens of CEO pay)

Up until 2018, Ontex’s CEO remuneration consisted of base salary, Short-Term Incentives (STIs), and Long-Term Incentives (LTIs) in the form of restricted share units and performance stock options. A third element, in the form of performance shares, was added to the LTI plan in 2019 to increase the performance aspect of the plan and link remuneration to the company’s performance.

Base salary surged to EUR 1 million in 2019. Previous years saw the fixed portion of CEO remuneration hover between the EUR 800K and 900K mark. This is despite a significant drop (62%) in the company’s net income in 2019, and other Belgium company CEO’s only seeing their base salary hover between EUR 700 and EUR 830K over the same period.

 

The updated remuneration plan also provided Ontex’s CEO with the opportunity to earn an STI (annual bonus) pay-out of 150% of base salary. Both Ontex’s CEO and country peer group average was relatively the same, fluctuating between EUR 550K and EUR 1.1 million over the period.

Our analysis revealed that Ontex’s STI is not subject to any claw-back provision. The absence of such a provision prevents the company from retrieving funds already paid in the event of misconduct, poor performance, or a drop in company profits. The claw-back provision clause is widely used by other Belgium companies.

 

A review of Ontex’s LTIs tells a rather different story. Where CEOs of Belgium listed companies earn, on average, EUR 650K to 1.4 million in long-term incentives, the LTI component of the Ontex’s CEO, on the other hand, has not surpassed EUR 275K in pay-outs and is an indication of the company performance not being up to par relative to their peers on the BEL 20.

Further analysis revealed that Ontex has been underperforming on the BEL 20 Index over one, two, three and five-year periods, and since its initial listing in 2014. The poor performance has led to Euronext demoting Ontex from the BEL 20 (Large Cap) and including the company in the BEL Mid (Mid Cap), in addition, their second largest investor (ENA Investment Capital) called on the Board to take immediate action to create shareholder value[2][3].

According to our analysis, using CGLytics Executive Compensation tools found in the software solution, below is how Ontex CEO realized pay stacks up against its country peers.

CEO pay country peers
Source: CGLytics Pay for Performance Analytics

Upon analyzing the relative position of Ontex’s CEO pay compared to performance (over three years), it was noticed that Ontex displays a misalignment in its remuneration practice relative to its Belgian peers. Specifically, our analysis indicates that Ontex has been overcompensating its CEO. The company performance (measured in TSR) ranks among the lowest, whereas its compensation (total realized pay) ranks at the 50th percentile.

Pay for performance - Ontex
Source: CGLytics Pay for Performance Analytics

The persistent disapproval of Ontex’s remuneration report by shareholders has prompted the company to take steps to enhance its remuneration policy, by making remuneration clearer and even more closely correlated with performance, according to the company Board of Directors. As to how the Board is planning on doing this, is yet to be known and seen.

 

Contact CGLytics and learn about the governance tools available and currently used by institutional investors, activist investors and leading proxy advisor Glass Lewis for recommendations in their proxy papers.

 

CGLytics provides access to 5,900 globally listed company profiles and their governance practices, including their CEO Pay for Performance, board composition, diversity, expertise, and skills.

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07.20.2020

CGLytics CEO, Aniel Mahabier, discusses the increase in activist investor activity with CNBC Street Signs. New research from CGLytics reveals the growth in the number of activist campaigns and how activist investors are broadening their focus.

Increase in activism

The CGLytics report Activist Investors Broaden their Focus analyzes the number of activist campaigns carried out over the previous four years and deep dives into the increasing areas that are attracting activism.

During the interview with CNBC, Aniel notes that shareholders are beginning to focus on areas such as diversity and performance. And, even though there has been an overall increase in the number of activist campaigns this year, not all of them have been successful.

The changes we are seeing during the pandemic, are that activists are focused on improving corporate performance. Having the right board composition and board diversity are the areas activists have been focusing on. Culture is another area where we have seen activists putting more focus on to improve corporate performance. – Aniel Mahabier, CEO of CGLytics

Regional shift in activism

The research report notes that now activist investors are finding a lot of opportunity in APAC, but not so much in continental Europe. The question is, do we expect this trend to change, and if so, when?

Social, cultural, and economic factors play a big role, along with the European market being highly regulated. This doesn’t provide a lot of opportunity for activists to play a role. I expect to see a marginal change taking place over time. – Aniel Mahabier, CEO of CGLytics

Executive pay

On this topic of executive pay, CNBC recalls that there has been a lot of focus from activists. Shareholder have objected to senior salaries in the past, even so companies have continued to pay out. During the pandemic, these senior salaries have been cut, and in some cases, granted in stock options. What are activists going to do with compensation?

A focus area of activists is to make sure executive pay is in line with the company performance. The median of CEO pay has risen, regardless of companies’ CEOs and Directors taking a pay cut. This is on both the S&P 500 and FTSE 100. We expect to see more focus on CEO pay in the upcoming proxy season. When it comes time for the AGMs in 2021, reflecting the 2020 performance year. – Aniel Mahabier, CEO of CGLytics

Source: CNBC Street Signs Europe

Board diversity

CNBC mentions about the motivation to change the makeup of boards, and that the representation of women on boards on the FTSE, is abysmal (still remaining below 30%). Will boards be motivated to improve diversity, due to the pandemic and the Black Lives Matter campaign?

The activist landscape is changing. We used to have the traditional activists playing a big role. Now you have passive institutional investment managers changing their style and becoming more active.

If you look at the BlackRocks and the Vanguards of the world, they are focusing on boards being composed with the right mix. Diversity plays a big role. Not only from a gender perspective, or a race perspective, but making sure you have the right skill set in place, the right tenure, and the right age diversity. It’s a number of things that make a board very effective, and I expect diversity to continue to be a focus going forward. – Aniel Mahabier, CEO of CGLytics

Companies need to be prepared for activist investors and engage with shareholders on a more timely basis. Proactive engagement between investors and companies will prevent activist campaigns going forward. Companies need the right information and tools to ensure their corporate governance risks are reduced and any deficiencies are quickly resolved.

Contact CGLytics and learn about the governance tools available and currently used by institutional investors, activist investors and leading proxy advisor Glass Lewis for recommendations in their proxy papers.

 

CGLytics provides access to 5,900 globally listed company profiles and their governance practices, including their CEO Pay for Performance, board composition, diversity, expertise, and skills.

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Tesco’s Shareholders Vote Against the Approval of Directors’ Remuneration Report

At Tesco’s AGM on Friday June 26, 2020, two-thirds of the shareholders voted against the resolution to approve the Directors’ remuneration report. Find out why

06.30.2020

At Tesco’s annual general meeting (AGM) on Friday June 26, 2020, two-thirds of the shareholders voted against the resolution to approve the Directors’ 2019 remuneration report. As mentioned in the previous article published by CGLytics earlier this month, this decision was mainly due to Tesco’s remuneration committee inflating executive bonuses by removing Ocado’s stock price from the peer group used to estimate its performance. In addition to this, Glass Lewis’ decision to advise investors to vote against Tesco’s remuneration report had substantial influence over the final results.

For the record, the exclusion of Ocado from Tesco’s peer group, whose stock has increased dramatically in the recent years, led to an outperformance by 3.3% of Tesco’s Total Shareholder Return (TSR) against its peer group instead of an underperformance by 4.2% in the case of Tesco keeping Ocado in the peer group.

If Tesco’s TSR was below its peer group index, the TSR metric, which is weighted at 0.5 of the 2017 Performance Share Plan (PSP), would have been zero. As a result, this boosted the payments to the CEO and CFO by approximately GBP 1.6 million and GBP 0.87 million, respectively.

Click here for more details about Tesco’s shareholder revolt prior to their AGM.

Tesco announced its AGM results[1] stating that:

“we recognise, however, that a significant number of shareholders had concerns with the principle of the Committee’s adjustment to the TSR comparator group”.

Moreover Tesco added that:

“following recent engagement on our Remuneration Report with a number of our larger shareholders, we have been reassured that the majority agree that the overall outcome of the 2017 PSP award is proportionate given the outstanding turnaround delivered by management”.

For now, the vote on directors’ remuneration report was not legally binding, meaning it is only advisory. Bonuses paid to the executives will still be paid out. On the other hand, the huge percentage of votes against the directors’ remuneration report (67.29%) is the largest pay revolt in Tesco’s history in the last decade.

We have seen that shareholder activism was used through Say on Pay at Tesco’s latest AGM, which means that in the future if the company is not transparent with its investors, investors will not hesitate to raise their voice against any decision they consider inappropriate or gullible.

Using data and analytics found in the CGLytics software platform, companies, investors, proxy advisors and service providers efficiently analyze and spot governance risks and red flags in seconds.

If Tesco understood how they were perceived by proxy advisor Glass Lewis prior to the proxy season and their AGM, they could have prepared adequately and avoided negative votes.

Would you like to see how your executive compensation is viewed by leading independent proxy advisor Glass Lewis and  large institutional investors?

Click here to contact CGLytics or learn more about the Glass Lewis CEO compensation analysis and peer group modeling for Say on Pay engagement, available exclusively via CGLytics.

 

Reference

[1] https://www.londonstockexchange.com/news-article/TSCO/result-of-agm/14593658

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Bennett and the Ashford Companies: Corporate Governance Pitfalls and Lessons

The companies controlled by hotelier Monty Bennett have seen controversy for exploiting a government loan program designed to help small businesses. Learn how misaligned Pay for Performance, and an unbalanced board, can result in poor decision-making and increase governance risk.

Poor corporate governance not only endangers a company’s operations and shareholder value, but also results in poor business decisions [1]. Board composition and executive compensation are key elements of corporate governance, and this article examines these key factors in relation to Bennett and the Ashford companies.

In April 2020, the group of hotel companies controlled by Texan hotelier Monty Bennett became the face of the controversies surrounding the Paycheck Protection Program (PPP), a program meant to help small businesses survive the economic impact of COVID-19. Three public companies controlled by Bennett (Ashford Inc., Ashford Hospitality Trust and Braemar Hotels & Resorts) applied for USD 126 million in loans under the PPP and received at least USD 58 million in return. The Ashford group is the largest known applicant of the government’s relief program, and Ashford Hospitality Trust alone applied for USD 76 million in 117 separate loans, the most by a single company[2]. These companies took advantage of a provision that allowed hospitality and restaurant chains to receive assistance if individual locations had fewer than 500 employees[3].

Ashford companies soon received backlash for exploiting a government loan program designed to help small businesses during a difficult time. Bennett initially refused to return USD 58.7 million his companies received and denied any wrongdoing. On April 28, 2020, Treasury Secretary Mnuchin announced that all companies that had received more than USD 2 million could be audited and held criminally liable for failing to meet the program’s criteria[4]. With mounting public scrutiny and the threat of congressional investigation, on May 2 Bennett declared his companies would return all funds.

A few days later, Douglas Kessler voluntarily resigned as President and CEO of Ashford Hospitality Trust.

Intense media scrutiny and Bennett’s initial refusal to return the funds shone a light onto the companies’ governance structure and poor financial performance. Ashford Inc., which provides asset management services, acts as an external advisor to real estate investment trusts Ashford Hospitality and Braemar. As Chairman of all Ashford companies and CEO of Ashford Inc., Bennett receives compensation from all three entities. These companies were already suffering from heavy losses and sinking stock prices long before COVID-19 struck. Ashford Hospitality had more than USD 100 million in losses in FY 2019. Amid the scandal, the NYSE threatened the company with delisting after its share price fell below USD 1, the minimum average closing price per share required to maintain listing on the NYSE[5]. Overall, the companies’ share prices have fallen over 70 percent on average over the last five years.

Pay for Performance analysis of Ashford Inc.’s CEO

However, the compensation of the Ashford group’s top executives did not decrease due to its poor financial performance. When using CGLytics’ Pay for Performance modeler to consider Ashford Inc.’s relative position compared to its industry peer group, it is revealed that Bennett’s compensation over three years as CEO is disproportionally high compared to the company’s earnings per share. Their CEO’s granted compensation is ranked on the 95th percentile whilst Earnings Per Share (EPS) is ranked in the 5th percentile displaying a misalignment between pay and performance.

Ashford Inc. also received an F grade in Glass Lewis’ Pay for Performance Analysis for FY 2018, meaning that the company’s poor financial performance is not in line with its high compensation levels.

Ashford Inc.’s Pay for Performance Analysis (2019)

Pay for Performance Ashford
Source: CGLytics Data and Analytics

Understanding the skill set of the Board

When analyzing the Ashford companies’ boards through CGLytics’s board composition and expertise tools, it is noticed that directors were unlikely to be effective lines of defense against the public’s backlash. To have an effective response, we would expect to observe board members with governance, financial, legal or risk expertise. Of the seven directors sitting on Ashford Inc.’s board, only three have governance expertise which is derived from their exposure in governance committee roles. The only member with financial expertise, J. Robinson Hays, is dependent, and no members of the board have legal or risk experience. While all directors have worked in real estate, capital management or hospitality, only three – of which two are dependent – have experience in Ashford Inc.’s specific field.

Ashford Inc.’s Board Expertise and Skills Matrix

Ashford Inc.’s Board Expertise and Skill Matrix
Source: CGLytics Data and Analytics

Looking at Ashford Hospitality Trust, only one of the three directors with governance expertise has worked in a compliance and governance role. Only two have financial expertise, with one being the outgoing CEO, and of the two individuals with legal expertise, only one has practiced law. No director has risk experience.

Ashford Hospitality Trust’s Board Expertise and Skills Matrix

Ashford Hospitality Trust’s Board Expertise and Skill Matrix
Source: CGLytics Data and Analytics

Of Braemar Hotels and Resorts’ seven directors, none has risk expertise and only one has held financial roles.

Braemar Hotels & Resorts’ Board Expertise and Skills Matrix

Braemar Hotels & Resorts’ Board Expertise and Skill Matrix
Source: CGLytics Data and Analytics

From this analysis, few directors held the expertise and skills necessary to advise the companies on the proper course of action. All companies are led by Bennett as Chairman, and the New York Times asserts that the boards are “filled with people with close ties to Bennett,” including a director whose wife’s firm provides services to the entities[6].

Board tenure is also a factor to consider in a board’s effectiveness. While long tenure can have advantages, they can be an issue if members lack the necessary expertise or if they compromise independence[7]. Two of the three boards have an average tenure of almost seven years and Ashford Inc. has only appointed one director in the past six years.

Overall, the effects of public backlash against Bennett and the Ashford companies could have been mitigated with good governance practices and decisions. In order to acquire credibility in the eyes of the public and investors, the companies should consider restructuring their compensation levels and appointing independent directors with the right skills to oversee executive management and add value to the company.

Interested to see how your company stacks up against 5,900 globally listed companies’ governance practices including their ceo pay for performance, board composition, diversity, expertise and skills?

 

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Refererences

[1] https://diligent.com/wp-content/uploads/sites/8/2019/06/Whitepaper_modern_governance-1.pdf

[2] https://www.washingtonpost.com/news/powerpost/paloma/the-finance-202/2020/04/27/the-finance-202-joe-biden-blasts-big-banks-corporateamerica-over-coronavirus-response/5ea60fc688e0fa3dea9c3036/

[3] https://www.bisnow.com/dallas-ft-worth/news/hotel/ashford-group-of-companies-affiliates-return-controversial-ppp-funding-blame-inconsistentfederal-guidance-104218

[4] https://www.bloomberg.com/news/articles/2020-04-28/mnuchin-says-all-relief-loans-of-2-million-will-be-audited

[5] https://www.sec.gov/ix?doc=/Archives/edgar/data/1232582/000123258220000019/ahtnyse8-k.htm

[6] https://www.nytimes.com/2020/05/01/business/economy/monty-bennett-small-business-loans-coronavirus.html

[7] https://insights.diligent.com/board-succession-planning/leaving-a-board-removing-board-members-term-limits-and-more

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AMP Receives Second “First Strike” Within Three Years

This article examines AMP Limited’s governance practices, board of directors’ skills and expertise, and their CEO Pay for Performance, to undestand why it found itself in hot water with the Australian Royal Commission.

Ever since the Royal Commission has been investigating alleged cases of misconduct in banking, superannuation and financial services firms in 2017[1], it has scrutinized and fined Australia’s largest financial institutions and banks. This article examines AMP Limited’s governance practices, board of directors’ skills and expertise, and its CEO Pay for Performance, to understand why it found itself in hot water.

AMP Limited is one of those companies that has frequently dealt with the Royal Commission. The company has been investigated for several cases of misconduct in recent years, making shareholders furious over the company’s mismanagement and dishonesty. As a result, shareholders have questioned both the executives’ performance and their compensation.

On May 8, 2020, AMP obtained a ‘first strike’ on its remuneration report during its Annual General Meeting (AGM) after 67.25 per cent of its shareholders voted against the adoption of the remuneration report for the financial year ending December 31, 2019[2]. However, this is not the first time the wealth management firm had experienced a first-strike. During its 2018 AGM, 61.46 per cent of shareholders voted against the adoption of its remuneration report because of the numerous scandals the firm was involved in[3].

In 2018, the company faced backlash for charging their clients service fees over a period of 90 days without rendering any advisory services[4]. AMP executive Anthony Regan admitted that the firm repeatedly misled the Australian Securities and Investments Commission (ASIC) about the deliberate nature of the 90-day fee policy. The company has announced that it will return AUD 778 million for the service fees charged to its clients, with a further AUD 440 million being returned to clients that were given inappropriate advice[5].

The company was also questioned for its implementation of the government’s Banking Executive Accountability Regime (BEAR), which was intended to hold executives accountable for misconduct and malpractice. AMP explained that it adopted a “hybrid model” where only executives from AMP Bank, as opposed to executives from the larger AMP Group, would be held accountable. The company stated such a model would be more “flexible and pragmatic” in achieving the company’s
long-term objectives.

Unfortunately, the company again found itself in hot water in 2019 when AMP and the trustees of its superannuation funds, AMP Superannuation and NM Superannuation, were confronted with a new class action for excessive fees on their accounts since 2013[6]. The law firm Maurice Blackburn claims that AMP billed unreasonably high fees to customers and violated its legal duty to act in the best interest of its clients.

One of the well-known violations of AMP was the case involving the late Mr. Daryl Oehm, who despite having passed away in October 2018 was charged fees from his account until March 2019. This occurred even after the company was informed of Mr. Oehm’s passing and the company’s subsequent agreement to “freeze” the account[7]. The Royal Commission discovered that at least 3,124 clients of AMP were continuously charged a collective total of AUD 922,000 in life insurance premiums even after their passing.

The financial giant released a statement in August 2019 announcing that it developed a three-year investment program to “fund growth, cost reductions and fix legacy issues.” The cost minimizing program plans to achieve AUD 300 million annual run-rate savings by FY22[8]. Despite its aggressive initiative, shareholders still voted against the adoption of its remuneration report during the 2020 AGM after reporting an AUD 2.5 billion loss, with AUD 2.35 billion spent on non-impairment charges and AUD 190 million on misconduct fees[9]. Shareholders protest that even though the company’s share price has declined by 25 per cent in the past 12 months from AUD 1.91 to AUD 1.42 and declared a non-payment of a final dividend, current Chief Executive Officer Mr. Francesco De Ferrari was still able to take home more than AUD 4 million in salary and short-term awards[10].

CGLytics’ Pay for Performance analysis compares CEO Mr. De Ferrari’s total realized pay with the industry peer group’s three-year total shareholder return (TSR). The CEO’s pay is disproportionately higher than the company’s TSR, with the CEO pay in the 40th percentile rank and the company’s TSR in the 0 percentile rank. The misalignment shows that the CEO’s compensation is not tied to the company’s performance resulting in the CEO receiving a generous reward despite the company’s poor performance. AMP Chairman Mr. David Murray defended the CEO’s compensation stating that the hurdles faced by the executive were of an extremely challenging nature[11].

AMP Limited’s Pay for Performance analysis

AMP Relative Positioning
Source: CGLytics Data and Analytics

The financial giant initially planned to divest its New Zealand wealth management business but ceased its proposal due to the uncertainty caused by the COVID-19 pandemic[12]. The company focuses instead on the development and growth of its businesses. The company has also stated that it is continuing with the sale of AMP Life, a life insurance arm of the company, and payment of the next dividend will be conditional on the completion of AMP Life’s sale for AUD 3 billion[13].

AMP’s numerous counts of misconduct has brought The Australian Prudential Regulation Authority (APRA) to identify certain areas for improvement for AMP’s superannuation trustees such as governance and risk management policies, breach remediation procedures, risk culture and accountability processes[14]. With not only AMP’s superannuation arm in difficulty, the company must move to expand these recommendations to the whole AMP group to strengthen its board. According to the CGLytics Board Expertise and Skill Matrix, the board is experienced in advisory, banking and investment management. However, the company lacks expertise in governance and sustainability, skills useful for compliance[15], disclosure and accountability[16].

AMP Limited’s Board Expertise and Skills Matrix

AMP Board
Source: CGLytics Data and Analytics

Using data and analytics found in the CGLytics software platform, companies, investors, proxy advisors and service providers efficiently analyze and spot governance risks and red flags in seconds. AMP will need to understand how they are perceived by proxy advisors and stakeholders going forward, not only to avoid ‘strikes’ in the future but understand areas of improvement for good governance and stewardship, ultimately driving the company forward.

Would you like to see how your executive compensation is viewed by leading independent proxy advisor Glass Lewis and institutional investors?

Click here to contact CGLytics and learn more about the Glass Lewis CEO compensation analysis and peer group modeling for Say on Pay engagement, available exclusively via CGLytics.

Reference

[1] https://www.theguardian.com/australia-news/2018/apr/20/banking-royal-commission-all-you-need-to-know-so-far

[2]https://client.cglytics.com/media/documents/df/34/df34b2de121967bc1e33fdc360a284b581094956/2020.pdf?v=1588940146

[3]https://client.cglytics.com/media/documents/74/4e/744e81f4e2eb8d40209410561f32f928f015e34e/2018_results.pdf?v=1536325991

[4] https://www.abc.net.au/news/2018-04-16/banking-royal-commission-financial-planners/9662166

[5] https://www.smh.com.au/business/banking-and-finance/amp-s-fees-for-no-service-scandal-could-top-1-billion-20181127-p50iqg.html

[6] https://www.smh.com.au/business/companies/it-stinks-amp-faces-class-action-on-behalf-of-1-million-customers-20190529-p51sf4.html

[7] https://www.abc.net.au/news/2019-11-11/amp-continued-to-charge-customer-months-after-death/11691870

[8]https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/asx-announcements/2019/8_August_2019_New_strategy_to_reset_AMP.pdf

[9]https://client.cglytics.com/media/documents/3e/30/3e305d791339d441e817b1cab401ee6d336e792b/2019.pdf?v=1585294896

[10] https://www.news.com.au/finance/business/breaking-news/amp-shelves-plan-to-divest-nz-wealth-ops/news-story/3668460e76affd0f5464d5bf0861b083

[11] https://www.smh.com.au/business/banking-and-finance/shareholders-hit-amp-with-first-strike-against-executive-pay-packets-20200508-p54r6f.html

[12]https://corporate.amp.com.au/content/dam/corporate/shareholdercentre/files/asx-announcements/2020/MAY/200508_Update_on_New_Zealand_wealth_management.pdf

[13] https://www.msn.com/en-au/money/markets/shareholders-strike-against-executive-pay-at-this-asx-financial-share/ar-BB13STZ3?li=AAFsTE5

[14] https://www.apra.gov.au/news-and-publications/apra-imposes-directions-and-conditions-on-amp-super-rse-licensees

[15]https://corporate.amp.com.au/content/dam/corporate/aboutus/files/2020/April/200409_Corporate_governance_statement.pdf

[16] https://theconversation.com/amps-murray-right-to-question-the-value-of-corporate-governance-rules-100954

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COVID-19: Changes to Executive and Shareholder Pay in Europe’s Biggest Banks

To evaluate the financial industry’s response to the COVID-19 crisis, CGLytics reviews the executive compensation changes and dividend amendments of 20 listed banks across Europe.

In March 2020, the European Central Bank (ECB) published a recommendation to banks on dividend distribution, asking financial institutions to refrain from paying dividends or buy back shares during the COVID-19 pandemic. The measure was introduced to help banks cope with losses and support lending in times of the crisis and concerned dividends for financial years 2019 and 2020. The ECB suggested banks to amend dividend proposals for the upcoming Annual General Meetings, at least until October 1, 2020[1]. This article reviews the executive compensation changes and dividend amendments of banks across Europe in response to the COVID-19 crisis.

Numerous banks across Europe decided to follow the recommendation and cancelled, or delayed, dividend payments. Furthermore, senior management and non-executive directors of some institutions also decided to waive parts of their compensation to support the business or donate to the pandemic funds. Some other banks, however, have not announced any changes to executive remuneration at the time of generating this report.

To evaluate the financial industry’s response to the COVID-19 crisis, CGLytics has looked at the executive compensation changes and dividend amendments of 20 listed banks across Europe, with market capitalisation varying from EUR 9B to EUR 148B. The geographical representation of the peer group covers eight countries – Spain, United Kingdom, France, Norway, the Netherlands, Italy, Belgium and Sweden.

Changes in Executive and Non-Executive Compensation

Top executives across the industry chose to contribute part of their fixed or variable compensation in order to help their company or society to combat the crisis. 12 out of the 20 evaluated banks announced various actions taken by the executives, among them reductions in a salary, cuts or waiving of a bonus, or agreement to postpone planned compensation increase.

Source: CGLytics Data and Analytics

For example, the CEO of Banco Santander SA, José Antonio Alvarez, contributed half of his base salary as well as his bonus to the medical equipment fund[2]. Chief executives of three UK banks also announced that both their salary and variable bonuses will be affected by donations or cost cuts. These banks are HSBC Holdings plc, The Royal Bank of Scotland Group plc and Standard Chartered PLC.

Out of the reviewed sample, only Barclays plc chose to delay releasing of a portion of the long-term incentives awarded in 2017 and due to vest in June 2020. In addition, both the CEO and CFO of the bank have requested any increase to their fixed pay to be postponed until at least 2021. The bank’s Chief Executive, James Staley, has also volunteered to contribute one-third of his salary for the next six months to charitable causes[3].

Eight out of 20 banks have not reported any changes to the executive remuneration caused by the pandemic, including all Swedish banks represented. However, it is worth noting that senior management of Swedbank AB has been affected by pay cuts due to a money laundering scandal[4].

The situation with compensation adjustments for non-executive directors differs significantly for the chosen peer group. Only six out of 20 banks announced that the Chair or members of the Board of Directors agreed to forego wholly or partially the annual fees.

BOD Compensation Cuts
Source: CGLytics Data and Analytics

Chairs of Banco Santander, Barclays PLC, Banco Bilbao Vizcaya Argentaria and The Royal Bank of Scotland Group took cuts in their fees to support charities. Mark Tucker, Chairman of HSBC Holdings plc, donated his entire fee for 2020 (roughly GBP 1.5m)[5].

Non-executive directors of Banco Santander volunteered to contribute 20% of their fees to charity while Directors of Svenska Handelsbanken AB proposed to recall an increase of the Board fees. However, no other banks from the sample announced any changes to the fees paid to non-executive directors due to the pandemic crisis.

Changes in Dividend Payments

All 20 banks announced changes to the dividend payments in response to the ECB recommendations or the losses due to the crisis. Banks chose to cancel or postpone the dividend payments for 2019 financial year until more certain circumstances.

Dividends 2019
Source: CGLytics Data and Analytics

Following the ECB suggestion, the banks did not cancel interim dividends that have already been paid out but amended payments of the final dividends for 2019. Most of the banks chose to postpone the decision regarding the dividends for 2019 until later this year, hoping for clearer overview of the results and forecasts, while allocating the 2019 profits to the reserve accounts. CaixaBank SA decided instead to reduce 2019 dividends and change the 2020 dividend to a cash pay-out not higher than 30% of reported consolidated earnings[6].

Regarding the interim dividends for financial year 2020, some of the banks have already announced that they do not plan to undertake any dividend payments until uncertainties caused by COVID-19 disappear.

Financial regulators and banks across Europe are taking measures in times of the COVID-19 pandemic to support the economy. The recommendation of the European Central Bank to refrain from paying 2019 dividends until more certain times led to many financial institutions cancelling or postponing the dividend payments and using all funds available to combat the crisis or as a reserve backup.

Moreover, top managers and members of the Board of Directors are voluntarily donating part of their fees for 2020 financial year to charities and to support the business. Even though all evaluated banks have chosen to amend dividend payments, only some have been spotted on account of voluntary contributions from the top management. The results and impact of current decisions made by the banks will be visible by the end of the current crisis, when companies will evaluate the state of their business to estimate what kind of return they will offer to their shareholders.

Would you like to see how your executive compensation is viewed by leading independent proxy advisor Glass Lewis?

Click here to learn more about the Glass Lewis CEO compensation analysis and peer group modeling for Say on Pay engagement, available exclusively via CGLytics.

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Can Tesco Escape a Revolt on their Remuneration Report?

Will Tesco be confronted with shareholder revolt after its remuneration committee decided to remove Ocado from its custom peer index? Only time will tell with the Annual General Meeting scheduled for June 26, 2020.

Tesco PLC is currently confronted with a shareholder revolt after the Company’s remuneration committee inflated executive bonuses by removing Ocado from the peer group used to estimate its performance. The Annual General Meeting (AGM) of Tesco is scheduled for June 26, 2020, and is set to expect a higher percentage of negative votes against the directors’ remuneration report, particularly following Glass Lewis’ advice to investors to vote against Tesco’s remuneration report.

The removal of Ocado from Tesco’s peer index

Tesco’s remuneration committee decided to remove Ocado from the custom peer index[1] used to measure its relative Total Shareholder Return (TSR) for the 2017 Performance Share Plan (PSP) after May 16, 2018. The argument behind this action, according to Tesco’s report:

“Ocado has experienced significant share price growth which analysis shows is directly correlated to the sales of its technology platform as opposed to its food business. This was when Ocado signed its third major technology deal, establishing a clear pattern of pursuing a technology strategy. As a result of Ocado’s divergence from the retail market (and hence as a direct comparator for Tesco)[2]”.

As a result, the impact of the removal of Ocado from the peer group contributed to changing the actual performance from underperforming the custom index by 4.2% to over-perform the custom index by 3.3%. If Tesco’s TSR was below the custom index as it was before removing Ocado, the TSR metric, which is weighted at 0.5 of the PSP, would have been zero.

However, omitting Ocado resulted to a share vesting equal to 33.4% of the maximum PSP. The long-term incentive payments to the CEO and CFO were approximately boosted by GBP 1.6 million and GBP 0.87 million, respectively.

Historical remuneration report outcome

Figure 1 below illustrates the outcomes of voting of historical director remuneration reports at the AGMs of Tesco between 2010-2019. The three largest negative outcomes against the directors’ remuneration report took place in 2010, 2015 and 2017.

In 2010, the remuneration report received the most negative votes with more than one-third of the total votes against. The cause which led to this shareholder revolt against the directors’ remuneration report in 2010 was the director’s excessive pay in relation to poor company performance in the US.

Sir Terry Leahy, the CEO at the time, received GBP 10 million and Tim Mason, who was responsible for the US market, received about GBP 7 million.

Five years later, in 2015, almost 11% failed to back Tesco’s remuneration report. This was due to a huge payment of GBP 4.13 million to the newly arrived CEO for just six months’ work at Tesco and a slightly more that GBP 1 million to the former CEO, who oversaw negative sales and profits.

Finally, in 2017, 9.4% voted against the directors’ remuneration report due to excessive relocation costs to the current CEO, which is not considered appropriate.

Fast-forwarding to 2020 and the upcoming AGM, it is expected that another big shareholder revolt will be recorded after the company’s remuneration committee inflated executive bonuses by approximately GBP 1.6 million by removing Ocado from the peer group. According to the Sunday Times, Glass Lewis, the proxy advisor, expressed their “severe reservations” with regards to the exclusion of the online grocer from its calculations. Moreover, Glass Lewis advised investors to vote against Tesco’s remuneration report at Tescos’ upcoming 2020 AGM, arguing that such “discretionary” actions “undermined the idea of transparent, target-based pay”.

Figure 1

Source: CGLytics Data and Analytics

Tesco’s descriptive statistic of 2019 compared to the past 10 years

The table below (Table 1) presents the average remuneration of Tesco’s CEO and performance measures from 2010-2019. The average realized pay to Tesco’s CEO is slightly more than GBP 6 million, of which 21% is base salary, 39% STI and 55% LTI. The average Return on Assets (ROA) and the average Return on Equity (ROE) have positive results over time. However, the average three-year TSR is negative. Tesco’s CEO total realized pay in 2019 is GBP 6.8 million, which is 11.6% higher than the average total realized pay over the past 10 years. Comparing the performance measures in 2019 to the past 10 years combined, ROA (2.8%) underperform the average values and ROE (10.4%) and TSR (3Y) (29.7%) overperform the average.

Table 1. Average remuneration of Tesco’s CEO and performance measures (2010-2019)

Tesco’s CEO compensations against its peer group (including Ocado)

Figure 2 shows Tesco’s CEO total realized pay and Tesco’s change in TSR (3Y) [3] against its peer group[4]. Between 2010-2019, Tesco overpaid its CEO compared to its industry peers, particularly in 2010 and 2019 when Tesco awarded the highest total realized pay to its CEO. Moreover, the first five years it is observed that the peer group has higher change in TSR (3Y) when compared to Tesco. However from 2015 Tesco overperformed the peer group until 2018. Again, in 2019, the change in TSR (3Y) of Tesco’s peer group is higher. Therefore, Tesco’s higher payments to its CEO did not guaranty better performance.

Figure 2

Source: CGLytics Data and Analytics

Comparing Tesco’s CEO pay and change in TSR (3Y) against peer group with and without Ocado

This section describes the impact of omitting Ocado from Tesco’s peer group. Figure 3 illustrates Tesco’s CEO total realized pay and Tesco’s change TSR (3Y) against its peer group with and without Ocado. It is clear from the figure that the change in TSR (3Y) is higher in the peer group that includes Ocado, compared to the peer group without Ocado, with a difference of 4.3%.

Therefore, the omission of Ocado from the peer group provides lower change TSR (3Y) value, which in its turn lowers the threshold. Thus, as a result of this omission, Tesco’s executive payments based on TSR – a total payment of approximately GBP 2.47 million – could be justified, whilst otherwise would have ended up with zero.

Figure 3

Source: CGLytics Data and Analytics

Where does Tesco’s CEO Pay for Performance rank?

The Long-Term Incentive Plan of Tesco in 2017 was weighted as TSR equal to 0.5, cumulative cash generation equal to 0.3, and key stakeholder measures equal to 0.2 over a three-year performance period. Comparing Tesco’s CEO pay practice in relation to its peer group (including Ocado) using CGLytics’ Pay for Performance model, we observe a misalignment between the CEO’s total realized pay and TSR (3Y).

Hence, Tesco’s CEO 2019 total realized pay ranks slightly lower than the upper quartile at the 73rd percentile, while its TSR (3Y) ranks slightly higher than the median at the 55th percentile. Thus, the results of the test we conducted, using CGLytics Pay for Performance modeler, in Figure 4 suggest that Tesco is over-paying its CEO relative to its peer group.

Three-year Pay for Performance of Tesco PLC (2019)

Source: CGLytics Data and Analytics

Upcoming Tesco AGM

Looking back at Tesco’s history, shareholder revolts may not be a new incident and they may also be expected during the upcoming AGM, especially given the observations that Ocado’s omission from the peer group led to an inflation of the executive payments. The real question now is to see whether the shareholders will consider Ocado as a direct competitor or not, and as to whether they will follow Glass Lewis’ advice to vote against Tesco’s remuneration report. Moreover, this analysis brings to the front that Tesco’s pay practices were much higher over the recent years compared to its peer group, recording its 2nd highest payment in 2019, when looking at the period between 2010 and 2019. Evidently, this may be a signal that Tesco’s remuneration policy must be reviewed, re-evaluated and perhaps change soon.

Would you like to see how your executive compensation is viewed by leading independent proxy advisor Glass Lewis?

Click here to learn more about the Glass Lewis CEO compensation analysis and peer group modeling for Say on Pay engagement, available exclusively via CGLytics. Make data-driven decisions this proxy season with CGLytics.

 

References

[1] “Benchmark index made up of FTSE 350 Food and Drug Retailers and FTSE 350 General Retailers weighted 85% and 15%, respectively”. Tesco’s Annual Report 2019 [https://www.tescoplc.com/media/755761/tes006_ar2020_web_updated_200505.pdf].

[2] Reference: Tesco’s Annual Report 2019 [https://www.tescoplc.com/media/755761/tes006_ar2020_web_updated_200505.pdf].

[3] Change TSR (3Y) refers to one-year growth of the three-year TSR.

[4] This analysis attempts to simulate Tesco’s custom peer group, which includes 34 UK companies in the same industry as Tesco from the FTSE-100 and FTSE-250.

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2020 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 is again in the spotlight of the 2020 AGM Proxy Season. With the COVID-19 pandemic affecting many aspects of the business, a large portion of companies have proceeded with executive compensation adjustments as a response.

How has the compensation scene changed over the last year? Of course, the proxy season has yet to be finished, hence the ranking of the companies and analysis will change over time. Nevertheless, it is worth reviewing the changes over the year so far, and the impact of any decisions made to the compensation practices of companies.

In this article we have included how the performance of the company has changed to understand how executives are rewarded compared to company performance.

Key CEO pay takeaways in 2020 so far:

    • – The sum of the top 50 total granted compensation has decreased by 53% from 2018 to 2019 ($4.73bn in 2018 down to $2.24bn in 2019).
    • – Last year’s top paid individual and company is not included in this year’s top 50 highest paid executives as he was granted only USD 23,760. He exercised, however, a total of USD 30,483,520 in options. Last year, Elon Musk’s pay accounted for over 50% of the $4.73bn granted of the 50 highest paid executives.
    • – This year’s first place for highest paid CEO, belongs to Sundar Pichai of Alphabet Inc., whose payment represents almost 13% of the $2.15bn.
    • – A few companies that have made it onto the list of the top 50 highest paid CEOs have also made changes due to COVID-19, either on their compensation practices or dividends:

 

  • The Walt Disney Company: The Walt Disney Company (DIS) announced that in response to the business challenges relating to COVID-19, each of the Company’s named executive officers agreed to receive a temporary reduction in their base salaries, effective with the payroll period commencing April 5, 2020. The Executive Chairman, and former Chief Executive Officer, of Walt Disney agreed to forego all of his compensation except a portion of his base salary.
  • Burlington Stores, Inc.: Burlington’s CEO, Michael O’Sullivan, will not take a salary, while the company’s Board of Directors will forfeit their cash compensation, and the Company’s executive leadership team has voluntarily agreed to decrease their salary by 50%.
  • Comcast Corporation: Comcast Chief Brian Roberts, NBCUniversal CEO Jeff Shell and other division leaders at Comcast will donate their salaries to coronavirus-related relief efforts as the world grapples with the devastating pandemic.
  • Fiserv Inc.: Fiserv Inc.’s top executives are taking temporary base salary pay cuts to compensate employees, who experience financial hardship due to the COVID-19. The Company disclosed that its Chairman & CEO, Jeffery Yabuki, and President & Chief Operating Officer, Frank Bisignano, have each agreed to forgo 100% of their base salary.
  • Wells Fargo & Company, Arconic, Inc.,The Walt Disney Company, The Kraft Heinz Company, and Fiat Chrysler Automobiles N.V. have also implemented dividend cuts or changes due to COVID-19.

 

  • – It is also worth noting, the average growth in market capitalization in 2019 (of the 50 highest paid Executives) was 43%. A big increase compared to the growth of 1% seen in 2018.
  • – One-year Total Shareholder Return (TSR) growth also saw an increase of as much as 42%!

Please note: Compensation in USD – exchange rates based on single point of time, end of tax year 2019.

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