Mind the Gap: CEO Remuneration and the Scandinavian Corporate Governance Landscape

The corporate governance landscape has been changing and executive remuneration has been, and continues to be, a topical issue engaging the attention of investors, corporations, politicians, the media and society. Scandinavian corporations are not exempted from this phenomenon.

Mind the Gap: CEO Remuneration and the Scandinavian Corporate Governance Landscape

The corporate governance landscape has been changing and executive remuneration has been, and continues to be, a topical issue engaging the attention of investors, corporations, politicians, the media and society. Scandinavian corporations are not exempted from this phenomenon.

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Part 2 Are You Ready to Rumble? Ceo Pay for Performance – 2017 FTSE100 Proxy Season

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Are You Ready to Rumble? CEO Pay for Performance – 2017 FTSE100 Proxy Season

At the 2016 UK AGM season, investors set an unprecedented trend in corporate governance. FTSE 100 bosses faced revolts over remuneration report votes during a heated series of AGMs that featured defeats and protests over pay at some of Britain’s biggest companies.

Are You Ready to Rumble? CEO Pay for Performance – 2017 FTSE100 Proxy Season

At the 2016 UK AGM season, investors set an unprecedented trend in corporate governance. FTSE 100 bosses faced revolts over remuneration report votes during a heated series of AGMs that featured defeats and protests over pay at some of Britain’s biggest companies.

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Swiss Proxy Season: did Say on Pay move the needle?

This report aims at providing substantial insights, on a seven-year time span (2008-2014), of compensation practices across the twenty largest firms in Switzerland.

Swiss Proxy Season: did Say on Pay move the needle?

This report aims at providing substantial insights, on a seven-year time span (2008-2014), of compensation practices across the twenty largest firms in Switzerland. It shows the yield for investors in relation to the CEO’s pay of the SMI companies.

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The EU Shareholder Rights Directive: The implications for executive compensation in Belgium and Luxembourg

The corporate governance landscape is changing. Listed EU companies are increasingly subject to more disclosure and transparency requirements while executive compensation is now under greater scrutiny than ever. In this article CGLytics takes a look at the implications of the EU Shareholder Rights Directive on executive compensation in Belgium and Luxembourg

The corporate governance landscape is changing. Listed EU companies are increasingly subject to more disclosure and transparency requirements while executive compensation is now under greater scrutiny than ever. Part of the call for greater transparency applies to the compensation of top executives of listed companies. Shareholders now have the right to an extended say on pay under the Revised Shareholders’ Rights Directive (SRD II) through their votes on the remuneration policy and report.

The EU SRD II: It’s Main Purpose

  1. To encourage long-term shareholder engagement by facilitating the exercise of shareholder rights
  2. To enhance transparency
  3. To increase directors’ accountability and reinforce the link between pay and company directors’ performance

Impact for companies

Under SRD II – Extension of shareholders’ right to say on pay

The SRD II requires the compensation of all directors to be reported on an individual basis. This will impact Belgium listed companies as previously it was deemed sufficient to provide this information on an aggregated basis.

Another change is the impact of shareholders’ votes on the remuneration policy, empowering them to oversee and influence directors’ remuneration. The shareholders’ vote on the remuneration report is not new, however, the content of the remuneration report will have to be more extensive and explicit to comply with SRD II. In particular, next year’s report will have to explain how the shareholders’ vote on the remuneration report was taken into account.

The most innovative change is the requirement to explain the changes in directors’ pay in relation to the evolution of the company’s performance and employees’ average pay during the period under examination. This will put the emphasis on the compensation committee to provide increasingly data driven analysis against a variety to financial and non-financial KPIs.

In the future – Disclosure of the CEO pay ratio?

The CEO pay ratio is the indicator of CEO compensation compared with employees’ pay, usually expressed by a multiple of the median annual salary of the employees of the company concerned. Currently, the pay ratio is not part of the disclosure requirements under European corporate governance regulations, in contrast with the US and the UK.

In the US for example, public companies are required to disclose the ratio of CEO pay to median employee pay in their proxy statement. In the UK, listed companies with more than 250 employees are required to disclose the ratio of their CEO’s total remuneration to the median (50th), 25th and 75th percentile full-time equivalent remuneration of their UK employees.

The future will tell us whether the disclosure of CEO pay ratios affects companies’ executive compensation practices. It cannot be ruled out that other governments will follow the path taken by the US and the UK in order to manage the perception of executive remuneration being increasingly out of step with the average employee pay.

Fair pay

Fairness in pay is not only about being transparent on the remuneration and the wage gap between CEOs/executives and employees. Fair pay also means non-discrimination between employees.

Significant developments are occurring worldwide regarding gender discrimination. Measures adopted to tackle this issue vary from country to country. Such measures may consist of transparency requirements (e.g. in Germany), the obligation to report on the gender pay gap in the company’s annual report (e.g. in the UK), the requirement to have a gender pay gap analysis conducted by independent and external bodies (e.g. in Switzerland) or mandatory equal pay certification (e.g. in Iceland – such legislation is under discussion in the Netherlands).

In Belgium, equal treatment is enshrined in the Belgian Constitution and in the Non-Discrimination Act, which prohibits any direct or indirect discrimination based on certain grounds, including in employment relations. Under the Gender Non-Discrimination Act, companies employing at least 50 employees are required to conduct a detailed analysis of their remuneration structure – to ensure a gender-neutral remuneration policy – every two years and deliver their report to the employee representative body.

To date, Belgian companies are not required to disclose their gender pay gap in their annual report or in their remuneration policies or report. Nevertheless, the information contained in the company’s social balance sheet must be broken down by gender. In addition, listed companies are required to describe their diversity policy in their Corporate Governance Statement.

In Luxembourg, labour law prohibits companies from using criteria other than knowledge, experience and responsibilities to determine remuneration. Despite initiatives of the Ministry of Equal Opportunities to raise awareness on the gender pay gap, no further legal provisions exist on this matter.

To this end, companies in Belgium and Luxembourg will be required to show greater transparency of executive and director pay, not just in comparison against the performance of the organisation, but also ensuring that it is benchmarked against the growth (or decline) of the average employee. Shareholders will have more information and greater powers to curtail excess pay, while holding companies to account against more financial and non-financial KPIs.

Take a deeper dive into executive compensation practices

With a wealth of global data, analytics and insights, review executive pay against an array of key financial indicators.

Replicate the peer groups of leading proxy advisors and investors, and instantly compare CEO pay against company performance and their peers.

Click here to download the Corporate Governance and Executive Pay: Legislative landscape and market insights report, produced together with PwC.

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Disney, 21st Century Fox, Bob Iger, and the Search For His Successor

CGLytics uses its Executive Pay and Pay for Performance Modelling Tools to look at the recent merger with 21st Century Fox, the value Disney’s CEO has bought to the company’s shareholders and how he has been compensated, and some of the challenges potential successors face.

CGLytics uses its Executive Pay and Pay for Performance Modelling Tools to look at the recent merger with 21st Century Fox, the value Disney’s CEO has bought to the company’s shareholders and how he has been compensated, and some of the challenges facing a potential successor.

In an age where on-demand, direct-to-customer streaming services such as Netflix, Amazon Prime and Hulu are increasingly replacing traditional media such as TV and cinemas, film producers such as Disney have been exploring ways to tap into the same on-demand content delivery channels in order to remain competitive. In this vein, in August 2017 Disney announced that it would pull all of Disney’s content out of Netflix and launch its own streaming service, Disney+, starting in late 2019. Following this announcement, Disney made its next big bet: acquiring 21st Century Fox, the owner of one of the “Big Five” film studios.

In June 2018 Disney announced that it was going to acquire 21st Century Fox (21CF)’s businesses including but not limited to Twentieth Century Fox, Fox Searchlight Pictures, Fox 2000 Pictures and Fox’s interests in Hulu, Sky plc, and Tata Sky. The USD 73 billion acquisition has recently closed, and with it, Disney has brought to the company more than just a portfolio of film production businesses and delivery channels. Clearly, the acquisition of the film and TV production businesses from 21CF was a strategic move, as it will expand Disney’s already impressive library with even more content. Moreover, the 60% controlling stake in the TV streaming service Hulu will further strengthenDisney’s strategy to provide general streaming services, although Hulu will be kept separate from the all-ages friendly Disney+.

In order to support Disney’s direct-to-customer focused strategy and to guarantee the success of the Disney-21CF marriage, Disney has brought with its acquisition a group of important executives from 21CF.

Instrumental to the success of this merger was Bob Iger, CEO/Chair of The Walt Disney Company. Mr. Iger, who has previously planned to retire from Disney at least four times, has recently again extended his contract with the company until 2021. Ostensibly the extension of his contract was implemented so that Mr. Iger could aid in the oversight of the integration of 21CF into Disney, as well as oversee the company’s transition toward a direct-to-consumer business model. In his 14-year tenure at Disney, Mr. Iger has made three very successful purchases: Pixar (2006), Marvel (2009), and Lucasfilm (2012) – which have all paid off handsomely, particularly for Mr. Iger.

Utilising CGLytics’ proprietary corporate governance global dataset and analytics tools, we are able to see exactly to what extent these acquisitions have paid off for Mr. Iger. During the period that the above-mentioned acquisitions were made by Disney, we see a steep increase in TSR, corresponding to a reciprocal increase in total granted compensation to Mr. Iger. However in late 2013/early 2014 we begin to see a decline in TSR.

Figure 1: CEO Bob Iger’s total granted compensation versus TSR over five years following the acquisition of Pixar, Marvel and Lucasfilm

Year CEO Total
granted
remuneration ($)
TSR (5-year)
2008 51.229.341 4,6%
2009 23.921.614 25,1%
2010 29.617.964 68,9%
2011 33.434.398 19%
2012 40.227.848 65,3%
2013 34.321.055 259,9%
2014 46.497.018 212,5%

Source: CGLytics

Utilising CGLytics’ proprietary corporate governance global dataset and analytics tools, we are able to see exactly to what extent these acquisitions have paid off for Mr. Iger. During the period that the above-mentioned acquisitions were made by Disney, we see a steep increase in TSR, corresponding to a reciprocal increase in total granted compensation to Mr. Iger. However in late 2013/early 2014 we begin to see a decline in TSR.

Figure 2: CEO Bob Iger’s total granted compensation versus average five-year TSR

Year CEO Total
granted remuneration ($)
TSR (5-year)
2014 46.497.018 212,5%
2015 44.913.614 200,1%
2016 43.882.396 197,3%
2017 36.283.680 131%
2018 65.645.214 54,1%

Source: CGLytics

Utilising CGLytics’ proprietary corporate governance global dataset and analytics tools, we are able to see exactly to what extent these acquisitions have paid off for Mr. Iger. During the period that the above-mentioned acquisitions were made by Disney, we see a steep increase in TSR, corresponding to a reciprocal increase in total granted compensation to Mr. Iger. However in late 2013/early 2014 we begin to see a decline in TSR.

Figure 3: Bob Iger’s total granted compensation and TSR versus the S&P 500 average

Year Total
granted
remuneration –

The
Walt Disney

Company
($)

Total
granted
remuneration (average)
[S&P 500] ($)
TSR
(5-year)

The
Walt Disney
Company]
TSR
(5-year (average)
for S&P 500]
2014 46.497.01 13.044.754 212,5% 162,3%
2015 44.913.614 12.332.918 200,1% 118,4%
2016 43.882.396 14.024.662 197,3% 134,6%
2017 36.283.680 15.059.437 131% 144,4%
2018 65.645.214 16.890.131 54,1% 62,6%

Source: CGLytics

Even though Disney’s performance may not be on balance with Mr. Iger’s paycheck in recent years, it appears that Disney is struggling to find someone to succeed him. This struggle is evidenced by the recent extension of his contract. Finding a successor with as outstanding a track record and strategic vision for the company’s future like Bob Iger must be a daunting feat. Nevertheless, the company announced that its board of directors actively discusses his succession plan at every board meeting, with the goal to find potential internal candidates qualified to succeed him. Perhaps with the addition of executives from Fox, including Peter Rice, the new Chairman of Walt Disney Television, Disney will have a larger “internal pool” of candidates to fill Mr. Iger’s shoes at the end of his contract in 2021.

Even with the closing date of its acquisition of 21st Century Fox behind, Disney is still not yet close to making this integration complete. Bob Iger now has three more years to prove his final megabet at Disney a win. During this same time, Disney will finally have to seek for a fitting successor to reign in the “Magical Kingdom”.

While the search for a successor to Mr. Iger will undoubtedly prove difficult, there are tools available to companies and their nomination committees to ease the burden of such search. In addition to the comprehensive global remuneration data and analytics that CGLytics offers, our executive and director network tool can help you find that next ingenue to lead your company to the next level.

Visit the CGlytics website for more information regarding the proprietary Pay for Performance Modelling Tools and Executive and Director Network, or reach out to: getintouch@cglytics.com

Aniel Mahabier

CGLytics

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Dominant themes from the 2018 AEX proxy season and what to expect in 2019

During the 2018 Dutch proxy season, shareholders actively engaged in a range of governance matters, with CEO remuneration remaining a key focus for stakeholders and widely publicised by the media. And, as always, the upcoming 2019 proxy season is likely to be influenced by happenings from the previous year.

During the 2018 Dutch proxy season, shareholders actively engaged in a range of governance matters, with CEO remuneration remaining a key focus for stakeholders and widely publicised by the media. And, as always, the upcoming 2019 proxy season is likely to be influenced by happenings from the previous year.

As it was the first year that Dutch companies had to comply with the revised Dutch Corporate Governance Code 2016, long-term value creation and CEO-to-average employee pay ratios were reported and picked up by the media. Alignment between CEO pay and performance was again taken into account, and CGLytics’ AEX Proxy Review revealed 44% of companies showed a misalignment between CEO pay and performance over a one year period.

Key themes that dominated the 2018 proxy season that will again be in the spotlight in 2019:

Long-term value creation

Investors will be looking for transparency on how companies’ strategies support long-term value creation, including evaluating the merits of companies’ goals, the internal culture and how they plan to minimise exposure to governance risks.

CEO-to-employee pay ratios

As this became mandatory, companies methodology on measuring CEO-to-average-employee pay ratios varied widely, indicating a more uniformed reporting method is required for fair and accurate measurement. Companies that displayed a large gap were called out by the media in 2018, which should be a consideration for Dutch companies going forward. Companies should expect and be ready to disclose and discuss reported figures.

CEO pay for performance alignment

CGLytics Pay for Performance Study conducted on the AEX 25 companies revealed 44% of companies were misaligned over one year, and 38% were misaligned over a three-year basis. Although these numbers appear significant, it was perceived that there was improvement in the balancing of compensation of AEX CEO’s over the long-term.

The reporting of CEO pay for performance will continue to be a hot topic in the 2019 proxy season, and companies can expect pressure from media, public and shareholders if any extreme executive pay policies and practices are revealed.

Getting ready for the upcoming season

Boards need to be fully prepared to engage during the upcoming proxy season. They must be equally, if not better, informed as shareholders, so they can engage constructively and avoid any reputational risks. Having access to the same intelligence and benchmarking tools as proxy advisors and investors is imperative to prepare.

Click here to download your copy of the CGLytics’ 2018 AEX Proxy Review: Shining the light on pay practices

Aniel Mahabier

CGLytics

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What’s New for the 2019 Proxy Season?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices.

During the 2018 proxy season, shareholders engaged actively in governance matters. The CGLytics FTSE 100 Proxy Review revealed shareholders to be particularly interested in director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practice.  So what’s in store for 2019?

By looking at the UK, which currently has the spotlight on corporate governance practices, we can be sure that company boards will be compelled to implement good governance practices. They should prepare for early engagement with investors, who have expanded their ESG capabilities with access to best-in-class analytics to aid engagement and voting.

CEO Pay, Board Refreshment and Gender Diversity will continue to dominate

We envisage the following themes will dominate 2019 across Europe:

Proactive shareholder engagement 

To obtain early shareholder buy-in during the proxy season. Investors will favour an ongoing positive dialogue in preference to a reaction to a negative vote.

Transparency will endure as a central theme 

Boards should be prepared to engage openly on their board composition, say-on-pay proposals and governance decisions.

Board refreshment, gender diversity and board composition 

These will be key governance matters as investors seek to favour board strategy and composition that ties to long-term company performance.

CEO Pay 

Pay will be scrutinised – compensation policies and practices must be fully transparent and reflect, and support, business strategy and promote long-term success.

CEO succession planning 

Chairs and nomination and governance committees will be required to plan for CEO succession to mitigate business continuity risk.

Environmental, Social and Governance (ESG) 

ESG will continue to gain momentum as investors continue to become more information savvy and continue to evaluate companies’ progress on their environmental, social and governance practices.

Boards must be equally, if not better, informed as shareholders in order to engage adequately and constructively

Getting ready for the coming season

Boards need to be fully prepared for the upcoming proxy season. They must be equally, if not better, informed as shareholders in order to engage adequately and constructively, to be certain to avoid any reputational risks. Having access to the same intelligence as proxy advisors and investors is fundamental to proxy season preparedness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enable good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

Aniel Mahabier

CGLytics

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Be prepared: Learnings from the UK 2018 proxy season

The UK is at the forefront of shareholder concern of good corporate governance practices. In a climate of increasing proactive shareholder engagement, the CGLytics FTSE 100 2018 proxy season review evaluates underlying trends to provide unique insights for being prepared for the forthcoming season.

The UK is at the forefront of shareholder concern of good corporate governance practices. In a climate of increasing proactive shareholder engagement, the CGLytics FTSE 100 2018 proxy season review evaluates underlying trends to provide unique insights for being prepared for the forthcoming season.

During the 2018 proxy season, shareholders showed increasing interest in key governance matters, including director election, board effectiveness, CEO pay and Environmental Social Governance (ESG) practices. Transparency emerged as a consistent concern.

We saw unprecedented dissent from investors on director re-elections. The number of resolutions opposing individual director re-elections rose from 38 in 2017 to 80 in 2018. The reason for the increase was due to a general concern about directors becoming ‘overboarded’ and unable to fulfil their duties. Investors were also looking closely if boards possessed the right composition including skills, diversity, and gender to support long-term growth plans.

2018 Proxy Season Highlights

Say on Pay

The GCLytics report explained that CEO pay is a real concern among investors who repeatedly voted down remuneration reports and questioned short-term remuneration plans.

Pay and performance

During the year, shareholders strongly urged companies to bring pay in line with performance and voted strongly against remuneration-related resolutions if it was seen as misaligned.

33% of companies have a pay for performance misalignment

The FTSE 100 CEO compensation landscape is evolving, with a growing emphasis on long-term incentives. However, the CGLytics study conducted on pay for performance alignment shows a material misalignment between pay and performance within many FTSE 100 companies during 2017:

  • 33% of companies have a pay for performance misalignment
  • 34% of companies display a strong alignment
  • 32% of the companies show a conservative pay practice for the performance generated, compared to other FTSE 100 companies.

 

With the 2019 proxy season fast approaching, boards need to be fully prepared to engage with shareholders. Having the same information as proxy advisors and investors is fundamental to proxy season readiness and good governance decision-making.

CGLytics provides real-time governance risk analytics and solutions that provide actionable insight for companies, shareholders and proxy advisors. We empower boards of companies and investors with data analytics that enables good governance.

In preparation for the 2019 proxy season, CGLytics released its third annual FTSE 100 Proxy Season report. This series of articles summarise some of the key findings. Access the full insights and statistics by downloading the report.

Aniel Mahabier

CGLytics

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