Monthly Archives: June 2017

The CEO Pay Ratio Beyond Dodd Frank: Live and Local

Jon Weinstein is a Managing Partner and Blaine Martin is Consultant at Pay Governance LLC. This post is based on a Pay Governance publication.

Spring is in the air, and executive compensation consultants are busy reading a cascade of public filings and proxy advisor reports as we analyze and are asked to predict trends in executive pay in 2017 and beyond. One of the most common questions in executive compensation this year concerns what will become of the Dodd-Frank mandated CEO pay ratio set to be disclosed publicly for most companies beginning with proxies filed in 2018—if not delayed or overturned beforehand. Earlier this year, acting Securities and Exchange Commission (SEC) Chair Michael Piwowar took the unusual step of requesting additional comments on the cost and burden of complying with the already approved CEO pay ratio rule, which would require companies to disclose the ratio of CEO pay to that of the median employee. Adding to this uncertainty, the Choice Act 2.0 (currently out of Committee in the House of Representatives) would repeal the CEO pay ratio disclosure requirement if approved by the full House, Senate, and White House. While the future is cloudy regarding the implementation of the Dodd-Frank pay ratio rule in 2018, we note that nine state and city governments have proposed some form of tax code change or local ordinance that would base local income taxation or licensing fees on a public company’s CEO pay ratio.

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The 200 Highest-Paid CEOs in 2016

Dan Marcec is Director of Content at Equilar, Inc. This post is based on an Equilar publication by Mr. Marcec which was originally published in the Equilar Knowledge Center. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein, and Executive Compensation in Controlled Companies by Kobi Kastiel (discussed on the Forum here).

The New York Times recently published its coverage of the annual Equilar 200 study, which analyzes the largest pay packages awarded to CEOs at U.S. public companies. The 2017 Equilar 200 marks the 11th consecutive year of a partnership with The New York Times to analyze data on pay awards for these high-profile executives.

The introductory page of this feature shows the Top 10 CEOs who were awarded the largest pay packages in 2016, as reported in the summary compensation table of the proxy statement filed to the SEC. (Read more about the study’s methodology.)

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Five-Year Statute of Limitations Applies to Claims for Disgorgement Brought by the SEC

Brad S. Karp is a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul, Weiss publication by Mr. Karp, Susanna Buergel, Andrew Ehrlich, Audra Soloway, Alex Oh and Walter Rieman.

The Supreme Court ruled [June 5, 2017] that claims for disgorgement brought by the SEC are governed by a five-year statute of limitations. The Court’s unanimous opinion in Kokesh v. SEC, No. 16-529, slip op. at 5 (U.S. June 5, 2017) (Sotomayor, J.), held that disgorgement, as it is applied in SEC enforcement proceedings, operates as a “penalty” for purposes of the general federal statute of limitations applicable to “actions for the enforcement of … any … penalty.” Under Kokesh, a claim by the SEC seeking disgorgement is thus subject to the same five-year period of limitations as claims by the SEC for civil fines, penalties other than disgorgement, and forfeitures. Kokesh rejected the SEC’s position that claims for disgorgement are subject to no period of limitations at all, and could thus potentially be brought an unlimited number of years after the acts constituting the violation.

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The Global Rise of Corporate Saving

Loukas Karabarbounis is Professor of Economics at the University of Minnesota; Brent Neiman is Professor of Economics at the University of Chicago Booth School of Business. This post is based on a recent article, forthcoming in the Journal of Monetary Economics, by Professor Karabarbounis, Professor Neiman, and Peter Chao-Wen Chen, University of Chicago Booth School of Business.

The sectoral composition of global saving changed dramatically during the last three decades. Whereas in the early 1980s most of global investment was funded by household saving, nowadays nearly two-thirds of global investment is funded by corporate saving. In The Global Rise of Corporate Saving we characterize patterns of sectoral saving and investment for a large set of countries over the past three decades. We measure the flow of corporate saving from the national income and product accounts as undistributed corporate profits.

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Compensation Goals and Firm Performance

Radhakrishnan Gopalan is Professor at the Olin School of Business at Washington University in St. Louis. This post is based on a recent article by Professor Gopalan; Benjamin Bennett, Visiting Assistant Professor at the Fisher College of Business at the Ohio State University; Carr Bettis, Executive Chairman of AudioEye, Inc.; and Todd Milbourn, Vice Dean and Hubert C. & Dorothy R. Moog Professor of Finance at the Olin School of Business at Washington University in St. Louis. Related research from the Program on Corporate Governance includes: Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

In the article Compensation Goals and Firm Performance which is forthcoming in the Journal of Financial Economics, we study the growing use of specific performance goals in top executive compensation packages. A recent survey by the consulting firm Hay Group found that more than half of the CEOs in their study have compensation tied to explicit goals, up from around 35% just four years earlier. Prominent shareholders like Warren Buffet agree with the need for such targets, stating: “Lacking such [goals], managements are tempted to shoot the arrows of performance and then paint the bull’s-eye around wherever it lands.”

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Perk Disclosures: Reminders for Executives and Directors

Ade Heyliger is a partner and Kaitlin Descovich is an associate at Weil, Gotshal & Manges LLP. This post is based on a Weil publication.

The SEC recently settled with the former Chairman and CEO of MDC Partners, Inc. for $5.5 million concluding a years-long investigation into his receipt of perks and the related disclosure in the company’s proxy statements. MDC settled with the SEC for $1.5 million in January 2017.

Miles Nadal stepped down from his positions on July 20, 2015 and agreed to repay to the company $10.582 million in cash bonus awards that contained claw-back provisions in connection with an internal investigation by a Special Committee of MDC’s board of directors. The investigation into the perks, personal expense reimbursements and other items of value received by Mr. Nadal or his management company from 2009-2014 ultimately revealed that Mr. Nadal received far more benefits than were disclosed in MDC’s proxy statements—ranging from sports car and yacht expenses to cosmetic surgery to charitable donations in his name—totaling nearly $11.285 million, which Mr. Nadal also repaid to MDC. On May 11, 2017, without admitting or denying the SEC’s findings of securities law violations, Mr. Nadal consented to an SEC cease-and-desist order and he agreed to pay $1.85 million in disgorgement, $150,000 in interest and a $3.5 million penalty. Mr. Nadal also agreed to be barred from serving as an officer or director of a public company for five years.

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Corporate Governance of SIFI Risk-Taking: An International Research Agenda

Steven L. Schwarcz is the Stanley A. Star Professor of Law & Business at Duke University School of Law and Senior Fellow, the Centre for Corporate Governance Innovation (CIGI); and Aleaha Jones is a 2017 graduate of Duke University School of Law. This post is based on their recent paper, forthcoming as a chapter in Cross-Border Bank Resolution (Bob Wessels & Matthias Haentjens, eds., 2017-18).

In Corporate Governance of SIFI Risk-taking: An International Research Agenda, a chapter forthcoming in Cross-Border Bank Resolution (Bob Wessels & Matthias Haentjens, eds., 2017-18), we suggest a framework for examining how corporate governance regulation could help to control excessive risk-taking by systemically important financial institutions (SIFIs) and analyzing how that regulation should be evaluated. Our purpose is not to provide definitive and complete answers; instead, we offer a possible research agenda of critical issues for scholars, policymakers, and regulators around the world to consider.

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Breaking the Ice: Investors Warm to Climate Change

Nick Dawson is Co-Founder & Managing Director at Proxy Insight. This post is based on a Proxy Insight publication.

With the first ever 2 degrees Celsius campaign proposal recently passing at Occidental Petroleum, this post looks at the increasing success of climate change shareholder proposals alongside Proxy Insight data on the subject.

Warming to climate change

Investors in Occidental Petroleum recently passed a shareholder resolution on climate change reporting. The vote was hailed as historic, marking the first time such a resolution has passed at a major US fossil fuel company, indicating what could be the next hot topic in global corporate governance standards.

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Weekly Roundup: June 2, 2017–June 8


More from:

This roundup contains a collection of the posts published on the Forum during the week of June 2, 2017–June 8.


Appraisal Decision Sole Reliance on Merger Price: PetSmart


The Role of Social Capital in Corporations: A Review



On Long-Tenured Independent Directors



The Limits of Gatekeeper Liability






Déjà Vu All Over Again: New Efforts to Reinstate the Glass-Steagall Act





Retired or Fired: How Can Investors Tell If the CEO Left Voluntarily?

Brian Tayan is a Researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business. This post is based on a recent paper by Mr. Tayan; Ian D. Gow, Assistant Professor of Business Administration at Harvard Business School; and David Larcker, James Irvin Miller Professor of Accounting at Stanford Graduate School of Business.

Shareholders and members of the public have a vested interest in understanding the reasons behind CEO and senior executive departures. Because of the influence these key individuals have on corporate performance, investors want to know whether executive turnover is the result of a carefully planned transition or whether it is instead due to forced termination for poor performance or governance-related issues. Unfortunately, succession at many companies tends to occur in a black box. Members of the public are not privy to the boardroom discussions that precede turnover events, and the public statements announcing executive departures usually contain boilerplate language that does little to elucidate the factors that led to their occurrence. [1] This lack of clarity makes it difficult for shareholders to determine the degree to which board members hold senior executives accountable for performance and to assess governance quality.

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