Yearly Archives: 2025

Pay Ratios: CEO and C-Suite Compensation in the Russell 3000 and S&P 500

Posted by Paul Hodgson, The Conference Board, Inc., on
Wednesday, February 26, 2025
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Paul Hodgson is a Senior Advisor at The Conference Board, Inc. This post is based on his Conference Board memorandum.

The CEO is consistently the highest-paid executive in the C-Suite, but how does CEO compensation compare to that of other executives? This report examines the ratio of CEO total compensation to that of chief financial officers (CFOs), chief legal officers (CLOs), chief operating officers (COOs), chief human resource officers (CHROs), chief marketing officers (CMOs), and named executive officers (NEOs) as a whole, across the S&P 500 and the Russell 3000.

Key Insights

  • Between 2020 and 2024, the gap between total CEO compensation and non-CEO executives narrowed in the S&P but widened in the Russell 3000.
  • There are substantial role variations by industry in the pay ratios of other executives to the CEO; for instance, for all NEOs in the Russell 3000, the differences are widest in materials, industrials, and utilities.
  • In the Russell 3000, median total compensation for all NEOs does not exceed 50% of CEO median total compensation in any industry—although a small number of individual C-Suite positions in certain sectors do surpass this threshold.
  • Gender pay gaps were smaller in the Russell 3000 but more pronounced in the S&P 500, with woman CMOs, in particular, earning significantly more than their men counterparts.

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AI-Powered (Finance) Scholarship

Posted by Robert Novy-Marx (University of Rochester) and Mihail Z. Velikov (Penn State University), on
Wednesday, February 26, 2025
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Robert Novy-Marx is the Lori and Alan S. Zekelman Distinguished Professor of Business Administration at Simon Business School, University of Rochester, and Mihail Z. Velikov is an Assistant Professor of Finance at Smeal College of Business at Penn State University. This post is based on their recent paper.

The Scale and Scope of AI-Generated Research

Our study begins by mining over 30,000 potential stock return predictor signals from accounting data. These signals are constructed using various combinations of financial statement items from the COMPUSTAT database, representing a comprehensive universe of accounting-based return predictors. We identify 96 signals that demonstrate robust predictive power for stock returns using the Novy-Marx and Velikov (2023) “Assaying Anomalies” protocol. This validation process involves multiple stages of increasingly stringent criteria, including tests for statistical significance, robustness to different portfolio construction methodologies, and controls for 200+ other known stock return predictors.

For each of these validated signals, we use state-of-the-art Large Language Models (LLMs) and “template reports” generated by the “Assaying Anomalies” protocol to programmatically generate three distinct versions of complete academic papers. Each version contains different theoretical justifications while maintaining consistency with the empirical findings. This approach allows us to explore how AI can generate multiple plausible explanations for the same empirical phenomena, mimicking a common practice in academic finance where researchers often develop hypothesis after discovering empirical patterns, a practice known as HARKing (Hypothesizing After Results are Known).

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Delaware Supreme Court Reaffirms High Bar for Proving Control by a Minority Stockholder

Posted by Rick Horvath, Stephen Leitzell, and Eric Siegel, Dechert LLP, on
Wednesday, February 26, 2025
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Rick Horvath, Stephen Leitzell, and Eric Siegel are Partners at Dechert LLP. This post is based on a Dechert memorandum by Mr. Horvath, Mr. Leitzell, Mr. Siegel, Sarah Kupferman, and Stephen Pratt, and is part of the Delaware law series; links to other posts in the series are available here.

Key Takeaways

  • Delaware Supreme Court reaffirms that “the test for actual control by a minority stockholder is not an easy one to satisfy.”
  • Supreme Court makes clear that control by a minority stockholder is “not presumed.”
  • Supreme Court’s decision indicates that a special committee of independent directors, and not the full suite of MFW-procedures, may suffice to restore the business judgment rule to an interested transaction with a minority stockholder who is a potential controller.
  • If Oracle is expanded to allow for a special committee to restore the business judgment rule when a minority stockholder is alleged to have control, such a result would reduce litigation risk and provide for greater deal certainty.

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What Directors Should Know About the 2025 Proxy Season

Posted by Jamie Smith and Robyn Bew, EY, on
Tuesday, February 25, 2025
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Jamie C. Smith is a Director, and Robyn Bew is Director of the Americas Center for Board Matters, at EY. This post is based on their EY memorandum.

Governance is a shared investor priority in an increasingly fractured proxy landscape

As companies prepare for the 2025 proxy season, the EY Center for Board Matters has identified key areas of investor focus and shifts in the proxy landscape that could impact proxy voting results and shape engagement this year.

These findings are based on conversations we had with governance specialists from institutional investors representing US$55 trillion in assets under management. Based on our conversations with investor stewardship leaders, here are developments to watch heading into proxy season 2025.

  1. In a rapidly changing business context, investors’ expectations about company priorities are evolving. While climate and talent remain top focus areas, a growing number of investors want companies to prioritize technology, capital strategy and political risk management.
  2. Some investors are increasing their focus on board quality and governance, while artificial intelligence (AI) continues to accelerate as an engagement topic.
  3. After multiple years of convergence, the investor community is diverging on sustainability stewardship as asset owners and managers adapt to changes in shareholder activism and growing scrutiny from stakeholders in a shifting US political environment.

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Sustainability and the Corporate Reporting System

Posted by Richard Barker (University of Oxford), on
Tuesday, February 25, 2025
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Richard Barker is a Professor of Accounting at the Saïd Business School at the University of Oxford. This post is based on his recent article forthcoming in the Journal of Accounting and Public Policy.

My paper explores foundational sustainability reporting concepts, including what corporate sustainability reporting is, what form it should take, what difference it makes and what role ought to be played by reporting standards.

The starting point is the Brundtland definition of sustainable development (Brundtland, 1987) and the Sustainable Development Goals (SDGs; UN, 2015). These have two implications for the corporate sector. First, to the extent that corporations provide the goods and services with which society meets its needs, there is public interest in the ongoing financial viability (and therefore profitability) of the corporate sector. Second, to the extent that the private economic incentives of corporations (and their investors) are realised at the expense of sustainability goals (including at a cost to future generations), there is conflict between the interests of society and those of investors and others with beneficial interests in corporate activity.

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Delaware Corporate Law: Recent Trends and Developments

Posted by Howard L. Ellin, Edward B. Micheletti, and Jenness E. Parker, Skadden, Arps, Slate, Meagher & Flom LLP, on
Tuesday, February 25, 2025
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Howard L. Ellin, Edward B. Micheletti and Jenness E. Parker are Partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

On January 28, 2025, Skadden hosted a webinar on recent developments in Delaware corporate law. Skadden partners Howard Ellin (Mergers and Acquisitions/New York), Ed Micheletti (Litigation/Wilmington) and Jenness Parker (Litigation/Wilmington) discussed:

  • Numerous decisions and trends in books and records requests
  • Sale process transactions
  • Controlling stockholder issues
  • Derivative litigation, including Caremark claims and special litigation committee developments
  • Advance notice bylaws

Below are high-level takeaways.

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Demonstrating Alignment of CEO Pay and Performance

Posted by Ira Kay and Max Jaffe, Pay Governance LLC, on
Monday, February 24, 2025
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Ira Kay is a Managing Partner and Mike Kesner is a Partner at Pay Governance LLC. This post is based on their Pay Governance memorandum.

Introduction

Realizable pay (“RP”) is composed of cash compensation paid (e.g., salary, actual bonus awards and payouts of cash-based long-term incentives) and the value of equity awards using the stock price at the end of the assessment period. RP assesses outcome-based compensation and has long been the “gold standard” for demonstrating shareholder aligned pay for performance. RP incorporates stock price performance, which is critical because the majority of executive pay opportunity is equity-based compensation. However, such analyses have generally not been extensively used and, if performed, are not typically disclosed in the proxy. This all changed with the SEC’s finalization of the Pay Versus Performance (PVP) rules, which were mandated under The Dodd-Frank Wall Street Reform and Consumer Protection Act. The PVP rules became effective for companies with fiscal years ending on or after December 16, 2022; after a 2-year phase-in period, companies are now required to compare the compensation actually paid (CAP) to the CEO and the average of the other NEOs to the company’s total shareholder return (TSR) and other financial measures over a 5-year period (3 years for Smaller Reporting Companies).

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Rethinking Shareholder Contracting: The Design of Corporate Altering Rules

Posted by Sarath Sanga (Yale Law School) and Gabriel Rauterberg (Michigan Law School), on
Monday, February 24, 2025
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Sarath Sanga is a Professor of Law and Co-Director of the Center for the Study of Corporate Law at Yale Law School, and Gabriel Rauterberg is a Professor of Law at the University of Michigan Law School. This post is based on their recent article forthcoming in Yale Journal on Regulation, and is part of the Delaware law series; links to other posts in the series are available here.

Delaware corporate law has stepped into uncharted territory. The spark came from West Palm Beach Firefighters’ Pension Fund v. Moelis (Del. Ch. 2024), where a shareholder agreement handed near-total veto power to a controlling shareholder, eclipsing the board’s authority. Even among the shareholder agreements adopted by public companies, the Moelis agreement was unusually extreme. The Chancery Court struck it down as inconsistent with Delaware’s commitment to board-centric governance under Section 141(a). But within months, the legislature countered with the new Section 122(18), enabling precisely such contractual arrangements—with no requirement for the broad shareholder processes that normally accompany major governance changes. This dramatic sequence has reignited a fundamental debate in corporate law: Whether core features of corporate governance should remain mandatory and inviolable, or whether sophisticated parties should be free to contract around them as they see fit.

In a new paper, Altering Rules: The New Frontier for Corporate Governance, we argue that today’s debates over shareholder contracting need to be reoriented. The current challenge, we argue, lies not in choosing between rigid mandatory rules or unfettered contractual freedom, but in appropriately designing the mechanisms—the altering rules—that structure how corporations opt out of default arrangements. These rules do far more than simply make changes easier or harder. Instead, they promote distinct bargaining environments that shape how insiders negotiate over changes to governance. As a result, they affect both the potential for innovation and the risk of opportunism.

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Takeaways from the Pause on Foreign Corrupt Practices Act Enforcement

Posted by Kyle Clark, Brendan F. Quigley, and Bridget Moore, Baker Botts LLP, on
Monday, February 24, 2025
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Kyle Clark, Brendan F. Quigley, and Bridget Moore are Partners at Baker Botts LLP. This post is based on a Baker Botts memorandum by Mr. Clark, Mr. Quigley, Ms. Moore, Derek Cohen, and Jennifer Berger.

On February 10, 2025 President Trump issued an executive order titled “Pausing Foreign Corrupt Practice Act Enforcement to Further American Economic and National Security.” The order directs the DOJ to halt Foreign Corrupt Practices Act (FCPA) investigations and enforcement actions for a 180-day review period. This is the first pause of FCPA enforcement and investigations since the statute was passed in 1977.

According to the executive order and accompanying fact sheet, this significant policy shift aims to address concerns that “overexpansive and unpredictable” FCPA enforcement creates “an uneven playing field” for U.S. companies that threatens national security. The executive order asserts that “the FCPA has been systematically, and to a steadily increasing degree, stretched beyond proper bounds and abused in a manner that harms the interests of the United States.” The order states that current enforcement practices targeting “routine business practices in other nations” waste prosecutorial resources and “actively harm[] American economic competitiveness and, therefore, national security.”

In light of these concerns, the Order implements a 180-day pause on FCPA investigations and enforcement actions. During the pause, the DOJ shall (i) review its guidelines and policies on FCPA investigations and enforcement actions; (ii) abstain from initiating any new investigation or enforcement action unless United States Attorney General, Pamela Bondi determines an individual exception is appropriate; (iii) review all existing investigations and enforcement actions issues and “take appropriate action [] to restore proper bounds on FCPA enforcement and preserve Presidential foreign policy prerogatives”; and (iv) issue updated guidelines and policies to “promote the President’s [] authority to conduct foreign affairs and prioritize American interests, American economic competitiveness [], and the efficient use of Federal law enforcement resources.”

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SEC Staff Reinstates Traditional Approach to Interpreting the Shareholder Proposal Rule

Posted by Ronald Mueller, Elizabeth Ising, and Thomas Kim, Gibson, Dunn & Crutcher LLP, on
Sunday, February 23, 2025
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Ronald O. Mueller, Elizabeth A. Ising, and Thomas J. Kim are Partners at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn memorandum by Mr. Mueller, Ms. Ising, Mr. KIm, Lori Zyskowski, Julia Lapitskaya, and Geoffrey Walter.

On February 12, 2025, the Division of Corporation Finance (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) published Staff Legal Bulletin No. 14M (“SLB 14M”), which sets forth Staff guidance on shareholder proposals submitted to publicly traded companies under Exchange Act Rule 14a-8. SLB 14M rescinds Staff Legal Bulletin No. 14L (“SLB 14L”) (which was issued in November 2021) and addresses a number of interpretive issues in a manner that draws heavily from prior statements by the Commission interpreting Rule 14a-8.

SLB 14L was widely viewed as creating an “open season” for shareholder proposals.[1] During the 2022 proxy season following the issuance of SLB 14L, the number of shareholder proposals submitted to companies surged, with those addressing environmental topics up over 50% and proposals addressing social policy issues increasing by 20%. At the same time, the overall success rate for no-action requests plummeted to an all-time low of 38%, a drastic decline from success rates of 71% in 2021 and 70% in 2020. As a result, many institutional shareholders, who typically do not submit Rule 14a-8 proposals but must devote time and resources to review and vote on shareholder proposals submitted by others to companies in which they have invested, have commented that the quality and utility of shareholder proposals have declined.

SLB 14M heralds a return to a more traditional administration of the shareholder proposal rule, particularly as it relates to interpreting the “ordinary business” exception under Rule 14a-8(i)(7), reinvigorates the economic relevance exclusion under Rule 14a-8(i)(5), and reinstates in part interpretive positions discussed in Staff Legal Bulletins issued by the Staff during the tenure of Commission Chair Jay Clayton. SLB 14M states that companies may supplement previously filed no-action requests to exclude shareholder proposals, or submit new no-action requests, based on the standards set forth in SLB 14M, and that the Staff will apply the standards outlined in SLB 14M when responding to pending or subsequently filed no-action requests.

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