With the first year of mandatory advisory votes on executive compensation just about complete, one of the most influential proxy advisory firms announced a new tool for investors and a proxy research firm has communicated that it is concerned about CEO pensions as it relates to governance risk ratings.
Institutional Shareholder Services on Monday in a press release said that it has launched an executive compensation database service for its clients. On the surface, it just sounds like another offering from “the leading provider of corporate governance solutions to the global financial community.” But knowing the cynics in many boardrooms, they will most likely see this as an aggressive move from a firm that while it is in the information business they don’t believe the firm is known for producing very accurate information.
In fact, the ISS head of global research apparently took that criticism into account as she announced the reason for the new service.
“In today’s highly scrutinized world of performance-based executive pay, shareholders need greater visibility into executive compensation and the various components driving CEO and/or NEO pay,” Martha Carter said. “As the industry leader, quality is the cornerstone of our research. By having our own data collection capability, we are in a better position to ensure quality, reliability and consistency in the data driving our recommendations, particularly around executive pay.”
The release points to the passage of the Dodd-Frank Act, specifically the Say on Pay rules instituted by the SEC, as a key reason investors need even more information when it comes to voting on the compensation plans. It pointed out that more than 30 companies had failed to get shareholder approval for their pay plans this proxy season. (It doesn’t point out that amount equals about 2 percent of all public companies that have to offer the votes.)
The actual database, which is available as of yesterday, includes historical CEO and NEO (named executive officer) compensation data for more than 4,000 U.S. companies, together with Say on Pay data for the most recent reported period. Salary, bonus, stock-based incentive awards, option grants, non-equity incentive plan payouts, deferred compensation payouts and other components of total compensation are included in the database.
The ISS media contact Cheryl Gustitus told me via e-mail that the service is available only to subscribers, and is not intended for the general public. It is available through an online tool or through a direct feed. Steven Harvey, the head of ISS, stated that this expansion will allow ISS to continue to be a major data supplier to financial institutions, market intermediaries and corporate issuers.
Meanwhile, Bob Monks, co-founder of The Corporate Library, told Michelle Lamb, a research associate for TCL, in a recent Q&A blog post that the traditional pension is now only retained by CEOs while employees are left to fend for themselves when it comes to saving for retirement. But Lamb brought up an even bigger point in a follow-up post where a reader asked the following question: should governance ratings consider whether or not a company has “real pensions.”
She went on to write that TCL and Governance Metrics International, which are now under the same umbrella, do not include that factor in their ratings. However, she did note that in its Executive Pay Scorecard the firm does issue red flags for excessive pension payments and whether or not the rated company has significantly underfunded its pension plan for all employees.
What might concern directors and management of companies known to offer real pensions to their CEOs and not their line employees is that Monks has taken note.
“Believe me, the chief executive officers of these companies kept the traditional pensions,” Monks told Lamb. “So this, to me, is perhaps the most unacceptable aspect of the transfer of wealth, and it is particularly irritating to me because nobody talks about it, thinks about it, or understands it.”
Maybe, just maybe, CEO pension plan data might be included in governance ratings yet. It may depend on how many investors feel empowered to do something about it.
Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…