Investors in Alphabet Inc., the parent company of Google, voted down all proposed resolutions at on Wednesday’s shareholder meeting, including one that would have made the compensation of senior executives partly dependent on the company making progress toward specific diversity and inclusion goals. The proposal was opposed by Alphabet management, Reuters reported on Wednesday, which sank the resolution as insiders have effective voting control of the company. Google co-founders Larry Page and Sergey Brin hold supervoting shares in Alphabet that enable them to defeat any shareholder resolution they don’t approve of. Google insists that its existing commitments to diversity are sufficient:
Eileen Naughton, who leads Google’s HR operations, said the company remains committed to an internal goal to reach “market supply” representation of women and minorities by 2020, which could help bring hiring in line with the diversity of the candidate pool.
Another resolution aimed at getting Google to provide investors more information about its efforts to moderate user-generated content on the platforms it owns, including YouTube, was also voted down on Wednesday.
The proposal related to diversity was put forward by the activist investment fund Zevin Asset Management and supported by a group of Google employees who have expressed concern about how committed the company really is to being an inclusive environment for everyone who works there. One of those employees, engineer Irene Knapp, addressed Wednesday’s shareholder meeting with a statement that stressed the urgency of addressing ongoing problems in Google’s culture:
A group of Google employees has teamed up with activist investors in the tech giant’s parent company, Alphabet, to push a proposal at a June 6 shareholder meeting that would make executive compensation at Google contingent on the company meeting certain diversity goals, Kate Conger reported at Gizmodo last week. Alphabet opposes the resolution and has recommended a vote against it:
Google and Alphabet have maintained that they aren’t experiencing a diversity crisis but are rather dealing with complaints from a few disgruntled employees. A Google spokesperson declined to comment on the shareholder proposals, but the company also argued in its proxy statement that the proposal wouldn’t have any meaningful impact, even if it were approved, because Alphabet CEO Larry Page receives a base salary of only $1 per year and is not compensated based on performance.
But Zevin Asset Management, the investment firm that drafted the proposal, says that it’s intended to apply to all of the company’s executives, not just Page. “Anyone whose compensation is reviewed in the proxy, people like Sundar [Pichai, Google’s CEO], we are thinking about them, too,” said Pat Miguel Tomaino, the director of socially responsible investing at Zevin. “If this proposal gets a high vote and the board moves to implement it, we expect they would implement it for the people for whom it’s relevant.” In focusing its response solely on Page’s compensation, Alphabet is avoiding the bigger issues at stake, Tomaino added.
Although Google maintains that it is a leader in diversity and inclusion among Silicon Valley tech companies, it has faced scrutiny in the past year over its slow progress toward diversity goals and allegations of discriminating against women in pay and promotions. A pay equity audit demanded by another activist investor, Arjuna Capital, failed to satisfy Arjuna’s questions and compel it to withdraw a resolution demanding that the company report on the risks it faces from emerging public policies on gender pay equity.
Employers in India are abandoning the traditional practice of across-the-board annual raises to more targeted compensation strategies in which employees are increasingly expected to earn their raises through high performance or professional development, Saumya Bhattacharya reports at the Economic Times:
Last month, when Aon India Consulting announced the findings of its salary increase survey for 2017-18, average increment was estimated to be 9.4% for the year, almost the same as last year. From 2014 to 2018 (projections), average salary increment has declined from 10.4% to 9.4% — with the focus on performance becoming sharper each year. With the ability to learn new skills getting added to the high-performance matrix, the definition of top performers is also set to change.
Top performers, according to the new definition, would get an average salary increase of 15.4%, about 1.9 times that of an average performer, said the survey. … Experts say the phase of a large chunk of employees getting 14-15% increments is over. Ten years ago, you would have 20% of the organisation categorised as high performers. This has shrunk to 7.5% of the population in a company, they add.
In the 1993 federal budget, the administration of then-US President Bill Clinton created a rule that capped the tax deductibility of top executives’ compensation at $1 million, unless that compensation was “performance-based.” While Clinton had campaigned on the cap as a means of reducing the growth of CEO pay packages, the policy backfired and caused them to grow as companies shifted executive compensation into stock options and performance bonuses, taking advantage of the loophole.
The question of how to measure CEO performance for the purposes of calculating their paycheck (or whether to do so at all) has become a matter of significant debate, driven by the realization that it has not moderated the growth of pay among CEOs and other top-dollar members of the C-suite. The tax reform bills Republicans are currently trying to push through Congress propose to eliminate this loophole, which would raise $9.3 billion in tax revenue over a decade, but the Washington Post’s Jena McGregor points out that closing the loophole may not rein in the growth of executive pay packages just because creating it helped them grow:
Executive pay experts and activists said in interviews that companies are unlikely to severely limit the size of their CEOs’ compensation just because a big portion of it — the vast majority of those multimillion-dollar packages are paid in incentive-based pay — is no longer deductible. …
Surveys of salary budget projections for 2018 show that US employers are planning to hand out raises of 3 percent on average, similar to the previous few years. The latest survey from Willis Towers Watson concurs in this regard, Bloomberg’s Rebecca Greenfield reports, finding that 98 percent of employers plan to raise salaries this year, with most employees getting a raise of around 3 percent. However, WTW also found that top performers are getting a bit more than the rest:
Employers are cautious about giving raises, and even as some complain of trouble hiring as the job market tightens, few feel pressure to pay their employees more, said Sandra McLellan, a researcher at Willis Towers Watson. A sliver of employees will, however, see a bigger bump on their pay stubs this year. So-called star performers, those who score highest in performance ratings, can expect, on average, a 4.5 percent salary bump.
Equilar’s 2017 CEO Pay Trends report shows that the compensation packages of CEOs at the US’s 500 largest public companies rose by 6.1 percent in 2016 to a median of $11 million, representing the largest increase at the top of the payroll since 2013:
“Median CEO pay packages consistently climbed each year over the five-year study period examined for this report,” said Matthew Goforth, Equilar Research Manager and lead author of the report. “At the same time, boards continue to tweak incentive pay to align CEO interests with both company strategy and shareholder returns over the long term.”
During the study period, a growing number of companies began granting performance-based long-term incentives (LTI) to their chief executives, reaching 81.5% of Equilar 500 companies in 2016. Meanwhile, the Equilar report found that the prevalence of CEOs receiving time-based stock options fell to a low of 50.0% in 2016.
The question of whether and how to reward CEOs on the basis of their companies’ financial performance has been the subject of much debate in recent years, with critics of pay-for-performance schemes arguing that incentive pay packages for CEOs are impossible to design in a way that actually improves their performance and can even backfire by incenting CEOs to focus on the short term, while proponents of these schemes counter that they are effective when designed properly and necessary to attract and motivate talent at the top of the corporate pyramid.
One question that comes up frequently in this conversation is how CEO performance should be evaluated to ensure that incentive structures are rewarding the right choices and behaviors on the part of the chief executive. At the Wall Street Journal, Theo Francis and Joann Lublin look at a new analysis from the proxy advisory firm Institutional Shareholder Services, showing that 250 S&P 500 companies last year paid their CEOs cash incentives above target, and 150 below. Overall, ISS says, recent data indicate that large companies may be setting their performance targets at levels they know their CEOs can meet, rather than challenging them to exceed expectations:
For two-thirds of S&P 500 companies, the overall pay CEOs received over the past three years proved higher than initial targets, according to an ISS analysis. That is typically because performance triggers raised the number of shares CEOs received, or stock gains lifted the value of the original grant. On average, compensation was 16% higher than the target.