Will Pay Ratio Disclosures Tell Investors What They Want to Know?

Will Pay Ratio Disclosures Tell Investors What They Want to Know?

Public companies in the US recently began publishing the ratios between the pay of their CEO and that of their median employee in compliance with a regulation adopted by the Securities and Exchange Commission in 2015 that went into effect in the 2017 fiscal year. The regulation, prescribed by the 2010 Dodd-Frank financial reform legislation, had been a potential target for revision, or reversal by the Trump administration, but major institutional investors, particularly activist funds, pressured the SEC not to delay or discard the rule.

As the due date for disclosure approached, executives expressed anxiety about how to communicate these figures to their employees, as well as how the media and shareholders would react. With regard to employees, the concern was not so much that they would learn their CEO was earning an outrageously large salary, but more that half of them were about to learn that they earned less than the median employee and would want to know why.

So far, over 500 companies have published their disclosures, and according to an analysis last month by ISS Analytics, “the numbers have landed all over the map,” from 1.87 for Berkshire Hathaway CEO Warren Buffett, to 2,526 for Aptiv PLC’s Kevin Clark (the median ratio for S&P 500 companies was 166:1). The SEC rule requires companies to compare salary alone, so the ratios don’t account for what CEOs earn from capital gains and dividends.

Because of this limitation, David McCann recently commented at CFO, the rule isn’t as helpful to investors as it’s supposed to be, as it allows some companies to massively undercount how much money their CEOs really make. McCann points to the examples of the private equity firms Apollo Global Management, which reported that its CEO Leon Black was paid $250,888 last year, and Carlyle Group, whose founding co-CEOs David Rubenstein, William Conway, and Daniel D’Aniello each earned $281,315. These numbers are only slightly higher than the pay of the hedge funds’ median employees, but, McCann argues, they are also meaningless:

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Juno Abandons Stock Awards for Drivers After Gett Acquisition

Juno Abandons Stock Awards for Drivers After Gett Acquisition

Juno is one of several ride-sharing services that emerged last year as more “driver-friendly” alternatives to Uber and Lyft. The New York City-exclusive startup courted drivers with an equity program that offered them restricted stock units if they spent 30 hours a week or more using the platform, and in turn marketed itself to customers as an ethical diamond in the rough of the gig economy. In Juno’s model, values-conscious riders would pay a bit more to know that their driver was being paid fairly, better rewards would attract better drivers, and the equity they accrued would afford them some financial stability. It was a prime example of HR as PR, especially for a competitor to Uber, which has faced some controversy over how it treats its drivers.

Last week, however, Juno announced that it was being acquired by Gett, a larger and more established ride-hailing company, for $200 million. Drivers, however, won’t be seeing much of that money, Recode’s Johana Bhuiyan reported, as Juno did away with the scheme as part of the acquisition deal:

Drivers who’ve already earned shares would be cashed out. Several of the drivers who forwarded their emails to Recode are receiving around $100 for their shares, regardless of how many shares they had accumulated. One had roughly 1,600 shares, another more than 3,500 and another had more than 6,000.

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Wells Fargo Board Opts for Clawbacks in Wake of Scandal

Wells Fargo Board Opts for Clawbacks in Wake of Scandal

Wells Fargo’s recent fake-accounts scandal led to demands from critics and members of Congress that the bank claw back pay from Carrie Tolstedt, the retiring executive who led the unit where the alleged misconduct occurred, as well as CEO John Stumpf. On Tuesday, the bank’s board decided to do just that, according to the Associated Press:

The independent directors at the nation’s second-largest bank said Tuesday that Stumpf will forfeit $41 million in stock awards, while former retail banking executive Carrie Tolstedt will forfeit $19 million of her stock awards, effective immediately. Both are also giving up any bonuses for 2016, and Tolstedt will not receive any severance or any other compensation in connection with her retirement, the bank’s directors said. …

The San Francisco-based bank’s independent directors are also launching their own investigation, hiring the law firm Shearman & Sterling to assist them. In their announcement, the independent directors said the moves did not preclude the board from pursuing more salary clawbacks from Stumpf or Tolstedt, depending on the results of the investigation.

Clawbacks of this magnitude and at this level of management are practically unheard of at major financial institutions, as Dealbook‘s Stacy Cowley explains:

The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation. Many large companies have adopted clawback provisions at the urging of regulators and shareholder advocates, but boards have been hesitant to invoke them.

She goes on to remind that “only a relatively small portion of the compensation of Wells Fargo’s executives can be clawed back”:

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