Corporate governance experts believe Wal-Mart Stores’ recent decision to tie executive bonuses to compliance objectives could be a bellwether for how other large, multinational companies hold management accountable should their firms run afoul of certain regulations.
The retail giant has undergone an overhaul of its compliance operations following a federal investigation into bribery allegations in Mexico last year, and has recently added provisions to its executive incentive compensation program that will tie bonus payments to compliance objectives, according to a proxy statement released on April 22, 2013….
Compliance-based objectives have already been adopted by heavily regulated industries such as financial services and pharmaceuticals, but are rarely seen in other American industries, says Alan Johnson, a financial services comp expert and managing director of Johnson Associates.
Johnson says that it could be difficult to be very specific and objective toward exact compliance standards and goals, as many of the regulation and compliance issues could be seen as politically motivated.
Lots of companies talk about making compliance and ethics a priority. Walmart is putting its money where its mouth is.
The retail giant announced last month that it will soon begin basing a portion of compensation for top executives, including CEO Michael Duke, on the company’s ability to meet compliance goals. If top executives don’t meet compliance objectives, they risk having their annual bonuses reduced….
By adopting incentives to meet compliance goals, rather than penalties for compliance infractions, Walmart is ahead of the curve. “Most executive compensation or bonus plans will have subjective elements,” says Alan Johnson, managing director of Johnson Associates, an executive pay consulting firm based in New York City. “There will be wording in there that you have to comply with laws and regulations, but it has always been more about after the fact—after there is a problem—instead of upfront and proactive. Compliance should be holistic, not just following the rules, but going beyond the rules and avoiding problems.”
What’s the difference between a media mogul and a chief executive elsewhere in the business world? About $10 million in compensation, give or take.
Leaders in other industries may be well paid, but as the accompanying chart shows, they earn far less than their media counterparts.
Consider: the top 20 companies in the United States ranked by market capitalization include no media companies. But according to figures assembled for The New York Times by Equilar, which compiles data on executive compensation, media companies employ seven of the top 20 highest paid chief executives.
As investment consultants and managers launch outsourced CIO (OCIO) services to meet institutions’ demands, consultant relations professionals who woo consultants on behalf of managers have been left with a very different job description.
Consultant relations professionals, who once had the sole objective of servicing investment consultants in the hopes of winning business from their institutional clients, now find themselves in a role more similar to that of an institutional sales professional, either selling their own OCIO services to consultants or hoping to land a spot on an investment consulting firm’s OCIO platform….
Compensation expert Alan Johnson, managing director of Johnson Associates, says that complications and additional responsibilities brought on by the surge in OCIO demand has actually frustrated some consultant relations professionals who feel they aren’t being compensated for the increased assets they’re bringing to their firms as a result of OCIO sales. But if they can find a way of tracking their contribution, he says there may be more room for discussion over their future pay packages – as well as their recognition at their firms.
“Many consultant relations professionals would like a commission but in that [OCIO] world it’s harder to do,” Johnson says. “You work for a very long time to get results and when results do come, it’s hard to quantify they are do. It’s more of a base [salary] and bonus structure. If that really takes hold and brings in a lot of revenue, it will be easier to track. It will lead to more of a commission kind of approach.”
RELAX. Sit back. And forget, for a moment, those pesky shareholders and bothersome boards, the regulations, the investigations and all the other headaches of being a chief executive today.
Dodd-Frank rules? Securities and Exchange Commission lawyers? Leave them behind. And let yourself sink into the buttery leather seat of your corporate jet as it soars through the clouds.
That’s what Steve Wynn did. As chief executive of Wynn Resorts, he sat back and enjoyed more than a million dollars’ worth of personal travel last year on his company’s private jet.
A proposed European Union cap on managers’ bonuses is likely to hit U.S.-based staff at institutional asset managers, experts say, regardless of whether those managers have E.U. arms.
Salaries at asset managers may be subject to greater scrutiny, with compensation deferred over longer periods and fiercer competition for jobs, as E.U. asset manager staff flee to the U.S. and U.S. managers are pressured to ensure parity between their U.S. and E.U. pay practices….
The rules are not yet confirmed, and serve a starting point for future negotiations. The legislative package is expected to pass through European Parliament in mid-April. But uncertainty for the future concerns many, particularly considering this latest move was unpredicted. “This is just mean spirited. This is just pitchfork and flares,” says Alan Johnson, managing director of compensation specialist Johnson Associates. “If they’re willing to do this, what’s next?”
The European Union appears well on its way implementing strict caps on banker bonuses, with finance chiefs for 26 of the 27 EU nations backing the proposed rules. The caps have ruffled many a feather on both sides of the pond, as the rules also apply to Americans working for EU banks as well as the U.S. units of European banks.
Manning & Napier, an asset manager with $45 billion under management, has devised an unorthodox way of compensating its analysts, penalizing them for selections that cause underperformance in client portfolios and carrying these penalties forward into future years. It says the method more closely links analyst goals with institutional investors, but experts disagree….
“It is very demotivating to carry baggage into the future, particularly as an analyst, as you gave the recommendation but you didn’t buy it,” adds Alan Johnson, managing director of compensation expert Johnson Associates.
However, the analysts are also rewarded for how successfully they pitch these ideas to portfolio managers for inclusion in client strategies, how well the company performs and qualitative measures, such as communication and team work. It is hard to measure not only the investment side but also the benefits of an analyst’s negative recommendations, or how much an analyst saved by not recommending a certain stock, says Johnson. “It’s always imperfect how to measure, although firms try very hard,” he adds.
Morgan Stanley’s reported move to defer 100% of 2012 bonuses for high-earning employees is the crescendo of a trend of big banks deferring more pay in recent years. It’s the second straight year of big deferrals at Morgan Stanley, which a year ago held back 75% of bonuses for traders, investment bankers, and other high earners after having been at the 40% level the previous two years.
U.S. companies may be paying out big dividends before tax rates rise next year, but for now they’re holding the line with executive bonuses. “Politically it would be a disaster,” said Alan Johnson, CEO of Johnson Associates.