Connell & Partners Compensation Committee Top 13 Concerns for 2013 09 17 12


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Connell & Partners Compensation Committee Top 13 Concerns for 2013 09 17 12

  1. 1. Connell & Partners Top 13 Concerns for Compensation Committees in 2013 – “Top 13 for 2013”September 17, 2012 300 TradeCenter, Suite 3460 | Woburn MA 018031 | T: 781.392.3600 |
  2. 2. IntroductionConnell & Partners is pleased to present its Top 13 Compensation Committee concerns for 2013, the “Top 13for 2013.” Our hope is that with this list, Compensation Committees can be better prepared to address thechallenges now as they get ready for compensation decision making this Fall and into Q1of 2013.If your firm would like any assistance with these issues, or other executive compensation matters, pleasecontact us on the web at or call or email Jack Connell, founder and ManagingDirector at 781-647-2739/ or Justin Fossbender, Principal Consultant 781-496-3406.Connell & Partners, Inc., ( a division of Gallagher Benefits Services (GBS), whichitself is a division of Arthur J. Gallagher (NYSE:AJG), is an executive compensation boutique consultingfirm with all of the advantages of a $2.5B public company behind it that meets all Dodd-Frank consultantindependence tests. Additional information on our firm can be found at the end of this presentation. 2
  3. 3. Top 13 Compensation Committee Concerns for 2013Dodd-Frank, Say-on-Pay and the lingering economic uncertainty are all having an impact on howCompensation Committees and Management teams make decisions about pay. Thus, it’s no surprise that theoversight responsibilities of Compensation Committees continue to evolve. As we begin the planning cyclefor compensation decisions for 2013, the following reflect our perspective on the Top 13 concerns forCompensation Committees in 2013 and in this continually changing environment.1. CEO Pay and Firm Performance  ISS reliance on Total Shareholder Return as the standard for firm performance  How to create incentive plans that are aligned with the business and also build toward TSR growth as an outcome, and yet are not solely based on TSR?2. Shareholder Optics/Say on Pay  Shareholder outreach/engagement becoming more of a routine practice  If we “failed,” did we do enough this time around to secure a passing vote? Even though we passed, are we sure we’ll pass again?  What is the “box of normal” that public companies have to operate within given today’s governance challenges and is this box getting smaller? 3
  4. 4. Top 13 Compensation Committee Concerns for 20133. Continuing Impact of Dodd-Frank  CEO Pay Ratio and Clawbacks – Final SEC Rules pushed out  But most companies not waiting until final rules are issued to implement clawbacks  Most taking wait and see approach on ratios  Assessing Compensation Consultant Independence  Dodd-Frank/Listing Exchange Criteria and Consultant Certification of those criteria4. Balancing Varying Perspectives (Shareholders, Shareholder Advocates, Executives, the Board, and the broader employee population)  How should market data be valued, referenced and utilized? One reference point among many (internal parity, performance, etc.)?  Pay disparity/Pay (in)equality (Top 1% vs. broader employees, is the gap growing or narrowing and why, and what are the implications?)5. The Selection of Performance Metrics for Bonus and LTI Plans  What are the appropriate metrics for our plans? How do we know?  How are risk and performance leverage balanced to ensure we can still drive the business?  How confident are we in our forecast in light of the continuing economic uncertainty?  Should we consider relative performance to mitigate the uncertainty? 4
  5. 5. Top 13 Compensation Committee Concerns for 20136. Proper Long-term Incentive (LTI) Vehicle selection and Usage  Are we using the right vehicles based on our business strategy?  Managing annual share pools and securing approval of new share requests from shareholders7. Peer Group Selection  Consistent, reasonable, appropriate, and defensible methodology – but no “one size fits all” approach  Knowledge of ISS methodology and relative alignment with your current practice  Should we have multiple peer groups for multiple purposes?8. Beyond ISS  Awareness of ISS and other shareholders and advocacy groups preferences for compensation practices (Glass Lewis, Fidelity, Vanguard, CalPERS, TIAA-CREF, AFL-CIO, etc.)  Their evaluation criteria for Say-on-Pay, share pool requests, and other voting criteria9. Executive and Board Stock Ownership and Holding Requirements  A market best practice in all public companies these days  Agreement that we should have them, but what’s the best approach (e.g., multiple of pay, retention ratio, hold until retirement, etc.)? 5
  6. 6. Top 13 Compensation Committee Concerns for 201310. Board of Director Compensation  Pay levels continue to increase based on supply and demand, increased time commitment and liability exposure  Alignment with time spent AND company performance?  Pay mix/LTI mix and vesting becoming simpler  Total cost of governance in absolute dollars (Board pay x # of Directors = Total Cost) and as percent of market cap (Total Cost / Market Capitalization) help to compare total cost across comparators11. CD&A Disclosure  Continuing to build on and illustrate the “story”  Pay for Performance – opportunity vs. realized and realizable pay  CEO Pay/Ratio  Response to Say-on-Pay results 6
  7. 7. Top 13 Compensation Committee Concerns for 201312. Managing the Compensation Committee’s Time and Agendas  With so much to focus on evolving practices, how does the Committee make the most effective use of its time and agendas?  Does our Committee calendar sufficiently outline the year’s agendas, including enough time for ad hoc or other unplanned business needs?  Revisiting the Committee Charter as responsibilities expand – Have we reviewed it annually and assessed it against the Committee’s actual undertakings?13. Employee Engagement, Succession Planning and Retaining your “Critical Talent”  The Compensation Committee continues to evolve into an “HR Committee”  Given the continuing challenges and regulatory landscape pushing more to “plain vanilla” plans, how do companies continue to strive for competitive advantage from their compensation plans without disenfranchising shareholders?  Do companies understand the strengths and weaknesses of their employment value proposition and can they be agile enough to respond if and when the market rebounds?  Review of total compensation philosophy in light of Compensation Committee Charter, HR Strategy, Compensation Strategy, and evolving regulatory and environmental framework to ensure it is aligned with the needs of the business. 7
  8. 8. Concluding ThoughtsWhile these “13 for 2013” are likely on the top of most Compensation Committee minds, they are notmeant to be exhaustive, as each company will have its own issues to address.These concepts are intended to illustrate the process and approach Committees can take to assess theirstrategies in light of the business environment and evolving external stakeholder views, determinetheir approach to pay and performance, articulate that approach through various channels, illustratethe results and implications to the various stakeholders, and ensure enough flexibility in plan designsto deliver competitive advantage and be able to adjust quickly as business needs warrant. 8
  9. 9. About Connell & Partners 9
  10. 10. About Connell & Partners Connell & Partners is a independently run division of Gallagher Benefits Services which itself is a division of Arthur. J Gallagher (NYSE:AJG) dedicated to providing independent, insightful, and innovative advice in all areas of executive compensation and Board of Directors remuneration. We meet all of the independence requirements required by the SEC under the Dodd-Frank Act. At a time of unprecedented scrutiny of executive compensation programs, Connell & Partners delivers the independent advice required in today’s demanding governance environment. We have no benefits brokerage, HR outsourcing, insurance, actuarial, or management consulting conflicts and no cross-selling pressures. Our consultants draw on their significant consulting and corporate experience to provide insightful advice to a wide range of clients, including venture-backed start-ups and Fortune 500 companies. Connell & Partners offers expertise that rivals our largest competitors with the innovative, tailored advice and exceptional client service associated with a dynamic consulting boutique. We welcome the opportunity to introduce you to our firm and to discuss how our services may benefit your organization. 10
  11. 11. Our Services We advise clients from an independent perspective on all matters of compensation, including:  Executive Compensation  Compensation Strategy and Philosophy Development  Board of Directors Compensation  Long-Term Incentive Plans  Short-Term Incentives / Bonus Plans, including Performance Metric Selection and Calibration  Executive Employment / Change-in-Control Agreements, including IRC §280G calculations  Corporate Governance, including Compensation Committee Charters  Pre- and Post-IPO Compensation  Merger & Acquisition Compensation Strategies, including Retention Plan Design 11
  12. 12. What Sets Connell & Partners Apart from Other Firms Alignment of Compensation Strategy and Business Strategy  We provide more than data. In order to deliver exceptional value, we take the time to understand your business and your competitive environment thoroughly. We then tailor our advice to your specific situation and unique needs. Based on our knowledge of your organization, we can employ a strategic approach to designing the compensation program that will best assist your organization in achieving key strategic and financial objectives and that will help create a competitive advantage for your firm. Partner Attention and Exceptional Client Service  At Connell & Partners, our consultants work with you over the entire project, from the initial stages to editing the final report. We constantly strive to exceed your expectations in order to develop a long-term relationship with you. A Results-Driven Approach  Our approach to executive compensation considers the forms of pay, the levels of pay, and the processes used to develop pay programs to appropriately link executive compensation with key results. Whether your focus is on recruiting, retaining, or incentivizing your key people, we develop total compensation programs tailored to your needs. Our customized compensation programs move pay-for performance from rhetoric to reality, while appropriately balancing the interests of shareholders and executives. Our Reports are Both Comprehensive and Comprehensible  Our reports are written with senior executives and Board members in mind. We provide cutting-edge quantitative analyses and highly detailed assessments without data overload. Our presentations are accessible and informative, designed to help you make key compensation decisions. 12
  13. 13. Why Connell & Partners? Since our inception in March 2005, Connell & Partners has worked with over 125 firms ranging from venture- backed start-ups to Fortune 500 firms. Our partners and senior staff all have significant national, cross-industry consulting experience. We have particular experience in the high technology, life science, and clean technology/alternative energy industries, having collectively consulted to over 200 companies in these industries. We work with many pre-IPO companies. We also have significant experience working in the business/professional services, consumer products, manufacturing, and financial services industries. Some of the firms that we have worked with include: 13
  14. 14. High Technology Clients Some of the firms in the High Technology, Hardware, and Software industries who we have worked with include: 14
  15. 15. Pre-IPO Clients Extensive experience in the pre-IPO / recent IPO arena.  We have collectively worked with over 100 pre-IPO firms in the last 10 years. Some of the firms that we have recently worked with in this space include: 15
  16. 16. Consultant Bios 16
  17. 17. Jack ConnellJack is founder and Managing Director of Connell & Partners, Inc. Jack is a nationally recognized expert inexecutive compensation, sales compensation, incentive plan design (short-term and long-term), linking payand company performance, and total reward strategy development. He works with organizations rangingfrom start-ups to Fortune 50 companies. He has worked on over 100 IPOs over the course of his consultingcareer. He focuses on industries with intensive human capital needs, including high technology and lifesciences. He also has special expertise in mergers and acquisitions, and turnarounds.Jack has significant experience at both consulting firms and corporations, and brings both perspectives to hiswork when advising clients. His consulting experience includes serving as Managing Director and NationalHigh Technology and Life Science Practice Head for Pearl Meyer and Partners, Managing Director and EastCoast Practice Leader for iQuantic, Managing Director and National Consulting Practice Leader of TheWilson Group, and President and Founder of Solutions at Work. His corporate experience includes serving asSenior Vice President of Global HR for Geac Computer; Senior Director of Compensation, Benefits, and HRISat Avid Technology and Stratus Computer; and various HR, and compensation and benefits roles at DigitalEquipment Corporation and Data General Corporation.He earned a Bachelors Degree in Economics from the University of Michigan and an MBA in OrganizationalBehavior and Corporate Strategy from the University of Michigan Ross Graduate School of Business. Jack hasalso been an adjunct professor at Bentley College and Babson College, and an instructor for WorldatWork.Jack has published more than 40 articles and book chapters, including articles in Forbes, WorldatWorkJournal, Chief Legal Executive, Mass High Tech, and Boston Business Journal. He has been quotedextensively in such publications as The Wall Street Journal, Business Week, CFO Magazine/, RedHerring, USA Today, The San Jose Mercury News, Corporate Governance News, Employee Benefits News,and Compliance Week. Jack speaks regularly at many national and regional conferences. 17
  18. 18. Justin FossbenderJustin is a Principal for Connell & Partners. He is responsible for client delivery and business development forthe firm.Justin brings a balanced perspective to clients, having both significant consulting and in-house, corporatesenior leadership experience. He has been responsible for client service, delivery and business developmenton the executive compensation consulting side at Hewitt, now AonHewitt, Fred Cook & Company, andWatson Wyatt (now Towers Watson). He has also led significant change management initiatives through hisleadership of the compensation, benefit, talent management and HR technology functions as Vice President ofTotal Rewards at Millipore Corporation, a $1.7B leading-edge Life Science Company, until Millipore’sacquisition by Merck, KGaA and then Senior Director of Total Rewards, HRIS and Talent Management atVCE, The Virtual Computing Environment Company, a joint venture between EMC, Cisco Systems andVMware focused on cloud computing.Through Justin’s consulting and in-house leadership experience, he has provided strategic advice and counselto Senior Management and Boards of Directors across all aspects of the executive compensation area,including compensation strategy and philosophy development, short- and long-term incentive plan design,M&A, employment arrangements, retention plan design, communications, and corporate governance.Justin graduated from Columbia University with a Bachelor of Arts degree. He then obtained a Juris Doctordegree from New York Law School. He is licensed to practice law in the state of New York. 18
  19. 19. David DreyfusDavid is a Managing Consultant for Connell & Partners. He is responsible for day-to-day project managementand quality assurance of our client deliverables and handles the day-to-day client interface as well.David began his career in the Business Analyst program at Capital One Financial Corp. He worked on theSales Strategy and Analysis team in the Point of Sale Finance Division in Framingham, MA. There hedesigned and implemented the sales compensation plans. He also worked on the Workforce Planning team atVistaprint, N.V. in Lexington, MA, a publically traded e-commerce company.David graduated from the Olin Business School at Washington University in St. Louis with a Bachelor ofScience in Business Administration. There he double-majored in Finance and Economics. 19
  20. 20. To Contact Us: Connell & Partners is a wholly-owned subsidiary of Gallagher Benefits Services (GBS), which is itself a division of Arthur J. Gallagher (AJG:NYSE), dedicated to providing independent, insightful, and innovative advice in all areas of executive compensation and Board of Directors remuneration. We meet all independence requirements of the Dodd-Frank bill’s rules for compensation consultants. Jack Connell Justin Fossbender David Dreyfus Managing Director Principal Consultant Managing Consultant 781.647.2739 781-496-3406 781.647.2722 Visit our website at & Partners, Inc. does not provide legal or financial advice nor provides tax or accounting services. Recommendations should be reviewed with appropriate tax, accounting, orlegal counsel. Connell & Partners, Inc. warrants that its services are performed by personnel possessing competency consistent with applicable industry standards. No otherrepresentation, express or implied, and no warranty or guarantee is included or intended in any report, opinion, deliverable, work product, document or otherwise. Furthermore, noguarantee is made as to the efficacy or value of any services performed or work product developed. THIS SETS FORTH THE ONLY WARRANTIES PROVIDED BY Connell &PARTNERS, INC. CONCERNING THE SERVICES AND RELATED WORK PRODUCT. THIS WARRANTY IS MADE EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, EXPRESSOR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, ADEQUACY, OROTHERWISE.Under US Internal Revenue Service standards (Circular 230), we are required to inform you that only formal, written tax opinions meeting the requirements of Circular 230 may be reliedupon by taxpayers for the purpose of avoiding tax-related penalties. Accordingly, this communication is not intended or written to be used, and it cannot be used, for the purpose ofavoiding tax-related penalties under the Internal Revenue Code. 20