THe introduction of the idea of equity effectiveness, applied to the underwater equity situation during the 2008-2009 financial crisis. Presented at multiple NASPP, GEO, and WorldatWork chapter meetings by Fred Whittlesey, Kiran Sahota, and Kathi Myers.
This presentation covers the realities of performance-0based equity in the Silicon Valley. Presenters includes professionals from Intel, eBay, Applied Materials and Performensation. Learn about the foundation and details of adding performance to equity compensation plans.
This document discusses pension risk to corporate sponsors from three perspectives: scale, impact, and risk. It provides examples measuring a UK company's pension exposure compared to industry medians across these dimensions. Metrics examined include liabilities/deficit as a percentage of market capitalization, impact on debt ratios, and risk measures like value-at-risk and contributions-at-risk. The document advocates developing a pension risk management framework to guide investment strategy in line with the sponsor's objectives and constraints. It also discusses incorporating sponsor credit risk into funding projections from the trustee perspective.
According to results of Callan Associates’ 2013 Risk Management Survey, more than half of fund sponsors (55%) say their risk management tools are effective at mitigating investment risk, but 14% see them as simply a means to improve risk identification and monitoring. One-third of respondents indicated they do not know yet the effectiveness of their risk management tools because they are new and untested in a true market crisis.
The survey found formal risk management processes are most prevalent at large funds. Half of the medium and small funds have adopted a risk management process or are doing so in 2013. Forty-two percent of respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments and foundations more often use in-house (proprietary) tools.
Corporate and public funds are embracing policy-level approaches to risk management more so than endowments and foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocations, while corporate funds favor liability-driven investing and funded status-based glide path de-risking.
Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and Callan observed higher levels of adoption of strategy changes across fund types. Public funds and foundations and endowments are most heavily implementing or considering real assets, opportunistic fixed income, absolute return and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk.
Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made rebalancing decisions based on risk management findings. Of those that have not done so, 82% do not plan to in the future.Public (31%) and large (25%) funds are the most likely to use tactical implementations going forward.
According to the survey, most funds (94%) do not have a formal risk budget, but explicitly address risk management in their plan governance via asset allocation, investment objectives and disciplined rebalancing.
The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due diligence/search (56%) and increased manager monitoring (52%). Twenty percent of respondents had not yet taken any actions based on risk management findings.
The survey was conducted in November 2012 and includes responses from 53 fund sponsors representing $576 billion in assets.
The document discusses the past, present, and future of equity plan design considerations. It outlines how equity plan design has evolved from being encouraged by Congress in the past to facing increasing pressure from regulatory constraints, investor activism, and accounting rules. Currently, equity plans must incorporate performance conditions, metrics tied to total shareholder return, and be designed to satisfy proxy advisors. Looking ahead, there is uncertainty around new Dodd-Frank regulations and the impact of another economic downturn, leading some companies to shift towards cash plans instead of equity. Threats from factors such as dilution concerns and skepticism towards employee ownership also endanger the future of equity compensation.
Institutional Shareholders and
Activist Investors
Professor David F. Larcker
Corporate Governance Research Program
Stanford Graduate School of Business
2011
Opportunities for Optimism? A New Vision for Value in Asset ManagementState Street
Asset managers are playing for high stakes. A rising market creates opportunities on multiple fronts, but the industry's optimism may be tested by new risks, changing client demands and non-traditional competitors. Our research identifies four emerging "value drivers" that may shape the industry's future success.
Shareholders Are Dissatisfied with CEO Compensation and Disclosure--Proxies Are Too Long, Difficult to Read.
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
In the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies.
This document summarizes the results of a 2013 survey of 38 executive search consulting firms on their equity structures and compensation models. Key findings include:
- 45% of firms are 100% founder-owned, while 55% have a mix of founder and other owners. Revenue generation is the most important factor in inviting new owners.
- Ownership is typically purchased from individual owners or the firm. Payment is often loan-based and structured over 1-5 years.
- Consultant compensation averages 45% of revenue generated and increases with performance. Bonuses make up a larger portion of pay for top performers.
- Advice to new firms includes making ownership and pay clearly performance-based and incentivizing business development.
This presentation covers the realities of performance-0based equity in the Silicon Valley. Presenters includes professionals from Intel, eBay, Applied Materials and Performensation. Learn about the foundation and details of adding performance to equity compensation plans.
This document discusses pension risk to corporate sponsors from three perspectives: scale, impact, and risk. It provides examples measuring a UK company's pension exposure compared to industry medians across these dimensions. Metrics examined include liabilities/deficit as a percentage of market capitalization, impact on debt ratios, and risk measures like value-at-risk and contributions-at-risk. The document advocates developing a pension risk management framework to guide investment strategy in line with the sponsor's objectives and constraints. It also discusses incorporating sponsor credit risk into funding projections from the trustee perspective.
According to results of Callan Associates’ 2013 Risk Management Survey, more than half of fund sponsors (55%) say their risk management tools are effective at mitigating investment risk, but 14% see them as simply a means to improve risk identification and monitoring. One-third of respondents indicated they do not know yet the effectiveness of their risk management tools because they are new and untested in a true market crisis.
The survey found formal risk management processes are most prevalent at large funds. Half of the medium and small funds have adopted a risk management process or are doing so in 2013. Forty-two percent of respondents employ proprietary and/or third-party risk measurement tools, such as software or data services. Usage of third-party tools is most prevalent at public funds, while endowments and foundations more often use in-house (proprietary) tools.
Corporate and public funds are embracing policy-level approaches to risk management more so than endowments and foundations. Public funds have implemented economic regime asset allocations, risk parity, and risk factor-based asset allocations, while corporate funds favor liability-driven investing and funded status-based glide path de-risking.
Strategy-level approaches to mitigate risk are easier to implement than those that alter the fund’s overall investment policy, and Callan observed higher levels of adoption of strategy changes across fund types. Public funds and foundations and endowments are most heavily implementing or considering real assets, opportunistic fixed income, absolute return and long/short equity. Corporate funds are also embracing absolute return, but long duration is the most favored strategy-level approach used to address risk.
Many fund sponsors wrestle with whether or not to tactically manage plan risk. Only 30% of sponsors have made rebalancing decisions based on risk management findings. Of those that have not done so, 82% do not plan to in the future.Public (31%) and large (25%) funds are the most likely to use tactical implementations going forward.
According to the survey, most funds (94%) do not have a formal risk budget, but explicitly address risk management in their plan governance via asset allocation, investment objectives and disciplined rebalancing.
The investment committee is the body most regularly tasked with deciding when to take action based on the findings of risk management tools. The most common actions taken were asset allocation changes (64% of respondents), manager due diligence/search (56%) and increased manager monitoring (52%). Twenty percent of respondents had not yet taken any actions based on risk management findings.
The survey was conducted in November 2012 and includes responses from 53 fund sponsors representing $576 billion in assets.
The document discusses the past, present, and future of equity plan design considerations. It outlines how equity plan design has evolved from being encouraged by Congress in the past to facing increasing pressure from regulatory constraints, investor activism, and accounting rules. Currently, equity plans must incorporate performance conditions, metrics tied to total shareholder return, and be designed to satisfy proxy advisors. Looking ahead, there is uncertainty around new Dodd-Frank regulations and the impact of another economic downturn, leading some companies to shift towards cash plans instead of equity. Threats from factors such as dilution concerns and skepticism towards employee ownership also endanger the future of equity compensation.
Institutional Shareholders and
Activist Investors
Professor David F. Larcker
Corporate Governance Research Program
Stanford Graduate School of Business
2011
Opportunities for Optimism? A New Vision for Value in Asset ManagementState Street
Asset managers are playing for high stakes. A rising market creates opportunities on multiple fronts, but the industry's optimism may be tested by new risks, changing client demands and non-traditional competitors. Our research identifies four emerging "value drivers" that may shape the industry's future success.
Shareholders Are Dissatisfied with CEO Compensation and Disclosure--Proxies Are Too Long, Difficult to Read.
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
In the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies.
This document summarizes the results of a 2013 survey of 38 executive search consulting firms on their equity structures and compensation models. Key findings include:
- 45% of firms are 100% founder-owned, while 55% have a mix of founder and other owners. Revenue generation is the most important factor in inviting new owners.
- Ownership is typically purchased from individual owners or the firm. Payment is often loan-based and structured over 1-5 years.
- Consultant compensation averages 45% of revenue generated and increases with performance. Bonuses make up a larger portion of pay for top performers.
- Advice to new firms includes making ownership and pay clearly performance-based and incentivizing business development.
Pension schemes in the UK include the basic state pension as well as contract-based and national employment savings pensions, with automatic enrolment requiring employers to enroll eligible employees into a pension scheme and make minimum contributions. A default option is the pre-selected pension investment used when an employee does not make a choice, and most employees end up in the default option due to inertia, apathy and lack of financial confidence. Reforms in 2012 aimed to increase private pension participation through mandatory automatic enrolment of eligible workers into pensions with default investment options in order to boost savings for retirement.
MOCH Advisory TechnologyOne Pitch - State FinalistOscar Haman
Evaluating TechnologyOne as a potential stock to buy
Completing this case involved:
- Valuing TechOne's intrinsic value of its shares through a DCF analysis
- Determining the main catalyst into which this buy will substantiate from
- Understanding the business line of TechnologyOne and their occupation in the market
- Relevant qualitative analysis on the risk, competitors and external economic drivers for TechOne
- Overall rationale as to why TechnologyOne should be bought
AI Use Expected to Increase in Risk and Compliance Efforts, But Few Have Ethi...Deloitte United States
According to a September 2019 Deloitte poll, nearly half of C-suite and other executives at organizations that use AI expect to increase its use for risk management and compliance efforts in the year ahead. Yet, few report that their organizations have an ethical framework in place for such AI use.
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
The survey found that on average funds spent 54 basis points of total assets to operate in 2012. External investment management fees represented 90% of total expenses, the largest portion. These fees have risen 55% since 1998. Non-investment management external advisor fees, the second largest expense, increased 115% over the same period. Overall, average total fund expenses have increased more than 50% since 1998.
Six trends are disrupting healthcare and health insurance: (1) the chronic disease crisis, (2) the move to outcomes and value-based care, (3) the rise of m-health technologies, (4) the big data revolution, (5) increased customer centricity, and (6) underwriting pressures. Payers, employers, and governments lack incentives to change long-term health behaviors. While change has begun, it has been slow and fragmented. Insurers also face challenges of limited customer data and information asymmetry despite new sources of health information.
Five Strategic Priorities: Generation and Transmission CooperativesScottMadden, Inc.
Generation and transmission cooperatives face complex challenges and must address five strategic priorities: (1) managing generation assets as asset profiles change, (2) ensuring grid security and reliability as NERC regulations evolve, (3) gaining access to capital markets as financing needs rise, (4) improving stakeholder management amid conflicting expectations, and (5) fostering economic development through long-term commitment and measurable objectives. The document outlines each priority in detail and provides contact information for the authors to learn more.
Bluegrass community bankers valuation jkd 18 08-27Mercer Capital
This document provides an overview and discussion of bank valuation from a presentation given at the 2018 Bluegrass Community Bankers Association Annual Convention. It discusses several topics related to bank valuation, including:
1) Factors that influence control premiums and marketability discounts in bank valuations.
2) How risk and growth expectations impact price-to-earnings multiples.
3) Key industry fundamentals and themes affecting bank valuations such as consolidation, digitalization, and net interest margin declines.
4) Performance and valuation metrics of large cap and small cap bank stocks compared to broader market indexes.
The document analyzes the foray of Australian banks into wealth management. It finds that while revenues have increased due to economic growth, profitability has been mixed. Separating wealth management divisions from core banking has been more successful than integration. Regulatory costs have also impacted profits. Overall, wealth management remains a viable strategy for banks if they can effectively manage regulatory requirements and control expenses.
This study examines the underlying components that determine the dividend policy statement of corporations in Nigeria. The study purposively select ninety-four (94) corporations out of the universe of companies listed in the Nigerian Stock Exchange. Financial ratios were extracted and computed from published annual audited financial reports spanning 2007 to 2017. This was informed by the ex-post facto research design adopted to observe key indicators of these corporations in retrospect. The panel regression analysis was used to explain the numerical phenomenon collated. The Durbin-Wu-Hausman specification test found the fixed effect model to be more suitable. The empirical results indicate that financial leverage has a significant negative impact on dividend payout; liquidity has an insignificant positive impact on dividend payout policy; profitability has an insignificant positive impact on dividend payout decision; and company size has a significant positive impact on dividend payout dicision. The study concluses that liquidity, profitability and company size are the determinants of the dividend policy of corporations in Nigeria. More specifically, company size was found to be a major determinant to the dividend policy statement of corporations in Nigeria. The study suggests that, corporations should sustain their liquid positions, asset base and profit levels at all times to meet the universe of desires of their shareholders.
With potentially costly environmental upgrades on the horizon and the need to increase capacity over the long term, capital needs for cooperatives are growing rapidly. At the same time, traditional sources of funding are being constrained. As cooperatives increasingly turn to the markets, how can they ensure their members continue to benefit from low capital cost?
This ScottMadden insight is the second in a series on “Five Strategic Priorities for Generation and Transmission Cooperatives.” The report summary can be found here: http://www.scottmadden.com/insight/516/five-strategic-priorities-for-generation-and-transmission-cooperatives.html.
To learn more, please visit www.scottmadden.com.
DC plans have largely failed to adequately prepare U.S. workers for retirement, leaving many relying solely on Social Security. By 2025, more employers are expected to adopt characteristics of successful pension plans to help employees create a fully funded retirement income stream. This includes improving investment governance, increasing savings contributions, utilizing more efficient portfolios, and providing tools to help employees translate savings into reliable monthly retirement income to replace lost pensions.
Most nonprofits are not satisfied with their investment processes and are taking on more risk than planned. While many have investment policies, there is often a disconnect between the policies and the actual investments made. This can jeopardize the organization's mission. Additionally, most nonprofits do not fully understand the fees and investment products they use. They also struggle to find advisors who act as fiduciaries. Governance over investments needs strengthening as well, such as setting term limits for finance committees. Nonprofit boards tend to be slower to change investment strategies and adopt new tools compared to individual board members' personal investments.
Five Trends Reshaping the Global Pension Fund IndustryState Street
This executive briefing explores how pension funds are adapting to the challenges of a new investment environment. The research presented in this report is based on an international State Street survey, conducted by the Economist Intelligence Unit in August 2014, of 134 senior executives in the pension fund industry.
The ES&G Accountability Forum (2013) provided participants and panelists with an opportunity to examine the question of how information (both financial and non-financial) can best be provided in a form that is useful to decision makers that are affected by, or have an affect on Canada’s companies.
This document captures key points made by panelists, their answers to questions posed, and the Forum’s participants’ table discussions. It is organized around each panel: investors, companies, evaluation organizations. We hope to encourage all groups to consider the advice and comments discussed at the Forum, and to take action on the outstanding questions and issues to improve the state of ES&G disclosure, analysis and investing that are highlighted on pages 9 & 10.
This year on September 23, 2014 in Calgary, many of these unanswered questions will be addressed at the ES&G Forum 2014: "Non-financial performance... A missed opportunity?"
Building on the last two years' discussions, participants will hear how investors and businesses are implementing innovative methods to manage investor demand for ES&G information. To learn more about & register for this year's ES&G Forum, please visit: http://bit.ly/esg-forum-2014
Multi Asset Endowment Investment StrategyTaposh Roy
The Farhampton Endowment manages a $200MM fund for the University of New York. Their mission is to generate financial resources for research and new programs through a diversified portfolio. They provide a 4.25% annual gift to the university. Their portfolio manager team oversees different asset classes including private equity, equities, hedge funds, bonds, cash, commodities, and real estate.
Given current economic and market conditions, they recommend a portfolio with 20% in stocks, 28% in hedge funds, 15% in cash, 10% in bonds, 10% in private equity, 10% in real estate, and 7% in commodities. This portfolio aims to weather uncertain markets with stable, profitable returns
In this rapidly changing global business environment—where cost is a true strategic differentiator—Deloitte’s first global cost management survey report provides an inside look at the practices and trends currently shaping the future of business, with detailed insights from more than 1,000 C-level executives and senior management in four major regions: the United States (US), Latin America (LATAM), Europe (EU), and Asia Pacific (APAC). http://deloi.tt/2kUWuaw
For the past seven years, the Global Chief Procurement Officer Survey has provided a global benchmark of the sentiment or procurement leaders and an insight into the key themes and challenges facing procurement, including market dynamics, value and collaboration, talent and leadership, and digital procurement. For more, visit http://deloi.tt/2Hce9V1.
The document discusses the problems facing equity compensation plans in volatile market conditions. It notes that options, RSUs, and performance plans have all gone "underwater" as stock prices have declined significantly. This has led to shareholder value losses, revenue reductions, and widespread layoffs. Questions are raised about restoring equity value through actions like option exchanges that may raise governance concerns. The status of various equity award types is assessed, and the need to redefine the purpose and effectiveness of equity compensation is discussed.
Pension schemes in the UK include the basic state pension as well as contract-based and national employment savings pensions, with automatic enrolment requiring employers to enroll eligible employees into a pension scheme and make minimum contributions. A default option is the pre-selected pension investment used when an employee does not make a choice, and most employees end up in the default option due to inertia, apathy and lack of financial confidence. Reforms in 2012 aimed to increase private pension participation through mandatory automatic enrolment of eligible workers into pensions with default investment options in order to boost savings for retirement.
MOCH Advisory TechnologyOne Pitch - State FinalistOscar Haman
Evaluating TechnologyOne as a potential stock to buy
Completing this case involved:
- Valuing TechOne's intrinsic value of its shares through a DCF analysis
- Determining the main catalyst into which this buy will substantiate from
- Understanding the business line of TechnologyOne and their occupation in the market
- Relevant qualitative analysis on the risk, competitors and external economic drivers for TechOne
- Overall rationale as to why TechnologyOne should be bought
AI Use Expected to Increase in Risk and Compliance Efforts, But Few Have Ethi...Deloitte United States
According to a September 2019 Deloitte poll, nearly half of C-suite and other executives at organizations that use AI expect to increase its use for risk management and compliance efforts in the year ahead. Yet, few report that their organizations have an ethical framework in place for such AI use.
2013 Callan Cost of Doing Business Survey: U.S. Funds and TrustsCallan
The survey found that on average funds spent 54 basis points of total assets to operate in 2012. External investment management fees represented 90% of total expenses, the largest portion. These fees have risen 55% since 1998. Non-investment management external advisor fees, the second largest expense, increased 115% over the same period. Overall, average total fund expenses have increased more than 50% since 1998.
Six trends are disrupting healthcare and health insurance: (1) the chronic disease crisis, (2) the move to outcomes and value-based care, (3) the rise of m-health technologies, (4) the big data revolution, (5) increased customer centricity, and (6) underwriting pressures. Payers, employers, and governments lack incentives to change long-term health behaviors. While change has begun, it has been slow and fragmented. Insurers also face challenges of limited customer data and information asymmetry despite new sources of health information.
Five Strategic Priorities: Generation and Transmission CooperativesScottMadden, Inc.
Generation and transmission cooperatives face complex challenges and must address five strategic priorities: (1) managing generation assets as asset profiles change, (2) ensuring grid security and reliability as NERC regulations evolve, (3) gaining access to capital markets as financing needs rise, (4) improving stakeholder management amid conflicting expectations, and (5) fostering economic development through long-term commitment and measurable objectives. The document outlines each priority in detail and provides contact information for the authors to learn more.
Bluegrass community bankers valuation jkd 18 08-27Mercer Capital
This document provides an overview and discussion of bank valuation from a presentation given at the 2018 Bluegrass Community Bankers Association Annual Convention. It discusses several topics related to bank valuation, including:
1) Factors that influence control premiums and marketability discounts in bank valuations.
2) How risk and growth expectations impact price-to-earnings multiples.
3) Key industry fundamentals and themes affecting bank valuations such as consolidation, digitalization, and net interest margin declines.
4) Performance and valuation metrics of large cap and small cap bank stocks compared to broader market indexes.
The document analyzes the foray of Australian banks into wealth management. It finds that while revenues have increased due to economic growth, profitability has been mixed. Separating wealth management divisions from core banking has been more successful than integration. Regulatory costs have also impacted profits. Overall, wealth management remains a viable strategy for banks if they can effectively manage regulatory requirements and control expenses.
This study examines the underlying components that determine the dividend policy statement of corporations in Nigeria. The study purposively select ninety-four (94) corporations out of the universe of companies listed in the Nigerian Stock Exchange. Financial ratios were extracted and computed from published annual audited financial reports spanning 2007 to 2017. This was informed by the ex-post facto research design adopted to observe key indicators of these corporations in retrospect. The panel regression analysis was used to explain the numerical phenomenon collated. The Durbin-Wu-Hausman specification test found the fixed effect model to be more suitable. The empirical results indicate that financial leverage has a significant negative impact on dividend payout; liquidity has an insignificant positive impact on dividend payout policy; profitability has an insignificant positive impact on dividend payout decision; and company size has a significant positive impact on dividend payout dicision. The study concluses that liquidity, profitability and company size are the determinants of the dividend policy of corporations in Nigeria. More specifically, company size was found to be a major determinant to the dividend policy statement of corporations in Nigeria. The study suggests that, corporations should sustain their liquid positions, asset base and profit levels at all times to meet the universe of desires of their shareholders.
With potentially costly environmental upgrades on the horizon and the need to increase capacity over the long term, capital needs for cooperatives are growing rapidly. At the same time, traditional sources of funding are being constrained. As cooperatives increasingly turn to the markets, how can they ensure their members continue to benefit from low capital cost?
This ScottMadden insight is the second in a series on “Five Strategic Priorities for Generation and Transmission Cooperatives.” The report summary can be found here: http://www.scottmadden.com/insight/516/five-strategic-priorities-for-generation-and-transmission-cooperatives.html.
To learn more, please visit www.scottmadden.com.
DC plans have largely failed to adequately prepare U.S. workers for retirement, leaving many relying solely on Social Security. By 2025, more employers are expected to adopt characteristics of successful pension plans to help employees create a fully funded retirement income stream. This includes improving investment governance, increasing savings contributions, utilizing more efficient portfolios, and providing tools to help employees translate savings into reliable monthly retirement income to replace lost pensions.
Most nonprofits are not satisfied with their investment processes and are taking on more risk than planned. While many have investment policies, there is often a disconnect between the policies and the actual investments made. This can jeopardize the organization's mission. Additionally, most nonprofits do not fully understand the fees and investment products they use. They also struggle to find advisors who act as fiduciaries. Governance over investments needs strengthening as well, such as setting term limits for finance committees. Nonprofit boards tend to be slower to change investment strategies and adopt new tools compared to individual board members' personal investments.
Five Trends Reshaping the Global Pension Fund IndustryState Street
This executive briefing explores how pension funds are adapting to the challenges of a new investment environment. The research presented in this report is based on an international State Street survey, conducted by the Economist Intelligence Unit in August 2014, of 134 senior executives in the pension fund industry.
The ES&G Accountability Forum (2013) provided participants and panelists with an opportunity to examine the question of how information (both financial and non-financial) can best be provided in a form that is useful to decision makers that are affected by, or have an affect on Canada’s companies.
This document captures key points made by panelists, their answers to questions posed, and the Forum’s participants’ table discussions. It is organized around each panel: investors, companies, evaluation organizations. We hope to encourage all groups to consider the advice and comments discussed at the Forum, and to take action on the outstanding questions and issues to improve the state of ES&G disclosure, analysis and investing that are highlighted on pages 9 & 10.
This year on September 23, 2014 in Calgary, many of these unanswered questions will be addressed at the ES&G Forum 2014: "Non-financial performance... A missed opportunity?"
Building on the last two years' discussions, participants will hear how investors and businesses are implementing innovative methods to manage investor demand for ES&G information. To learn more about & register for this year's ES&G Forum, please visit: http://bit.ly/esg-forum-2014
Multi Asset Endowment Investment StrategyTaposh Roy
The Farhampton Endowment manages a $200MM fund for the University of New York. Their mission is to generate financial resources for research and new programs through a diversified portfolio. They provide a 4.25% annual gift to the university. Their portfolio manager team oversees different asset classes including private equity, equities, hedge funds, bonds, cash, commodities, and real estate.
Given current economic and market conditions, they recommend a portfolio with 20% in stocks, 28% in hedge funds, 15% in cash, 10% in bonds, 10% in private equity, 10% in real estate, and 7% in commodities. This portfolio aims to weather uncertain markets with stable, profitable returns
In this rapidly changing global business environment—where cost is a true strategic differentiator—Deloitte’s first global cost management survey report provides an inside look at the practices and trends currently shaping the future of business, with detailed insights from more than 1,000 C-level executives and senior management in four major regions: the United States (US), Latin America (LATAM), Europe (EU), and Asia Pacific (APAC). http://deloi.tt/2kUWuaw
For the past seven years, the Global Chief Procurement Officer Survey has provided a global benchmark of the sentiment or procurement leaders and an insight into the key themes and challenges facing procurement, including market dynamics, value and collaboration, talent and leadership, and digital procurement. For more, visit http://deloi.tt/2Hce9V1.
The document discusses the problems facing equity compensation plans in volatile market conditions. It notes that options, RSUs, and performance plans have all gone "underwater" as stock prices have declined significantly. This has led to shareholder value losses, revenue reductions, and widespread layoffs. Questions are raised about restoring equity value through actions like option exchanges that may raise governance concerns. The status of various equity award types is assessed, and the need to redefine the purpose and effectiveness of equity compensation is discussed.
Why Own Safeguard?
- Full Value Yet to be Realized
- Ownership Stakes in Exciting Partner Companies
- Top Performance of Proven Team
- Financial Strength, Flexibility and Liquidity
- Strong Alignment of Interests
Forward-Looking Statements
Statements contained in this presentation that are not historical facts are forward looking statements which involve certain risks and uncertainties including, but not limited to, risks associated with the uncertainty of managing rapidly changing technologies, limited access to capital, competition, the ability to attract and retain qualified employees, our ability to execute our strategy, the uncertainty of the future performance of our partner companies, acquisitions and dispositions of additional partner companies, the inability to manage growth, government regulation and legal liabilities and the effect of economic conditions in the business sectors in which our partner companies operate, negative media coverage and other uncertainties as described in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K.
Safeguard does not assume any obligation to update any forward looking statements or other information contained in this presentation.
The document discusses executive compensation practices at banks and financial institutions. It covers issues like pay freezes, incentive pay, performance metrics, restrictions on TARP recipients, calls for increased transparency and shareholder votes on compensation. It provides advice on selecting appropriate performance measures and ensuring compensation is tied to achieving goals.
This survey summarizes trends in executive remuneration practices among South African companies over three years. Five key trends are identified: 1) Shareholders, especially institutional investors, have become more active in influencing executive pay; 2) Remuneration committees are engaging more with shareholders and making changes to pay programs as a result; 3) Committees continue focusing on linking pay to performance; 4) Financial metrics dominate incentive plans rather than non-financial metrics; 5) Committees now seek over 70% shareholder support for remuneration policies, seeing a 30% dissenting vote as a rejection.
Performance-based equity programs aim to drive corporate, group, and individual performance through linking equity awards to measurable performance metrics. Common metrics include total shareholder return, revenue growth, and profitability measures. Programs can take various forms, from awards triggered solely by performance to awards with vesting contingent on achieving performance thresholds. Well-designed programs with clearly defined and communicated metrics can be an effective incentive, but complex multi-year programs pose challenges to ensure goals do not motivate unintended behaviors.
The document summarizes a presentation by Retirement Solution Group (RSG) about the state of the retirement plan industry. RSG is an independent retirement plan consulting firm that administers over 300 plans. The presentation discusses case studies of plans RSG has worked with, industry news and market updates, 401(k) trends for 2010 and beyond, and options for plan sponsors to maximize their plans while ensuring fiduciary compliance. The presentation encourages attendees to have RSG evaluate their plans to check funding levels, address any issues, and advise on strategic options.
The document provides an overview of Merrill Lynch including its business description, financial profile, competitive environment, and valuation. It discusses Merrill Lynch's core businesses, leadership changes, risk management improvements, growth opportunities in emerging markets and through third party funds, and plans for balance sheet optimization and more efficient use of capital.
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Rescuing Equity Compensation from Volatile Markets
1. Rescuing Equity Compensation
from Volatile Markets
National Association of Stock Plan Professionals
10 December 2008
Fred Whittlesey
Principal, West Region Practice Leader
Kiran Sahota
Consultant
2. 1
Today’s Discussion
Capital Market and Economic Situation
Questions of the Day
Defining the Problem
Increasing Equity EffectivenessTM
Option Exchanges
Alternatives to Exchanges
3. 2
No Place to Hide (but Treasuries)
-34.1%
-41.1%
-43.9%
-51.0%
-43.1%
-45.6%
-27.1%
-15.7%
-12.5%
-4.1% -1.7%
4.5%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
2008 YTD Returns Through 12-05-08
DJIA S&P 500 NASDAQ Comp
S&P Asia 50 S&P Europe 350 MSCI Euro
Morningstar Real Estate LB Commodities LB Global Corp Bond
LB Global Agg Bond LB US Agg Bond LB US Treas
4. 3
Economy & Capital Market Situation
Recent volatility in the capital markets has
led to:
Staggering losses of shareholder value
Significant reductions in business
volume due to credit constraints
Large layoffs due to company failures
For equity compensation programs, we have
Underwater options…and “underwater” RSUs, “underwater” performance plans
Soon-to-be inflated Black-Scholes values from increased volatility…but
Depressed Black-Scholes values from price declines…and
The resulting impact on the use of survey data
Distorted grant guidelines, if dollar-denominated
Concerns about over-granting at low prices and accusations of market timing
5. 4
Economy & Capital Market Situation
Resulting, and parallel, economic recession
is creating:
Further reductions in business volume due
to consumer and business spending
pullback
Smaller incremental layoffs for
expense management
“bundled performance management”
de-layering
For equity compensation programs, we have
Reduction in savings – “home equity”, defined contribution balances –
exacerbating concerns over equity compensation value
Questionable prospects for near-term stock price appreciation
Uncertainty of current staffing levels complicating decisions on equity
compensation
US Unemployment Rate (Through Nov, 2008)
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
6. 5
Questions: Equity Compensation
Did a shift from options-only to other awards provide the intended
insulation from market volatility this time?
RSUs
Cash LTIs
Will shareholders allow or tolerate actions to restore LTI value?
Option exchange program
Off-cycle option grants to take advantage of low share prices
Will this be the end of the spread of performance shares?
Goal-setting difficulty
Relative TSR measurement
Despite governance concerns will companies “do the math” and
return to option-only awards?
7. 6
Underwater Equity: One Part of a Broader Issue
The survey(s) say(s)
Salary increase budget reductions and delayed increases
Missed annual incentive targets
Discretionary adjustments to incentive pools
Underwater equity – options, RSUs, performance plans
Depleted 401(k) balances
Reduced participation rates
Increase in loans and withdrawals
Underfunded defined benefit pension plans
Nonqualified deferred compensation at greater risk
Rapidly changing executive compensation environment – ripple
effects
8. 7
The Status of Equity Compensation
Equity awards of all types have gone underwater
FAS123R fears are realized as a significant number of companies
have 100% of options underwater
“Underwater RSUs” enter the discussion as that “full value” is only
half-full leading to a perception of “half-empty”
Performance plans unravel as multi-year financial performance
goals appear unattainable in the first year of a multi-year period
Even relative TSR plans are failing
Equity markets trading on panic and forced selling rather than
fundamentals
9. 8
Before We Solve the Problem…
Companies continue to evaluate the role of equity-based compensation in
their total compensation strategy and now have the economic situation as an
additional consideration
Five years of regulatory change and focus on compliance triggered many
reactive changes and companies still say they
Don’t assess effectiveness of equity compensation plans
Don’t calculate ROI of equity compensation
Are not sure what they’re getting in return for the expenditures
Corporate governance concerns surrounding executive and equity
compensation continue to escalate
Potential actions for underwater equity may trigger corporate governance
criticisms
Any action, or appearance of such action, to deliver value to employees
not available to shareholders may be criticized
10. 9
…Let’s Define the Problem We’re Solving
Public companies rely on outside advisory resources for executive
compensation, and executive equity trends influence and drive non-
executive practices
Advice still centers on benchmarking, expense, and compliance
New legislative initiatives (e.g., EESA) are spreading rapidly, increasing
both the compliance and governance focus
Competitive benchmarking continues to be a core process in compensation
analysis and design but has become highly complex due to equity program
design changes and trends
Benchmarking measures only inputs, not outcomes
Inconsistencies and disagreement about valuation cause difficulties in
benchmarking
Current economic situation renders all 2008 survey data moot and current
survey efforts on what companies are “considering” have no value given
volatility and varying timeframes
11. 10
…Let’s Define the Problem We’re Solving
All of the historical bases of equity compensation have been eroded
over the past five years
Historical Drivers of Equity Compensation Usage
Accounting
Efficiency:
Stock
Options
Limited Cash
Available
Employee
Ownership
Focus
Growth
Industry
Sectors
U.S.-Based
Employees
Legislative
Support:
ISO, ESPP,
ESOP
Equity Compensation Design
Stock
Options
Uniform
Vesting
Schedules
Uniform
Option Term
No
Performance
Features
US-Centric
Design
Easy
Liquidation
12. 11
Equity Compensation: Source of Dissatisfaction
Equity Compensation Pressures 2002Equity Compensation Pressures 2002 –– 20082008
FAS123RFAS123R
ExpenseExpense
409A409A
ComplianceCompliance
ShareholderShareholder
and Proxyand Proxy
AdvisorAdvisor
PoliciesPolicies
CapitalCapital
MarketMarket
VolatilityVolatility
GlobalGlobal
PracticesPractices
ConvergenceConvergence
SarbanesSarbanes--
OxleyOxley
ComplianceCompliance
Equity Compensation Pressures 2008Equity Compensation Pressures 2008
ReducedReduced
ParticipationParticipation
SmallerSmaller
GrantsGrants
Lower PayLower Pay
ValuesValues
CapitalCapital
MarketMarket
VolatilityVolatility
GlobalGlobal
PracticesPractices
ConvergenceConvergence
SarbanesSarbanes--
OxleyOxley
ComplianceCompliance
Equity Compensation OutcomesEquity Compensation Outcomes
Shareholder dissatisfactionShareholder dissatisfaction Company dissatisfactionCompany dissatisfaction Employee dissatisfactionEmployee dissatisfaction
What
are we
doing?
WhatWhat
are weare we
doing?doing?
Why are we
doing it?
Why are weWhy are we
doing itdoing it??
What are we
getting for
it?
What are weWhat are we
getting forgetting for
it?it?
13. 12
Shareholder Dissatisfaction
Shareholder dissatisfaction with executive and equity compensation
practices is reflected in proxy advisors’ and institutional investors’ metrics
and ratings
This environment is further reflected in legislation that constrains equity
plan design through accounting, tax, and disclosure requirements
Arbitrary value-laden standards continue to drive equity compensation
design
Overhang and run rate
Options vs. share and share unit conversion rates
Ownership guidelines
“Shareholder-Friendly” option exchange guidelines
The tainting of equity compensation resulting from perceptions of executive
pay is driving continued changes to equity plan design
14. 13
Employer Dissatisfaction
Costs of administration, financial reporting, compliance, and disclosure
of equity plans have increased during a period in which employee
returns from grants have declined or disappeared
2004 Grants
2005 Grants
2006 Grants
15. 14
Employer Dissatisfaction
Employers clearly articulate their objectives and rationale for equity
compensation programs
Relative Importance of Reasons for Granting Equity to Employees
Source: iQuantic-Buck 2008 Equity Plan ROI Survey
Corporate Culture Financial Efficiency Competitive Reasons
Wealth Creation Total Compensation Investor Expectations
Not Important
Moderately Important
Very Important
16. 15
Employer Dissatisfaction
But employers report being most “successful” on least important
objectives
9%
18%
10%
16%
51%
64%
49%
54%
38%
59%
47%
27%
47%
28%
52%
25%
4%
2%Corporate Culture
Financial Efficiency
Competitive Reasons
Wealth Creation
Total Compensation
Investor Expectations
Not Successful Moderately Successful Very Successful
Relative Success of Achieving Stated Objectives of Equity Compensation Programs
Source: iQuantic-Buck 2008 Equity Plan ROI Survey
17. 16
Employee Dissatisfaction
79%
76%
57%
74%
83%
49%
40%
60%
80%
100%
Turnover Cost
Retention of High Performers
Employee Productivity
Stock Performance
Employee Satisfaction
Gains to Employees
Metrics Used in Measuring LTI ROI
Only 31% of survey respondents reported
undertaking any formal measurement of returns
generated by their equity compensation
programs
Of those measuring ROI, employee satisfaction
was the measure most commonly used
Yet the key purpose of equity grants – providing
compensation to employees – is measured least
Nearly two-thirds of all stock plan participants
view their stock proceeds as “free money” as
opposed to being part of a more holistic
financial plan and agree with the statement:
“If I make money that’s great. If I lose it,
that’s OK!”
Source: “Bridging the Knowledge Gap,” Fidelity Stock Plan Services Stock Plan Participant Survey, 2008
18. 17
Equity EffectivenessTM
Equity Compensation Outcomes
Shareholder dissatisfaction
Dilution
Performance
Executive pay impact
Company dissatisfaction
Costs
Uncertain ROI
Employee impact
Employee dissatisfaction
Understanding
Value
Behavior
Financial impact
Shareholder criteria
Objectives
Measurements
Input
Communication
Increasing Equity Compensation Effectiveness
19. 18
An integrated approach
Like any business practice, the use of equity compensation for
employees should be validated from multiple perspectives
Supports the business strategy of the organization and has a
clearly identifiable role in its human capital strategy
Is financially efficient and cost-effective relative to the returns
realized
Encourages and rewards the behaviors required for the
execution of the company’s strategy
Is designed and delivered in a manner consistent with external
governance requirements and objectives
Aligns with internal governance model, controls, and corporate
policies
20. 19
Measuring ROI: Finance Meets Behavior
Program Costs
Accounting
Expense
Cash Flow
Impact
Projected
Dilution
Design &
Administration
Document
&
Disclosure
Communication
& Disruption
Recruiting
Success
Retention of
High Value
Employees
Performance
Outcomes
Perceived
Value
Efficient
Communication
Workforce
Planning
Vehicle Cost Plan Cost
Return On Investment
Direct Value Indirect Value
21. 20
What is the objective?
Underwater
Tactic
Underwater
Tactic
Reset ValueReset Value
Back to the Problem: Underwater Equity
Fix Current AwardsFix Current Awards
Mirror Past Pay AllocationMirror Past Pay Allocation
Employee ChoiceEmployee Choice
Reduce ExpenseReduce Expense
Rethink StrategyRethink Strategy
Move to New Forms of PayMove to New Forms of Pay
Differentiate Based on ValueDifferentiate Based on Value
Target Pay to Valuable StaffTarget Pay to Valuable Staff
Achieve Positive ROIAchieve Positive ROI
Equity
Strategy
Equity
Strategy
22. 21
Back to the Problem: Underwater Equity
What really is the business problem?
Retention?
Engagement and motivation?
Productivity?
Competitiveness?
Philosophy?
Expense without pay delivery?
Shareholder opinion or perception?
23. 22
Back to the Problem: Underwater Equity
The alternatives should be evaluated in a framework considering :
Stock PlanStock Plan Total Compensation StrategyTotal Compensation Strategy
FAS123R ExpenseFAS123R Expense Total Financial ImpactTotal Financial Impact
Retention and EngagementRetention and Engagement Overall Behavioral ImplicationsOverall Behavioral Implications
S/H and ISS ApprovalS/H and ISS Approval Corporate GovernanceCorporate Governance
Fixing
Underwater
Awards
Fixing
Underwater
Awards
Rescuing Equity
Compensation
Rescuing Equity
Compensation
24. 23
Option Exchange Programs
Program constraints and issues
Accounting
Tax
Stock exchange
Shareholder approval
Securities regulations
Administration
Communication
Disclosure
Global participation
25. 24
Option Exchange Programs
Option Exchanges will be more complicated than last time
Accounting and Tax Rules
– Variable accounting gone but incremental expense
Taxation
– Simple in the US, complex in many countries
– ISO considerations
Shareholder Approval Requirements
– Wait for annual meeting or hold special meeting?
Institutional Investors and Proxy Advisory Firms
– ISS criteria
Securities Regulations
– Tender offer requirements
– SEC filings
– Constraints from previous CD&A statements
26. 25
Option Exchange Programs
Many of the complexities continue
Administration
– Massive electronic and paper processes
– System and software constraints
Communication
– Internal: Employees, Managers, Board of Directors,
Compensation Committee, Officers
– External: Investor relations and media
Coordination with other grant processes
– Annual/focal
– New hire and promotion
28. 27
Opportunities for Option Exchange Programs
Achieving a positive ROI on an option exchange program may require
ignoring market data and altering “typical” provisions such as:
Eligibility – bracketed tranches?
Vesting and blackouts – more restrictive?
New option term - shorter?
Strike price – premium?
Form – options, shares, or cash?
Treatment of existing awards – vested vs. unvested options?
Replacement ratios – incremental value?
The “program” – or part of a strategy?
29. 28
What Happens with Option Exchange Programs
Hard-dollar costs are higher than projected
Professional fees – accounting, tax, legal, consulting
Filings and shareholder communications
Employee communications
A layer of hidden costs resulting from lost productivity during and after
Communications from the company
Discussion among employees regarding the choice
Discussion afterwards about the outcome of the choice
Companies are often disappointed with the results of an exchange
program
Participation rates below expectations
A continuing underwater option problem
Two groups of employees
30. 29
Option Exchange Programs – Stop Before you Swap
Strategy
Re-evaluation and possible redirection of equity compensation
strategy
Finance
Volatility impact on option valuation, exchange ratios, expense
Expense-neutral constraint may create other costs
Choice of replacement: cost of cash vs. equity
Choice of replacement: availability of cash vs. equity
Behavior
Voluntary: poor choices
No opportunity for management action and differentiation
31. 30
A Behavioral Economics View of Exchanges
Behavioral economics provides us with explanations for the
suboptimal results of option exchange programs:
Mental accounting ---- “This is house money”
Loss aversion ---- “The stock will come back”
Sunk cost fallacy ---- “I’m already vested in these options”
Endowment effect ---- “I already have these options”
Framing effect ---- “You want me to give these back?”
Decision paralysis ---- “What if I make the wrong decision?”
Regret aversion ---- “What if I make the wrong decision?”
Overconfidence ---- “The stock will come back”
Following the herd ---- “They didn’t exchange either”
32. 31
Option Exchange Programs – Stop Before you Swap
Governance
Volatility in capital markets creates additional risk
– Pricing of exchange driven by offer period timing
– Exchange too early: more underwater options
– Exchange with perfect timing: “spring-loading”
Following SEC rules and proxy advisory firms’ guidelines does not
ensure good governance
– Major governance metrics don’t agree on what “good
governance” is
CD&A disclosures about equity compensation strategy and plan
design may be a constraint
33. 32
Back to the Problem: Underwater Equity
A broad array of alternatives are available for addressing underwater
equity:
Do nothing – it’s a small piece of total compensation
Do nothing – it’s a long-term incentive
Allow an exchange of the existing award(s)
Modify the existing award(s)
Grant an additional award
Increase another form of pay
Communicate to and educate employees
Do a combination of these
34. 33
Alternatives to Option Exchange Programs
Other equity compensation alternatives may better satisfy business
objectives:
Early grant
Move the ’09 grant into late ’08…can you call the bottom?
Mega-grant
Double-down with large targeted grants
Stub grant
Fix a short-term problem with a short-term program
Integrated programs
Roll the ’09 focal into the exchange program and leverage it
Extend the option term
Assume other programs retain and engage and buy some
time
35. 34
Behavioral Strategies
Differentiate internally
Large grants of RSUs with cliff vesting for top performers
Multi-year share-based retention bonuses with accelerated
vesting based on company performance
Additional grants – with cliff vesting – for a team that surpasses
expectations
Differentiate externally
Stand out from the “peer group”
Implement and market a solution not easily replicated
36. 35
Financial StrategiesFinancial Strategies
Re-allocate across budgets
Cash to equity: Salary increase delay with the savings funding targeted
retention share grants
Cash to deferred cash: A zero bonus pool with a portion rolled forward
to supplement the 2009 pool to “double down”
Cash to performance equity: A zero bonus pool with target awards for
2008 converted to performance shares for 2009
Measure the ROI
Calculate the all-in cost of each alternative
Understand which financial metric is being optimized
Turnover cost?
Productivity?
FAS123R expense?
37. 36
Example: Evaluating Effectiveness
Alternatives Strategy Finance Behavior Governance
Ignore the equity
program
+ + - +
Exchange: option for
option
+ + - -
Exchange: option for
RSU
- + - -
Exchange: option for
cash
+ - - -
Early Grant
+ + + -
Mega-Grant
+ - + -
Stub Grant
- + - +
Integrated Exchange
+ + + -
Extend option term
- - - +
Illustration Only
38. 37
Closing Thoughts
Alternatives are reliant on stabilization of market volatility and are
highly risky
Past logic – “employees will leave and reprice themselves” – may
not apply this time
A focus on single-vehicle solutions may miss an opportunity for
restructuring the total compensation portfolio
Short-term recession expense reduction and underwater equity
actions can blind a company to a longer-term ROI focus and re-
evaluation of equity compensation strategy
39. 38
Contact Information
Fred Whittlesey
Principal and West Region Practice Leader
Buck Consultants
415.617.3820
fred.whittlesey@buckconsultants.com
Kiran Sahota
Consultant
Buck Consultants
415.617.3911
navkiran.sahota@buckconsultants.com
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