PM&P On Point: Survey of Practices for Designating Officers. Executive Summary

Transcription

1 PM&P On Point: Survey of Practices for Designating Officers

2 Table of Contents Introduction...3 Methodology and Participant Demographics...4 The Environment for Officer/Executive Designation...5 Report Findings...6 Role of the Compensation Committee...6 Defining the Officer/Executive Population.7 Composition of the Officer/Executive Population.8 Structure of the Officer/Executive Group...9 Officer and Executive Incentives/Benefits/Perquisites..10 Officer/Executive Status by Position Title...11 About PM&P..12 2

3 Introduction The selection of officers/executives is often complicated by a lack of data about how companies handle this sensitive issue including the type and number of positions typically designated, who within the organization makes those choices, and whether certain officer practices are changing. For some businesses, there may be regulatory and statutory requirements affecting designation. However, many other considerations come into play that reflect each organization s priorities, strategies and needs, including how the terms officer and/or executive are used. The Pearl Meyer & Partners survey PM&P On Point: Survey of Practices for Designating Officers is intended to provide hardto-find, comprehensive data on these and other issues around officer designation. Because many companies in the survey maintain both officer and executive designations, the term officer/executive is used throughout this executive summary. This executive summary provides some of the key survey findings and related trends, including: The Compensation Committee's role in naming officers/executives and establishing their compensation The positions typically y identified as officers/executives The structure of the officer/executive group Practices around officer/executive designation, including benefits and perquisites The complete results from PM&P On Point: Survey of Practices for Designating Officers are available for purchase at We are hopeful you will find this information useful. If you would like to discuss any aspect of the findings, please contact Lianne Chew at lianne.chew@pearlmeyer.com or (212)

4 Methodology and Participant Demographics A total of 341 respondents responded to a PM&P questionnaire in August 2010, of which 282 responded as employees of the firm and 59 as outside Directors. Both employee and outside Directors were asked five questions pertaining to the role of the Compensation Committee in officer/executive designation. Only respondents who identified themselves as employees were asked additional questions related to how organizations define, compose and structure their officer/executive population, p and about policies for incentives/benefits, titles and roles for officers/executives. Additional demographics for all participants are illustrated below: Form of Ownership Rev. / Asset / Op. Budget Industry Group Private / Closely Held 22.0% Mutual, Coop or Mbrship 59% Not-For- Profit 5.6% Public 66.6% > $10B 17.6% < $100M 12.9% 5.9% $100M < $300M 11.4% $3B < $10B 21.1% $300M < $1B 17.0% Inf o Tech / Telecomm Services / Labs 21.4% Energy / Utilities 10.6% Industrials / Materials 21.7% Consumer Discretionary / Staples / Services 17.0% $1B < $3B 19.9% Financials 20.8% Health Care 8.5% 4

5 The Environment for Officer/Executive Designation Examples of the regulatory and statutory requirements affecting officer/executive designation at some companies include: Public companies must list the identity and roles of their Section 16b officers in their 10-K filings. Classification as a 16b officer presumes that the individual possesses material, inside information at all times. Some IRS regulations, including Section 409A, maintain definitions for "officers Typically, officer/executive is also a legal designation with state law implications. Based on our experience, however, many organizations lack data on practices related to the identification and role of an officer/executive. In recent years, many have sought further information on questions related to: Over which individuals does the Compensation Committee have specific authority for pay decisions? How should the organization define and reward officers/executives? How many or what percent of employees are generally designated by companies as officers/executives? Which positions and roles within the company are typically considered executives and/or officers? This survey provides much-needed perspective e on those issues. Generally, we found that practices depend on the organization s ation s size, ownership, and industry group, with the financial services sector maintaining very distinctive practices for defining and structuring. What follows is a summary of some of the key survey findings and PM&P observations. 5

6 Over which individuals should the Compensation Committee have pay decision authority? A majority of the total respondents said the Compensation Committee should be responsible for approving compensation levels for the CEO, direct reports and other positions with significant operation or functional responsibilities. CEO Only 5.1% 6.3% NEOs referring only to officers explicitly identified in a proxy statement 9.5% 18.6% CEO and direct reports (typically covering the "C" or Chief suite) CEO, direct reports and certain others with signif. operational or functional responsibilities 22.6% 25.8% 25.4% 33.9% Individuals in a position to legally bind the corporation by signature 0.9% 1.7% Section 16b managers and executives Positions elected or appointed to "officer" by the Board of Dirs. or a Board committee Positions elected or appointed to "officer" by a designated member of Mgmt (e.g. CEO) 5.1% 3.4% 0.5% 1.7% 10.9% 12.7% Positions having a threshold "title" (e.g., Vice President) 2.7% No opinion / not sure Other 1.7% 2.3% 3.4% 5.9% 5.0% % % % 4 Employee of Firm Outside Director PM&P Observation: Respondents across all firms also indicated the Compensation Committee should be responsible for approving individual compensation levels for nine individuals at median across all survey participants. However, depending on company ownership type, industry and size and - surprisingly - also whether the respondent was an employee or outside Director, the median ranged from three to 18 individuals. 6

7 Defining the Officer/Executive Population Among all firms, this population is usually defined as those positions elected or appointed to officer by the Board or one of its committees. Other common approaches are designation of a group consisting of the CEO, direct reports and certain others with significant operational or functional responsibilities, or of positions with a threshold title such as Vice President or Senior Vice President. Which choice(s) best describe your approach to defining the officer/executive population? CEO Only 5.3% NEOs referring only to officers explicitly identified in a proxy statement CEO and direct reports (typically covering the "C" or Chief suite) CEO, direct reports and certain others with signif. operational or functional responsibilities Individuals in a position to legally bind the corporation by signature Section 16b managers and executives Positions elected or appointed to "officer" by the Board of Dirs. or a Board committee Positions elected or appointed to "officer" by a designated member of Mgmt (e.g. CEO) Positions having a threshold "title" (e.g., Vice President) No opinion / not sure Other 0.7% 14.5% 15.2% 17.4% 20.6% 14.5% 20.6% 34.4% 52.1% PM&P Observation: While the majority of companies in the survey maintain both designations, typically officer is used for the top positions of a broader executive group. However, financial companies instead tend to reserve the executive title for the top positions of a broader officer group. 7

8 Composition of Officer/Executive Population The number of officers/executives increases with company size, while the number of officers/executives declines as a percentage of the total employee population. As shown below, the officer population is generally larger in the financial services sector. One reason is that such companies utilize the designation officer for legal purpose (e.g., signing documents) and therefore tend to have many more officers who are not executives Officers (Where Officer and Executive Title Considered the Same) Median Number of... Officers (Where Officer and Executive Titles Considered Different) Executives (Where Officer and Executive Titles Considered Different) Does your organization currently have not enough, too many or just the right number of officers/executives? All Firms Financial Firms 1 All Firms Financials Not enough Too man y Just right PM&P Observation: Interestingly, twice as many respondents from the financial services sector which takes a distinctive approach to officer/executive issues said their organization has too many officers. 8

9 Structure of the Officer/Executive Group 45.0% All Firms vs. Financial Firms 9 By Company Size % % % % 1 Level 1 (one level below CEO, i.e. CEO direct reports) Level 2 (two levels below CEO, i.e. direct reports of CEO direct reports) Level 3 (three levels below CEO) Level 4 (four levels below CEO) More than 4 levels below CEO Level 1 (one level below CEO, i.e. CEO direct reports) Level 2 (two levels below CEO, i.e. direct reports of CEO direct reports) Level 3 (three levels below CEO) Level 4 (four levels below CEO) More than 4 levels below CEO All Firms Financial Firms < $100M $100M < $300M $300M < $1B $1B < $3B $3B < $10B > $10B PM&P Observation: Most companies designate officers/executives one to two levels below the CEO (including direct reports to the CEO and their own direct reports). However, larger firms and financial services companies tend to have officers/executives deeper in the organization. 9

10 Officer and Executive Incentives/Benefits/Perquisites The table below shows the eight most common incentives/benefits/perquisites included in the survey across all firms: 9 Eligibility and Level of Incentives/Benefits/Perquisites % Annual Incentives Long-Term Employment Severance Severance Supplemental Executive Supplemental Life Incentives Agreement Benefits (with Benefits (non- Executive Physical Insurance CIC) CIC) Retirement Plan All Officers; Equal Benefit Some Officers; Equal Benefit to Those Who are Eligible All Officers; Benefit Varies by Level Some Officers; Benefit Varies by Level PM&P Observation: Eligibility and levels also tend to vary within the officer/executive group. 10

11 Officer/Executive Status by Position Title The table below shows officer/executive status for the eight most common position titles used across all firms: Among the firms participating in this survey, common titles used for officer/executive group include: Group / Business Unit President; Executive Vice President; Senior Vice President; Corporate Vice President; and Vice President. General Manager, Director and Manager titles are not typically used to designate an officer or executive. 10 Officer/Executive Status By Position Title Group/Business Unit President Corporate Vice President Executive Vice President Senior Vice President Vice President General Manager Director Manager Officer and Executive Officer Executive Not Officer or Executive 11

12 About Pearl Meyer & Partners For more than 20 years, PM&P has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges through the development of programs that align rewards with business goals to create long-term value for all stakeholders: shareholders, executives and employees. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles and San Jose. Contact Us For other information and guidance on compensation issues, or to learn more about tpearl Meyer & Partners services, please feel free to contact any of our offices by at the addresses listed below. Full contact information is listed on the next page. New York newyork@pearlmeyer.com Atlanta atlanta@pearlmeyer.com Boston boston@pearlmeyer.com Charlotte charlotte@pearlmeyer.com Chicago chicago@pearlmeyer.com Houston houston@pearlmeyer.com Los Angeles losangeles@pearlmeyer.coml l San Jose sanjose@pearlmeyer.com 12

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