As we begin a new year, it’s always a little tricky to predict what the next 12 months will bring. As I’ve thought about what to expect in 2020 in the area of compensation disclosure, one thing appears certain – we’re going to see a fair amount of enhanced disclosure about director compensation. With the risk of litigation continuing to hang over companies, I believe that we’re going to see many companies expand the discussion of their director compensation program to address the process undertaken to review and set director pay. Over the past couple of weeks, I’ve skimmed a number of proxy statements and noted a decided increase in substantive content accompanying the director compensation table.
The best example I’ve seen so far is found in the definitive proxy statement of Great Western Bancorp, Inc., which was filed right before Christmas. In addition to the required director compensation table and related information about the standard compensation arrangements provided to directors, the company has included a new section on its use of compensation consultants (at page 13):
The Compensation Committee’s charter authorizes it to retain advisors, including compensation consultants, to assist it in its work. The Compensation Committee believes that compensation consultants can provide important market information and perspectives that can help it determine compensation programs that best meet the objectives of our compensation policies. In selecting a consultant, the Committee evaluates the independence of the firm as a whole and of the individual advisors who will be working with the Committee.
Independent Committee Consultant
During fiscal year 2019, the Compensation Committee retained Willis Towers Watson (“WTW”) as its independent compensation consultant to review director compensation. WTW has no other business relationship with the Company and receives no payments from us other than fees for services to the Compensation Committee. WTW reports directly to the Compensation Committee, and the Compensation Committee may replace it or hire additional consultants at any time.
The scope of WTW’s engagement in fiscal year 2019 included:
– Refreshing the current compensation peer group;
– Reviewing all elements of director compensation (e.g., annual retainers, equity compensation, meeting fees, committee member compensation, committee chair additional compensation, non-executive Chairperson compensation, and Lead Director compensation);
– Evaluating the mix of cash compensation and equity/deferred compensation that makes up total direct compensation (annual cash compensation plus equity); and
– Providing an evaluation of the director compensation program design, including alternative recommendations for consideration in regards to both level and design.
This section is accompanied by an additional paragraph describing the Compensation Committee’s assessment of whether the consultant’s services gave rise to any conflicts of interest (which it concludes they didn’t). It’s similar to the type of disclosure that you see in the Compensation Discussion and Analysis when discussing the role of the compensation consultant in providing executive compensation-related services.
While I’ve seen other companies disclose the use of a compensation consultant in reviewing and determining director pay, this is the most detailed discussion so far. It’s going to be interesting to see whether other companies follow this specialized focus, or just use more general process discussions to supplement the required director pay information. Perhaps we’ll even see some “quasi” CD&As on director compensation this proxy season.
-Mark Borges, CompensationStandards.com January 3, 2020
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