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February 25, 2016 - Issue 2.8 - Your weekly news on all things board.
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Director's Domain: News & views for today's boardroom. Brought to you by Boardspan.

It’s all about the almighty dollar. Or at least much of this week’s board news is: Director pay at large public companies has risen 10% over the past three years, with a number of board members receiving well over half a million dollars for what the Wall Street Journal calls a part-time job. Executive pay has risen faster still and researchers suggest one reason could be board member ignorance about the mechanics of stock grants. (Really?) Other researchers provide evidence that “pay for performance” doesn’t actually provide the desired results and argue that a fixed CEO salary is the way to go. And weighing in from the Boardspan archives, Kellogg Insight offers the voice of yet another researcher, who makes the case that a hefty load of options can alter a CEO’s performance —and not always in good ways. Our conclusion? It’s never a bad idea to review your director and exec comp structure.

The Hot Seat

 

Director Pay In the Spotlight

 “Despite working only part-time, non-executive directors who make up the bulk of seats on the boards of large U.S. companies can make $250,000 a year or more …. Director pay has risen 9.8% since 2013. The highest paid board? Regeneron Pharmaceuticals—the 12 directors at the biotech firm made at least $1.7 million each.” WALL STREET JOURNAL VIDEO

Across the Board

Curated news and insights from the world's boardrooms.

 

How Have Boards Contributed to Rising CEO Pay?

"Average pay for CEOs at American’s largest companies has leaped nearly sixfold, from $2.8 million a year in 1989 to $16.3 million today, according the Economic Policy Institute. Exactly why this has happened is a matter of some debate, even among experts…. Now researchers from Dartmouth and the University of Chicago have examined years of pay data to offer up a new explanation: Boards have been handing CEOs bigger and bigger slugs of company stock because they don’t understand how stock options—a key component of CEO pay—work.” FORTUNE


Just Say No To Pay-for-Performance!

“We argue in favor of abolishing pay-for-performance for top managers altogether. We propose that, instead, most firms should pay their top executives a fixed salary…. This argument is based on five related, data-backed insights from research: contingent pay only works for routine tasks; for creative tasks, a results focus is ineffective at best, and can in some circumstances actually impede performance; extrinsic motivation crowds out intrinsic motivation; contingent pay too often results in fraud; and measuring performance is notoriously fraught.” HARVARD BUSINESS REVIEW
 

Worst Corporate Board in America?

“It’s hard to believe, but after all these years, the Yahoo board is still a contender for America’s worst corporate board. The announcement last week that the board is officially exploring “strategic alternatives” — code for a sale — and hiring advisers is confirmation that it is still stumbling, refusing to take a stand as its chief executive, Marissa Mayer, flounders.” NEW YORK TIMES
 

Will Activists Oust Yahoo Board?

“For months, activist investors have pushed Yahoo’s board to oust CEO Marissa Mayer, to no avail. Starting Thursday, they may try to oust the board. Starboard Value, a hedge fund with a track record of winning board seats at large companies, is expected to wage a proxy battle for Yahoo. Shareholders can submit their slate of candidates for the board from Thursday until March 26, and the majority of Yahoo shareholders will determine the winner at the annual meeting in spring or early summer.” SF GATE
 

What Can Go Wrong When Governance Isn't a Priority

“HCA [which operates 165 hospitals and is the world's largest investor-owned hospital company by revenue—$39.7 billion in 2015] is still reforming its board of directors four years after a shareholder lawsuit over the company's 2011 initial public offering brought HCA governance under scrutiny. On the verge of settling the shareholder lawsuit for $215 million, HCA has agreed as part of a related lawsuit to add another independent director to its current 11-member board and make a series of other governance reforms, court documents show.” MODERN HEALTHCARE
 

Why Your Board Needs a Digital Expert

“How a company digitizes itself can make the difference between business success and failure today, and it can involve massive investments. But this sort of transformational change requires senior leadership, and few companies have internal leaders who are familiar with digitization or who have led it previously…. A digital hand on the board can help dramatically in an organization’s transformation. He or she can advise the CEO, help to guide major investments, monitor progress toward digital goals, and make connections to other organizations with similar issues. A board member won’t oversee day-to-day digital projects, but can provide resources and motivation to help them succeed.” WALL STREET JOURNAL


From the Archives

The Economic Case for Soaring CEO Pay

"Skyrocketing compensation for CEOs of U.S. companies, which has risen disproportionately to compensation for other workers over the past several decades, has provoked no end of public outrage. It has been called unfair, unseemly, unwise, unjustified. But is that the whole story? Anup Srivastava, an assistant professor of accounting information and management at the Kellogg School of Management, wondered whether today’s CEOs might actually possess some subtle quality to justify the extra pay. 'Is there some ability that has made them more important over the years?' Srivastava asked." KELLOGG INSIGHT via BOARDSPAN

A Seat at the Table


Chinese social media platform Momo names Alibaba vice chairman Joseph Tsai to its board.  Global consumer products maker Unilever says Marijn Dekkers, the outgoing CEO of German drugmaker Bayer, will become its new chairman. Boeing CEO Dennis A. Muilenburg will become board chairman of the company as well, succeeding former CEO W. James (Jim) McNerney “DIY” stuffed-animal chain Build-A-Bear Workshop names two new board members: Tim Kilpina, former COO at Mattel and EVP at The Walt Disney Co. and Sara Personette, VP of Facebook’s global business marketing team. Brad Tilden, chairman and CEO of Alaska Air Group, joins the board of fashion retailer Nordstrom. Jr. Danish pharmaceutical firm Novo Nordisk elects to its board Brian Daniels, former SVP of global development and medical affairs at Bristol-Myers Squibb. BioRestorative Therapies, a life sciences company focused on stem cell-based therapies, appoints Robert B. Catell, former CEO and chairman of KeySpan Corporation and KeySpan Energy Delivery, the former Brooklyn Union Gas. Oil refiner Tesoro appoints former ExxonMobil exec Edward G. Galante to its board. US Steel elects to its board Paul A. Mascarenas, former CTO at Ford Motor Company. ★  Penumbra, a global interventional therapies company, appoints to its board Kevin J. Sullivan, a senior human resources executive at companies including Wells Fargo, Watson Wyatt Worldwide, and Apple Computer Company.  Mortgage loan servicer Ocwen Financial Corporation adds former Commissioner of the Federal Housing Administration (FHA) Carol J. Galante to its board. National car retailer AutoNation welcomes to its board Karen C. Francis, executive chairman of AcademixDirect, Inc., a technology marketing company serving the education industry.
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