September 2016 L-Blast: Fearing lawsuits, U.S. banks set limits for director pay | Curing the Gender & Racial Pay Gap

Dear All,
The fall season is upon us and football season is well under way. We at L&A are excited to see what 2017 will hold as we prepare for the end of the year. If the first week of college football was any indication, we are sure to have some excitement through the remainder of the year. For this month, we have two excellent articles covering topics in the compensation world that are seeing increased spotlight and speculation. Enjoy the reads.

The first is an original article from L&A regarding the issue of gender and racial pay gap in our culture today. The debate on this issue is increasing in fervor as documented cases of white males making more than their female and non-white male counterparts hit the newswire. As governing bodies consider resolutions to help mitigate this issue, as noted in this NBC News article on Massachusetts’ new law designed to close the gap, L&A has laid out proactive steps companies should consider to avoid this issue and its negative spotlight and create a culture of fair pay across the board.

The second article focuses on a familiar topic, director compensation, but in a different context. Harvard’s Jay Lorsch, a renowned governance expert, once told me board pay is the most critical compensation element to get right in the corporate governance realm. He went on to explain that companies need to ensure director compensation is aligned appropriately to the market to position the board to perform their fiduciary responsibilities.

It is under this context that the recent trends of lawsuits, court decisions, and growing case law momentum have caught our attention. As noted in this sequential listing of legal updates tied to director pay by executiveloyalty.org, this growing trend is leading to the discussion of caps and shareholder approval on director pay.

L&A notes a number of concerns on these practices. First, not all boards and board members “are created equal,” so there would be immense challenges to determining appropriate caps. Second, with extraordinary situations like restructurings or M&A activity, a board may be forced to double their time and effort committed, and companies need the flexibility and capacity to pay for this added time, risk and liability. Lastly, the companies that have disclosed caps have set them at meaninglessly high levels, so there is no market prevalence to point to that proves caps are necessary or effective.

All of that said, companies and compensation committees alike need to be “looking around the corner” should this trend continue to gain traction. Based on current case law, caps and shareholder approval seem to be something the Delaware Court is driving towards. If that is the case, disclosure will become key, appropriately defining the methodology for determining caps, laying out the impact of special circumstances and highlighting the importance of the board and their skill sets. At the end of the day, board members are critical to company stakeholders and leadership, and companies will need to continue to provide pay packages that attract, retain and motivate key director talent.

We hope you all enjoy this month’s articles and always, feel free to reach out with any topics you’d like to learn more about. We appreciate each and every one of you.
 
 
Sincerely,
 
Brent_Signature_white
 
Brent Longnecker and the L&A Team
Chairman and CEO
Longnecker & Associates
 
 


Fearing lawsuits, U.S. banks set limits for director pay

Over the past two years, a growing number of U.S. banks has capped their directors’ earnings, but the ceilings are so high that they primarily serve to fend off potential shareholder litigation rather than control the pace of pay increases.
 
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Curing the Gender & Racial Pay Gap

There is a common story that white males make more than their female and non-white male counterparts. In short, there is a gender and racial pay gap that exists in the US. A recent study by the Pew Research group supports this claim.
 
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