preliminary results: 2014 executive and board ......• exclusive for this presentation: regression...

PRELIMINARY RESULTS: 2014 EXECUTIVE AND BOARD COMPENSATION IN MIDDLE-MARKET COMPANIES

June 2014

Preliminary Results: 2014 Executive and Board Compensation in Middle-Market Companies

@BDO_USA_Tax

CPE AND SUPPORT CPE Participation Requirements ‒ To receive CPE credit for this webcast:

• You’ll need to actively participate throughout the program. • Be responsive to at least 75% of the participation pop-ups.

Certificate of Attendance: If you are logged in the entire time and respond to all participation pop-ups, you will be able to print your certificate from the “Participation” section at the end of the webcast. If you log out before printing your certificate:

• BDO USA professionals ‒ CPE will automatically be issued in CPE Tracking & Reporting at the end of every week. A copy of your certificate will be sent after you have been issued credit.

• All others will be emailed instructions on how to access your certificate.


@BDO_USA_Tax

CPE AND SUPPORT (CONT’D) Group Participation ‒ To receive credit:

• Sign-in sheets must list a Proctor name and CPA license number. • BDO USA professionals ‒ Submit your sign-in sheets using a General Training & Development Request

in BDO Service Now found at: BDOWorld > Applications & Resources > BDO Service Now > Click “Service Catalog” in the left menu, then under Training & Development, “Make a Request”.

• Clients and contacts ‒ Email sign-in sheets to [email protected] within 24 hours of the webcast. • Alliance members ‒ Should proctor their own group participants. This process is detailed in the

LearnLive Participant Guide, which can be found by searching “LearnLive Participant Guide” on the Alliance Portal. Call LearnLive Support below for questions.

• Unfortunately, we cannot currently support group CPE for International Firms. Those wanting CPE must register and log in on their own computer.

Q&A: Submit all questions using the Q&A feature on the lower right corner of the screen. At the end of the presentation, the presenter(s) will review and answer all questions submitted. Technical Support: If you should have technical issues, please contact LearnLive:

• Click on the Live Chat icon under the Support tab, OR • Call: 1-888-228-4088

mailto:[email protected]


@BDO_USA_Tax

WITH YOU TODAY

Andy Gibson, JD, LL.M National Practice Leader, Global Employer Services ‒ Compensation and Benefits BDO USA, LLP 1100 Peachtree Street NE Suite 700 Atlanta, GA 30309 (404) 979-7106 [email protected]

Tony DaSilva, Jr., JD, LL.M Principal, Global Employer Services ‒ Compensation and Benefits BDO USA, LLP Two International Place 4th Floor Boston, MA 02110 (617) 239-7036 [email protected]

Randy Ramirez Senior Director, Global Employer Services ‒ Compensation and Benefits Practice BDO USA, LLP 100 Park Avenue New York, NY 10017 (212) 885-8000 [email protected]






@BDO_USA_Tax

AGENDA

• Introduction

• Pay approach at middle-market companies

• Preliminary results of the 2014 BDO 600 Compensation Surveys

• Comparing the 2014 BDO 600 to previous years

• Exclusive for this presentation: Regression Analysis

• Wrap-up


@BDO_USA_Tax

MIDDLE-MARKET COMPANIES APPROACH COMPENSATION STRATEGY IN MUCH THE SAME WAY AS LARGER COMPANIES, THIS HASN’T CHANGED…

The Startup phase is characterized by a period of new company operations, definition of a corporate strategy, new/private investors, and cash conservation. Executive compensation profile: Base salary: low Annual incentives: low Benefits: low Retention programs: low Equity: high

Startup Growth Mature Decline End

The Growth phase is characterized by a period of new product development, new market areas, growth in sales channels, and new investments. Executive compensation profile: Base salary: med to high Annual incentives: med Benefits: med Retention programs: med Equity: high

The Mature phase is characterized by a period of focused efficiency, maintaining market share, reduced investments, and higher ratio of overhead. Executive compensation profile: Base salary: high Annual incentives: high Benefits: med Retention programs: high Equity: low to med

The Decline phase is characterized by a period of falling revenues, product and/or operational obsolescence, focus on cost reduction, and high turnover. Executive compensation profile: Base salary: high Annual incentives: high Benefits: high Retention programs: high Equity: med

The End phase is characterized by a period of reduction of operations, significant legal action, liquidation of key assets, and termination of products. Executive compensation profile: Base salary: high Annual incentives: low Benefits: med Retention programs: high Equity: low to med Source: BDO practice knowledge; Organizational Life Cycles and Shifting Criteria of Effectiveness, Quinn, Robert E. and Cameron, Kim (1983)


@BDO_USA_Tax

HOW WE CONDUCTED THE PRELIMINARY BDO 600 COMPENSATION SURVEY

BDO USA, LLP

• We examined the publicly filed documents of 470 middle-market companies (generally, companies less $1.5 billion in revenue) as of mid-May 2014

• All of our survey data was supplied by IBM (KeneXa)

• Studied their compensation practices

• Organized the companies by industry (about 75 companies in eight different industry groups when all proxies are filed) and revenue, and

• Ran certain statistics on the whole group


@BDO_USA_Tax

WE EXAMINED PAY FOR THREE DIFFERENT GROUPS

• Chief Executive Officers

• Chief Financial Officers

• Board of Directors


@BDO_USA_Tax

AS EXPECTED, CEO BASE SALARIES ARE POSITIVELY CORRELATED WITH ANNUAL REVENUES

• Nothing new here, positive linear slope

• It’s all about scale with middle-market companies

• The median base salary is $574,314 on median revenues of $496 million

• Regressions will be covered later and allow for prediction

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000$0

.000

$500

.000

$1,0

00.0

00

$1,5

00.0

00

$2,0

00.0

00

$2,5

00.0

00

CEO

Bas

e Sa

lary

Company Revenues (000,000s)


@BDO_USA_Tax

CEO TOTAL DIRECT COMPENSATION INDICATES MORE PAY-AT-RISK

• TDC increases by a factor of 11-times over CEO base salary as revenue increases

• In previous years, the increase in magnitude was less than 9-times

• Serious dollars here: median TDC of $2,241,530

• This year, outliers included $80 and $140 million

$0

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

$12,000,000

$14,000,000

$16,000,000

$18,000,000

$20,000,000

$0.0

00

$500

.000

$1,0

00.0

00

$1,5

00.0

00

$2,0

00.0

00

$2,5

00.0

00

CEO

Tot

al D

irec

t Co

mpe

nsat

ion

Company Revenues (000s)


@BDO_USA_Tax

CFO BASE SALARIES ARE ALSO CORRELATED WITH ANNUAL REVENUES

• Also, nothing new here

• Median base salary is $325,000 – that’s 57% of CEO base salary median!

• There hasn’t been much in increases for CFOs

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$0.0

0

$200

.00

$400

.00

$600

.00

$800

.00

$1,0

00.0

0

$1,2

00.0

0

$1,4

00.0

0

$1,6

00.0

0

$1,8

00.0

0

CFO

Bas

e Sa

lary



@BDO_USA_Tax

CFO TOTAL DIRECTION COMPENSATION IS LEVERAGED, BUT NOT AS HIGH AS CEO LEVELS

• Median CFO Total Direct Compensation = $934,374

• TDC increases by a factor of 6-times over CFO base salary as revenue increases (that’s almost half the leverage CEOs have!)

• One outlier was over $20 million

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$0.0

0

$200

.00

$400

.00

$600

.00

$800

.00

$1,0

00.0

0

$1,2

00.0

0

$1,4

00.0

0

$1,6

00.0

0

$1,8

00.0

0

CFO

Tot

al D

irec

t Co

mpe

nsat

ion



@BDO_USA_Tax

THE BDO BOARD COMPENSATION SURVEY


@BDO_USA_Tax

DIRECTOR COMPENSATION BY INDUSTRY

2014 Summary Statistics by Industry

Board Retainers and Fees

Committee Retainers and Fees

Stock Awards

Option Awards

Total Board Member Comp

Energy $62,948 $14,097 $7,574 $78,443 $163,062 Financial Services-Banking $33,199 $14,700 $5,137 $25,073 $78,109 Financial Services-Non Banking $51,418 $11,875 $9,458 $43,200 $115,951 Healthcare $49,463 $13,670 $25,784 $71,530 $160,446 Manufacturing $47,030 $11,565 $17,444 $47,776 $123,815 Real Estate $60,090 $15,159 $3,953 $80,180 $159,381 Retail $47,910 $12,906 $5,616 $58,693 $125,125

Technology $47,007 $25,674 $19,986 $100,903 $193,569

$- $20,000 $40,000 $60,000 $80,000

$100,000 $120,000 $140,000 $160,000 $180,000 $200,000

Ener

gy

Fina

ncia

l Ser

vice

s-Ba

nkin

g

Fina

ncia

l Ser

vice

s-N

onBa

nkin

g

Hea

lthc

are

Man

ufac

turi

ng

Real

Est

ate

Reta

il

Tech

nolo

gy

Option Awards

Stock Awards

Committee Retainers and Fees

Board Retainers and Fees


@BDO_USA_Tax

HERE’S WHAT WE LEARNED ABOUT BOARD PAY…

• This year, Financial Services (Non-Banking) had the highest percentage increase of 27.4%, but is still the second-lowest paying industry at $115,951

• Technology had the highest increase of Board member pay at 18.6% is still the highest paying industry for Board members at $193,569

• Manufacturing once again had the lowest percentage increase from last year, but is tied with Energy this year (this is very unusual for Energy): 5.5%


@BDO_USA_Tax

PERCENTAGE INCREASE IN TOTAL DIRECTOR COMPENSATION BY INDUSTRY

• Financial Services (Non-Banking) had the biggest percentage increase this year of 27.4%

• Financial Services (Banking) came in second this year with a gain of 20.7%

• Followed by Real Estate with a gain of 19.7%

• Manufacturing is still struggling with a gain of 5.5% over last year

5.5%

20.7%

27.4%

9.4%

5.5%

19.7%

7.6%

11.0%

8.1%

13.0% 10.5%

7.8%

4.2% 4.9%

11.5%

18.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Ener

gy

Fina

ncia

l Ser

vice

s-Ba

nkin

g

Fina

ncia

l Ser

vice

s-N

onBa

nkin

g

Hea

lthc

are

Man

ufac

turi

ng

Real

Est

ate

Reta

il

Tech

nolo

gy

2014-2013 Change

2013-2012 Change


@BDO_USA_Tax

PREDICT YOUR COMPANY’S COMPENSATION LEVELS WITH OUR REGRESSIONS

y = 216.14x + 481,370 (CEO Base Salary) y = 2585.8x + 106 (CEO Total Direct Compensation)

y = 142.98x + 248,354 (CFO Base Salary) y = 868.01x + 676,958 (CFO Total Direct Compensation) y = 65.778x + 64,939 (Board of Directors Total Compensation) Directions on using the regressions: 1. Substitute x above for your Company’s revenues in millions

(e.g., $400 million in revenues, use 400 as x)

2. Evaluate the desired formula for y, this is your predicted compensation level

3. For example, to predict CEO Base Salary of a $400 million company: y = (216.14 x 400) + 481,37021 = $567,826


@BDO_USA_Tax

NOTABLE 2013 PROXY SEASON RESULTS

• Focused on disclosure (no new regulation implementations) • New focus on “selling” the executive compensation

program - Widespread use of executive summary that describes the pay-

performance link, from the Company’s perspective - Acknowledge the results of “say-on-pay” vote and how it affected

compensation decisions - Description of discussions with major investors - Long lists of pay program reform

• Elimination of perquisite programs and tax gross-ups • Reformation of executive employment agreements • Restructuring of incentive and equity-based compensation programs • Review of compensation peer groups

- Explanations of one-off pay decisions


@BDO_USA_Tax

LOOKING FORWARD TO PROXY SEASON 2014…

• For companies with a negative or lukewarm result this year: - Especially embarrassing this year because this is no longer new - Loss of investor support - Votes against re-election of Compensation Committee Chair or members - Time to get serious and figure out how to engage with investors and

their advisors, identify issues and enact remedies before 2014 proxy published

• For companies with strong support: - Learn from others’ experience - Make sure there are no detrimental side effects from compliance - Don’t take investor support for granted

• For everyone, ongoing concern regarding the ultimate effects of SEC’s unfinished rulemaking.


@BDO_USA_Tax

LESSONS LEARNED

• Analysts’ models are sophisticated and will be more so in the future as they adapt to Company and Shareholders’ concerns

- The correlation of pay and performance will be very apparent - Companies should finally terminate programs that offer little value and

are irritants to shareholders: perquisites, gross-ups, egregious contracts, “pay for pulse” compensation, bonuses not linked to performance metrics.

• Companies should establish direct communication channels with investors

• Companies should devote a great deal of time to telling their story in the proxy; take nothing for granted

• It’s all about disclosure


@BDO_USA_Tax

COMPENSATION RESOURCES

For additional thought leadership related compensation matters, please visit links within BDO’s Board Reflections webpage under “Compensation” at: www.bdo.com/library/boardreflections.aspx

http://www.bdo.com/library/boardreflections.aspx


Thank you for attending!

That concludes today’s program.


BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 49 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of 1,264 offices in 144 countries. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. www.bdo.com To ensure compliance with Treasury Department regulations, we wish to inform you that any tax advice that may be contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. Material discussed in this publication is meant to provide general information and should not be acted on without professional advice tailored to your individual needs. © 2014 BDO USA, LLP. All rights reserved. www.bdo.com

preliminary results: 2014 executive and board ......• exclusive for this presentation: regression...

Documents