Archive for March, 2015

What do investors expect from a proxy statement? How should it be?

What would proxy readers like to get rid of?


According to Nicholas Rummell, (1), size is the first obstacle to a useful proxy statement. Complex language and structure could be the following. Poor design and graphing also hinders an easy reading. Inconsistency through time is a noise too.

What changes could help? A good skills and capacities matrix for directors and their photos would help understand board quality, composition and diversity. Proxy design also helps: tables, colours, different fonts, etc. Remarking particular features that have been newly adopted or abandoned is a good idea also, according to Rummell.
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A disruptive idea on Executive Compensation

In this post I will introduce an article (1) providing a disruptive idea into current compensation practices: introducing Legal Limits on Executive (performance based) Pay for the main executives and using Informal contracts instead of formal ones could enhance social welfare and firms` profitability.

They state that in some circumstances restricting contract freedom enhances welfare, (2) and they propose to extend this assertion to compensation contracts. They try to argue against economic thinking (contrary to this kind of restriction) being applied everywhere and every time, disregarding those circumstances.


The argument relies on agency models and incomplete contracts; while directors observe managers`actions and their stochastic consequences, information about actions is not verifiable, so it is not enforceable; on the other hand, compliance reputation by directors (when they abide by informal obligations) helps them sign such informal contracts in the future. The cost of losing credibility depends on how far the next alternative is; and the alternative is a series of formal pay for performance contracts. If the alternative is very attractive for the board, a legal restriction on contingent pay can then be beneficial, turning the formal contract`s output worse. Read more…

What`s compensation like at Royal Bank of Scotland?

Back in 2008 Royal Bank of Scotland was bailed out by the British government, which bought a 79% stake for some £ 45 bn. Since then the bank has recognized losses every year, up to a total £ 43 bn. (1)

After RBS released its deceiving 2014 results, with a new £ 3.5 bn loss, their Remuneration disclosures for 2014 were widely captured by the media. Compensation has become a complex issue, and it is very difficult, even for those used to read the said disclosures, to extract “a complete truth”. This has been the case this time. See for example the article cited below in (2).


I read carefully their disclosures, and apart from some mechanisms used to circumvent certain rules while complying with the bank`s obligations, I`d rather say the disclosure is quite clear and the rules governing compensation matters at the bank quite acceptable.


I will make a comment on it, that will necessarily be too short. Read more…

SANTANDER Remuneration Policy

March 7, 2015 1 comment

In this post we will follow with our limited series of Remuneration Policies in Spanish quoted big companies, (we referred previously to BBVA and IBERDROLA). This is the occasion of another big bank, Banco Santander, that will be holding its Shareholder Meeting next March 27th. In his proxy materials the bank includes its remuneration policy as required by legislation.

1.- Introduction

                                   a) Principles.

  1. Compensation for directors will depend on belonging only to the board or any of its committees, assistance, and other objective criteria.
  2. compensation for executive directors: it will be designed so that:
    1. The fixed part is a significant share of total pay.
    2. Variable pay rewards the group`s objectives, (performance)
    3. Compensation is aligned with shareholders`interests, does not push to excessive risk-taking, and is competitive to attract, retain and reward talent.

                                  b) Remuneration for Directors, as a result of being a director. It will consist of a fixed maximum amount voted by shareholders, to be distributed by the Board both as (i) an annual remuneration and (ii) assistance fees. The company will provide directors with an insurance. Directors will also be compensated with shares, stock options or stock appreciation rights is so shareholders approve.

                                 c) Remuneration for Executive Directors. There is no other principle than the necessity of a proposal by the Remuneration Committee approved by the Board.

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