Student Research Project: Proxy Statement Analysis
Locate the latest proxy statement for one of the three companies listed below (see “Notes” for guidance in locating proxy statement):
1. Starbucks 2. Bed Bath & Beyond 3. Nike
For the company you select, you will analyze the company’s executive compensation program. Specific factors to be considered are presented below. Refer to materials in the Week 7 module reading on Executive Compensation (Chapter 19) for clarification of compensation terms and to SEC Regulation S-K, Item 402 – Executive Compensation, for disclosure requirements. Address the following questions:
1. What are the objectives of the company’s executive compensation program? Do they appear to support the business strategy of the company? If so, how? Demonstrate the linkage. Would you make any changes to the company’s executive compensation objectives or philosophy? If so, what would you change? Why?
2. How is the CEO’s performance assessed? On what factors is the CEO assessed? Based on what you have learned about performance appraisal in this course, are the factors/measures used to assess CEO performance appropriate? Are the factors used to assess the performance of the CEO adequately described? Do they align with the company’s strategy? Why or why not?
3. What is the CEO’s total compensation for the most recent year? Does this level of compensation appear to be warranted? Why or why not? Support your response with appropriate arguments, references, or comparisons.
4. What percentage of the CEO’s annual compensation is “at risk” (performance-based)? Does the amount of pay at risk change your view of whether executive pay is too high? Why or why not? [Note: If not clearly stated, annual at-risk pay can be easily calculated by dividing the non-equity incentive received by the sum of salary + non-equity incentive pay.]
5. What percentage of the CEO’s total compensation is equity-based? Do you think this level of stock or options grants is appropriate? Why or why not? How do equity grants align with stockholder interests?
6. Most professionals rely on comparisons of executive pay with Total Shareholder Return (TSR) as an indicator of “fairness” in executive pay. Does the company you selected use TSR? What is your opinion of TSR as the measure for assessing CEO performance? What alternatives exist? Support your response with appropriate references.
7. What is Section 162(m) of the Internal Revenue Code and what does it mean for executive compensation? How has the impact of this tax provision changed with the Tax Cuts and Jobs Act of 2017?
8. The SEC has adopted a final rule implementing the provision of the Dodd-Frank Act that requires U.S. public companies to disclose the ratio of their CEO’s compensation to that of their median employee. This rule goes into effect the first time a company files a proxy statement after January 1, 2018. What is this ratio for the organization your selected? Do you believe that this “Pay Ratio Disclosure Rule” will be beneficial in controlling executive compensation? Why or why not? Support your response with appropriate arguments and references.
9. Dodd-Frank also requires periodic “Say on Pay” votes by shareholders. What does this provision of Dodd-Frank require? Do you believe this rule will be beneficial in controlling executive compensation? Why or why not?
10. What is your personal take-away from this assignment? In other words, what did you learn that you did not know about executive compensation prior to this assignment? What benefited you the most from the assignment?
The proxy analysis should be prepared as a research paper following APA guidelines. Do not merely answer the questions. The analysis must have a title page followed by an abstract and text with major section headings addressing each of the issues identified above. For example, the first section heading after the Abstract might be titled “Executive Compensation Philosophy.” This heading should be followed by a narrative discussion and evaluation of the executive compensation objectives or compensation philosophy of the company. Be sure to address the questions posed above in your narrative response in each section. The paper should be double-spaced and limited to a maximum of 8 pages, excluding the title page and references.
1. SEC Regulation S-K, Item 402 is summarized in a website sponsored by the School of Law, Cornell University (law.cornell.edu/cfr/text/17/229.402 (Links to an external site.)).
2. A Proxy Statement can frequently be located on the company’s corporate website. It can also be located at sec.gov (Links to an external site.). Enter the EDGAR database, enter the name of the company, and locate the latest version of Form DEF 14A. This will be the Proxy Statement.
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