GuerdonNews® Volume 12 Number 9

October 2016

Dear reader,

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Welcome to the October 2016 issue oGuerdonNews®

 

In this issue we: 

• Recognise that much of remuneration and governance "best practice" may be just a fad

• Describe the circumstances resulting in a company's removal of an aligned by culturally imperfect incentive plan

• Provide a checklist for executive sign-on remuneration

• Dream of a job where pay is 90% luck

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Are remuneration and other governance “best practices” just fads? 

A board checklist

Over several hundred years there have been many great advances in corporate governance. And now we have "best practice".

This article provides a checklist to determine if a “best practice” or any other practice, is effective or just a fad.

 Read more

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Cutting out an aligned but culturally imperfect incentive system

Was it culture, remuneration, or lack of supervision, or all, that contributed to systemic misdeeds? 

Cross selling has been an integral part of Wells Fargo strategy for decades. It has been so successful that retail banks globally benchmark their performance on cross selling to Wells Fargo. It is part of the Wells Fargo DNA. Recently the bank announced that it reached an agreement with the Consumer Financial Protection Bureau (CFPB) to the tune of $185 million in fines for opening deposit accounts and transferring funds without customers’ consent. 

The bank has announced that it would eliminate product sales goals by 2017 in an effort to begin to change the way they incentivize employee behaviour. 

Read more.

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Agreeing executive sign-on payments can be stressful

We suggest a board checklist

Sign-on payments nearly always give rise to tensions – for the board, with investors and proxy advisers, and, of course, for the executive who may be leaving something behind!

In several countries there are now regulations for sign-ons in the banking sector.

It can be easier in many situations by ensuring a few key steps are taken.

Read more.

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Executive pay as a function of luck

For some, effort and skill contribute just 10% of the result 

A recent paper attempts to estimate the magnitude of the pay-for-luck component in US option-based remuneration. How much of the “pay-for-performance” remuneration is actually paid for luck?

The answer depends on the ratio between the manager’s talent, defined as her ability to increase the firm’s average return, and the inherent “noise” in the stock’s returns, as measured by the standard deviation of returns. 

Read more.

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The information, analysis and opinion in this e-mail and attachments are intended to be for informational purposes only. Analyses are based on information taken from public documents or private surveys, and we do not represent to its accuracy. Guerdon Associates assumes no liability for the use or interpretation of information contained herein. This publication is provided 'as is' without warranty of any kind, either expressed or implied, including, but not limited to, the implied warranties of marketability, fitness for a particular purpose, or non-infringement of third party rights.

Copyright © 2016 Guerdon Associates

ISSN 1834-8300