Corporate Governance

2018 Corporate Governance & Execution Compensation Survey

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Shearman & Sterling LLP CEO Pay Ratio: Perspectives on the First Year and A Look Forward | 9 24 48 69 (median) 105 116 125 138 5.8 8.7 12.3 (median) 16.9 18.0 19.4 22.5 Median Employee Pay (in thousands of dollars) (in millions of dollars) 10 th percentile 25 th percentile 50 th percentile 75 th percentile 80 th percentile 85 th percentile 90 th percentile 10 th percentile 25 th percentile 50 th percentile 75 th percentile 80 th percentile 85 th percentile 90 th percentile CEO Compensation Only one of the S&P 500 companies surveyed provided a comparison of its pay ratio to its peers – and that company made comparisons of its ratio to both the ratios of companies with similar revenues and to those with a similar number of employees, although it did not identify the companies in either of these comparisons with any specificity. Comparative Pay Ratios Alternative Pay Ratios We identified four key presentation options that companies considered as they prepared their CEO pay ratio disclosure – alternative pay ratios, comparing the company's pay ratio to that of its peers, the location of pay ratio disclosure in the proxy statement and the level of detail provided about the pay ratio calculation. PRESENTING THE RATIO Approximately 62 companies, or 16% of the S&P 500 companies surveyed, presented an alternative pay ratio Companies reported a higher alternative pay ratio for a variety of reasons, including increasing the CEO's compensation by using target total compensation for the CEO (as opposed to reported CEO compensation) for the year because the CEO did not receive an annual equity award in the year. Companies also reported a higher alternative pay ratio to take Of those that did, 49 companies, or 80%, presented an alternative pay ratio that was LOWER than the required pay ratio 13 companies, or 20%, presented an alternative pay ratio that was HIGHER than the required pay ratio into account a special one-time equity award the CEO was getting in the following year – likely to get out well ahead of an expected increase in the pay ratio in the following year. ISS: In 2018, ISS began displaying both the CEO pay ratio and the total annual compensation of the median employee in its research reports – but indicated that pay ratio information will not affect ISS's voting recommendations in 2018 ISS/GLASS LEWIS APPROACHES Glass Lewis: In 2018, Glass Lewis began displaying CEO pay ratio information as a data point in its research reports – but noted that while pay ratio information may provide additional insight when assessing a company's pay practices, it will not be a determinative factor in Glass Lewis's voting recommendations in 2018

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