Is Intel’s executive compensation shift really a ‘cultural change’?

Due to executive fresh equity grants, the two sides may still be far apart

Intel Corp. may have called a recent executive compensation shift a “cultural change,” but the change may actually be a minor tremble as compared to a major earthquake.

According to The Wall Street Journal, compensation analysts say that Intel’s SEC filing announcing the shift may be overstating the changes made. Rather than aligning executives with shareholders, as Intel claims, there still remain differences between the two parties’ ideas regarding compensation packages.

The key difference is within the fresh equity grants executives receive on a yearly basis if they meet shareholder return targets. If a company’s stock price falls, then the grants have more shares. But if that happens, executives are now also working to meet shareholder targets from a lower base. In the end, the WSJ reports, the alignment of shareholder value and executives would still be weak under this system.

“What they are doing is to use a little sleight of hand to deliver something close to what they were delivering before but make it look different,” said Andy Restaino, managing director of consultancy Technical Compensation Advisors Inc., told the WSJ.

Many companies are attempting to bridge the gap between executive and shareholder compensation, but many executives and shareholders still do not have their priorities in alignment. In particular, the two parties remain divided on whether there is room for improvement in the idea of say-on-pay voting.

Intel in particular has felt this disconnect between shareholders and executives. In 2013, only 68 percent of voters approved the proposed say on pay plan. Britt Wittman, Intel director of executive compensation, claims the company has assuaged shareholder fears through changes this year, most notably confirming that there would be no retention awards this year.

Despite some differences, however, executives and shareholders are still in alignment on some key issues related to executive compensation. In a November 2013 PricewaterhouseCoopers survey, both sides viewed compensation consultants and institutional investors as “very influential” in the compensation process as a similar rate. And against the advice of many proxy advisers, more shareholders approved executive golden parachutes tied to mergers and acquisitions in 2013.

 

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