April 29, 2024

Fair Game: A Better Way to Compare C.E.O. Pay

Now the Securities and Exchange Commission has dipped its toe into the executive pay pool with a rule issued last week that would require companies to publish a comparison of their chief executives’ pay to the median compensation of most other company employees.

Unless you were born yesterday, you already know there’s a vast gulf between C.E.O. pay and that of the public company rank and file. So the rule, if it goes into effect (it is now undergoing a 60-day comment period), won’t be that revelatory. Sure, there will be noteworthy numbers. But the new rule will do little to help shareholders understand whether the executive pay awarded by their companies is appropriate and if not, how off the charts it is. A far more meaningful comparison for regulators is the peer groups public companies choose to use as benchmarks when setting their pay packages.

These peer groups, which are supposed to include similar companies, often don’t. In many cases, companies choose peers that are far larger or more complex and whose executives are paid more to manage that size and complexity. Therefore, the inclusion of these companies in a peer group can skew an executive’s pay higher. Investors have a name for such companies: aspirational peers.

Peer groups certainly are ubiquitous — in 2012, some 86 percent of companies in the Standard Poor’s 1,500-stock index said they used them, according to Equilar, the executive compensation analytics company in Redwood City, Calif. But they can be pretty blunt instruments for comparing executive pay.

Aware of the potential for questionable choices of companies within these peer groups, institutional investors are examining them more closely. Equilar has been assisting these investors with a system that generates a separate peer group for a company. Shareholders can use Equilar’s peer groups — and the pay they provide to their executives — to vet the groups chosen by their companies.

Aeisha Mastagni, investment officer at the California State Teachers’ Retirement System, says her organization uses Equilar’s peer groups as a gut check before voting on executive pay at companies. When wide disparities emerge between a company’s peer group and the Equilar alternative, Calstrs officials have brought up the matter with company officials.

“The peer group aspect is one piece of the puzzle that we look at when we cast votes on company pay practices,” Ms. Mastagni said in an interview last week. “Far too many companies use the peer groups as a starting point when they really need to be that reasonableness check.”

Peer groups chosen by companies don’t always differ significantly from those Equilar’s system produces. But many do.

ONE is Hain Celestial Group, a food company based on Long Island whose founder and chief executive, Irwin David Simon, received $6.5 million in pay last year.

In its proxy statement, Hain discloses two different peer groups that it uses to benchmark pay. One consists of many food and beverage companies, including Chipotle Mexican Grill, Mead Johnson and United Natural Foods. Most have higher revenue than Hain’s and half have larger market capitalizations. And yet Hain’s chief executive received far more than the $3.9 million median pay for the C.E.O.’s at those larger peers.

The other peer group used by Hain consists of companies whose founders, like Mr. Simon, still run the show. This peer group is made up of 14 companies, including Costco and Starbucks. The revenues of most of those companies were significantly higher than Hain’s — Costco, for example, has $99 billion in revenue compared to $1.4 billion for Hain. Nevertheless, these peers paid their executives less — a median of $4.8 million versus Hain’s $6.5 million.

Equilar’s suggested peer group for Hain, adds two companies to Hain’s list, with median revenues that were much more in line: Post Holdings and SunOpta. This group paid their C.E.O.’s a median $2.6 million last year, far less than what Mr. Simon at Hain received.

Mary Anthes, a spokeswoman for Hain, said that its peer group was selected by its board’s compensation committee and that for the last two years Hain’s sales, earnings and stock price had been markedly higher, justifying the pay.

Article source: http://www.nytimes.com/2013/09/22/business/a-better-way-to-compare-ceo-pay.html?partner=rss&emc=rss

Sequenom’s Test for Down Syndrome Raises Hopes and Questions

Researchers say the new tests might not be reliable enough yet to replace amniocentesis or chorionic villus sampling, two invasive techniques that carry a slight risk of inducing a miscarriage. But they might reduce the number of women who undergo those tests only to find their fetus is normal.

“You will have dramatically fewer procedures,” said Dr. Stephen A. Brown, associate professor of obstetrics and gynecology at the University of Vermont, who has no financial relationship with any of the companies. “It’s a game-changer.”

The first new test, which analyzes fetal DNA in the mother’s blood, is being offered in 20 major cities starting Monday by Sequenom, a biotechnology company in San Diego that is trying to put behind it a data-falsifying scandal on a previous Down syndrome test that it had been developing.

The results of a study published online Monday by the journal Genetics in Medicine showed that Sequenom’s new test picked up 98.6 percent of Down syndrome cases. The false-positive rate — when the test incorrectly said that a baby would have Down syndrome — was 0.2 percent.

“It’s better than anything by far that we’ve ever seen in testing for Down syndrome non-invasively,” said Jacob A. Canick, a professor of pathology at Brown University and the senior author of the study.

The test can be used as early as 10 weeks into a pregnancy, though half of the samples tested in the study were from the second trimester, meaning 15 weeks or more.

Another company, Verinata Health of San Carlos, Calif., has said it would introduce a similar test by early 2012. Gene Security Network, based in Redwood City, Calif., hopes to have a test ready later in 2012. Other companies are also at work.

Similar techniques, which use genetic analysis techniques unavailable until a few years ago, are already being used to determine the gender of the fetus and paternity.

Some people worry that use of such tests early will lead to more abortion of fetuses with even minor abnormalities, the wrong sex or an undesired father.

Some relatives of people with Down syndrome are also concerned that the number of people with the condition will decline, leading to diminished support for them. Some relatives say people with Down syndrome can lead fulfilling lives and be a joy to their families.

Down syndrome, in which a person has three copies of chromosome 21 instead of the usual two, is marked by mild to moderate mental retardation, unusual facial characteristics and various health problems.

Most pregnant women now, regardless of their age, undergo preliminary screening using either ultrasound or tests for proteins in the mother’s blood, or both. Those deemed at high risk are then offered an invasive test, in which fetal cells are extracted from the womb.

But the existing screening tests, besides missing cases of Down syndrome, also have a false positive rate as high as 5 percent. The result is that 15 out of 16 women who undergo an invasive test have a normal baby, according to an estimate in the paper discussing Sequenom’s test.

Sequenom said the test is meant for the 750,000 women a year in the United States who are deemed to be at high risk after an initial screening, or because they are over 35. Women who test negative on the new test would have such a low chance of an affected pregnancy that they might feel comfortable skipping the invasive procedure.

However, women who test positive would still be advised to undergo a more definitive invasive test to be absolutely certain before deciding whether to terminate a pregnancy.

“We don’t feel it’s appropriate to act or make decisions or determine completely that there’s an affected or unaffected pregnancy based on the results of this test,” Dr. Canick said.

Sequenom executives also said they hope the test will be used by women who are at high risk but choose not to undergo the invasive tests, in part because they are afraid of the risk of miscarriage.

Marcy Graham, a spokeswoman for Sequenom, said the test, called MaterniT21, would be ordered by doctors, not directly by consumers. All samples will be sent to Sequenom’s laboratory for analysis.

The company said the price of the test would be around $1,900, roughly as much as for amniocentesis. Privately insured women would have to pay only $235 out of pocket, with the company assuming the risk of getting insurers to pay the rest of the bill. It is not clear how willing insurers will be to pay for the test.

Article source: http://feeds.nytimes.com/click.phdo?i=62bef9ee816e87c8be7f936846f3ece1