Wednesday, December 2, 2015

Board With the Bo$ton Globe

I $uppo$e reading the $ame things and typing the same words over and over again, year after year, while the agenda advances and the problems they diligently report are exacerbated will do that to a person.

"Few hours, soaring pay for corporate board members; Critics say high corporate compensation can reduce aggressive oversight; defenders call work demanding" by Sacha Pfeiffer and Todd Wallack Globe Staff  December 02, 2015

Michael Heffernan earned $1 million from Ocata Therapeutics Inc. in Marlborough last year, including stock and stock options. William D. Young received $1.7 million in compensation from Vertex Pharmaceuticals Inc. of Boston. And Phillip A. Sharp hauled in $1.9 million from Cambridge-based Alnylam Pharmaceuticals Inc.

But the men are not chief executives or vice presidents. They’re not even full-time employees.

They’re corporate board members, receiving premium paychecks in exchange for, typically, attending a meeting every few weeks. The Boston Globe calculated the men earned more per board meeting than the average Major League Baseball player received per game.

Related: Red Sox, David Price reach record-breaking $217m deal

That's the Price to pay, and it is not lo$t upon me that it is right next to this above the fold (I would be $miling also were I receiving $1 million a start for the 7 years) in the paper owned by the owner of the Bo$ton Red $ox.

Also see: Red Sox Foundation joins Globe Santa effort

Hey, it's not like they are keeping it or anything.

Like pay for chief executives, compensation has skyrocketed for board members at publicly traded companies across Massachusetts and the United States over the past 15 years, even as wages have stalled for most American workers.

Board pay has nearly doubled at the 200 largest US public companies since 2000 to a median of $258,000 last year, according to a Globe analysis of data from the National Association of Corporate Directors. And the pay — which is typically set by the board members themselves — has risen at an even faster clip at smaller and midsize companies. By contrast, weekly wages for full-time US workers overall rose just 37 percent during the same span, according to the Bureau of Labor Statistics.

Million-dollar pay packages for board members are “very, very troubling,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “It’s tough to justify.”

Directors play a pivotal role in corporate America, with responsibility for overseeing management, hiring and firing CEOs, ratifying key decisions, and helping set long-term strategy. But in a series of stories that begins today, the Globe shows that escalating compensation could create a disincentive for directors to challenge executives and that the boardroom remains the preserve of white men.

And service remains a part-time gig. On average, board members report that they generally work fewer than five hours per week per board. Many directors also hold full-time jobs.

“The idea that a director would receive half a million dollars or more from service on one board speaks to growing inequality in our society,” said Brandon Rees, deputy director of the AFL-CIO’s Office of Investment, which studies corporate governance.

Corporate watchdogs are worried about more than basic fairness. Some say the director pay at some companies has become so lucrative that it could discourage directors from questioning excessive perks for chief executives for fear of upsetting the rest of the board and losing their coveted positions.

Elson said that some directors’ compensation packages have become “so large that it incents you to act in a way that keeps your fee, as opposed to in a way that furthers the company’s interest.”

A 2006 study in the Journal of Corporate Finance found a strong correlation between excessive pay for directors and chief executives and noted that the companies paying their directors the most also underperformed their peers financially. A study last year in the International Journal of Business and Finance Research concluded that high chief executive and board pay go hand-in-hand due to “mutual back-scratching.”

It’s easy to find examples in which high-paid directors were accused of not doing enough to oversee the companies and senior executives:

Enron, the Texas energy-trading giant, had one of the highest-paid boards in the country in 2001, the same year it collapsed amid allegations of accounting fraud and excessive executive pay. The company paid out $55 million in bonuses to employees just days before filing for bankruptcy.

That obviously caught my eye, and all those records were lost when WTC 7 collapsed at almost half-past 5 on the afternoon of September 11 of that year.

Chesapeake Energy, which was rocked by a scandal of its own in 2012, paid directors far more than its peers and allowed its board members to use its corporate jet for personal travel. Investors later accused directors of failing to monitor the chief executive’s spending and potential conflicts of interest, including taking personal stakes in thousands of the company’s oil wells.

And Boston-based Vertex this year came under fire for approving a $37 million pay package — among the highest in the country — for its chief executive, even though the company has made an annual profit only once in its 26-year history. Financial filings show Vertex directors awarded themselves a median of $788,000 in total compensation last year, double the median for companies Vertex identified as its peers. 

I tried to find some links, but....

But many people in corporate America defend rising director pay, arguing that board work has become more rigorous and time-consuming because of new regulations and laws, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank financial overhaul measure of 2010.

“Fifteen years ago, most people who were on boards were members of the country club, they were friends of the CEO, and they didn’t do a heck of a lot of work for the money,” said Martin M. Coyne 2d, a former executive vice president at Eastman Kodak Co. who has served on a number of boards. “Now it’s a much harder job. You have to do your homework, work at it, stay current on things, and you have a tremendous amount of personal exposure if things go wrong.”

Nationally, directors estimated they spent an average of 248 hours per year on each board they served on last year — just under 5 hours a week per board — up from 156 hours in 2003, according to surveys by the National Association of Corporate Directors. That includes attending committee and board meetings, as well as travel and preparation for those gatherings.

That's about when I lost interest in the meeting.

Directors can spend more time if a company becomes the target of a hostile takeover or faces a financial crisis, forcing directors to hold emergency meetings. But they often spend only a few hours a week on each board.

JoAnn A. Reed, a health care consultant who serves on the boards of three publicly traded companies, estimated she spends more than three hours a week on average on each board she serves on, although that time is often clustered in full days of travel, preparation, and discussions.

Last year, for instance, she earned more than $900,000 serving on the boards of Waters Corp. in Milford, Mass., Boston-based American Tower Corp., and Mallinckrodt Pharmaceuticals PLC of Ireland.

Reed argued the national growth in director pay is justified, noting that firms are competing to recruit experienced executives, especially chief executives and chief financial officers. Reed herself served as a chief financial officer for a major pharmacy benefits company for a dozen years. And Alnylam director Sharp has a Nobel Prize under his belt.

“I think the caliber of individuals [on boards] has improved since the early 2000s,” Reed said. “You have more people who are specialized.”

Reed also argued the increased pay was justified because many companies have become larger and more valuable over time. For example, median pay for directors at Waters Corp. has more than doubled over the past eight years to $336,360, but so has the value of Waters’ stock, benefiting shareholders.

“Your stock price is increasing, therefore the compensation numbers are increasing,” Reed said.

That is not the case everywhere, however. Overall, the S&P 500 stock index has climbed 43 percent since 2000, even as director pay more than doubled during the same period. And it is hard to measure how the quality of directors has changed over time. Many older directors on boards now were also on boards 15 years ago.

Meanwhile, pay continues to march upward. In Massachusetts, director pay has risen almost 60 percent over the past seven years, according to a Globe review of financial filings at more than 100 publicly traded companies.

At Massachusetts firms alone, the Globe found dozens of directors earning more than $500,000, including at least a half-dozen who topped the $1 million mark in total compensation last year.

Some directors even earn as much as chief executives for serving on a single board.

For instance, former Merck & Co. chief executive Dr. P. Roy Vagelos, 86, earned $20.5 million last year, mostly in stock options, for serving as chairman of the board of Regeneron Pharmaceuticals Inc. of Tarrytown, N.Y. That’s double the amount the average chief executive earned at an S&P 500 company, according to the most recent report by Equilar, which tracks executive compensation.

A Regeneron spokeswoman, Alexandra Bowie, argued Vagelos was “technically an employee” because he was given an employment agreement in 1998 that requires him to work 30 to 50 hours a month, or an average of nine hours a week. The pay works out to nearly $43,000 per hour.

Regeneron also had one of the highest-paid chief executives in the country: Dr. Leonard S. Schleifer earned nearly $42 million last year, mostly in stock options.

Still, Regeneron and other companies pointed out that much of the board compensation came in the form of restricted stock and stock options, which can take years to vest and fluctuate in value.

What one is $tunned to $ee is the power and clout of the pharmaceutical indu$try and its use as a  conduit for wealth to flow to select groups and individuals. 

That's "our" $y$tem, folks.

Stock options in particular are tricky to value. Companies typically report an estimate of what the options would be worth on the day they were granted, assuming they could be sold on the open market. But the actual amount of cash directors reap could ultimately be much higher or lower, depending on how the stock performs and when directors exercise the options.

Vertex spokeswoman Dawn Kalmar said its director pay is almost “100 percent performance-based” because so much is in the form of stock options. She said the structure gives directors an incentive to boost the company’s stock price, which has more than tripled in the past three years. “Those options have no value if the share price does not go up,” Kalmar said. She said the bulk of Young’s $1.7 million compensation last year was based on a one-time additional package of stock options he received upon joining the board.

Yet Young was also immediately put on the compensation committee that awarded the chief executive’s controversial pay package. The pay was so high that a majority of investors voted against the pay in a nonbinding shareholder vote earlier this year.

Vertex, however, said it plans to reduce the amount of compensation it pays directors and change the mix to give directors more in cash and less in stock options. Kalmar said the change would align Vertex with the pay structures of similar life sciences companies.

Similarly, Alnylam noted the bulk of its director compensation is based on stock options. In fact, Alnylam gave out such large packages that four of its directors earned more than $1.2 million in total compensation last year. Sharp, who earned $1.9 million, was the highest-paid director. However, Alnylam spokeswoman Christine Lindenboom said the company recently decided to reduce the number of options its board members receive by 25 percent to reflect its substantial increase in share price. As a result of that change, Alnylam’s board pay will better match its peers.

And Ocata spokesman Christopher R. Hippolyte said Heffernan’s $1 million compensation package included a “one-off stock option grant” that was valued at nearly $800,000. He noted the options could be worthless if the stock does not go up.

The argument rings hollow to David Zweig, coauthor of the 2010 book “Money for Nothing: How CEOs and Boards Are Bankrupting America.” Most restricted stock and options, he noted, do wind up being worth real money — even if that amount differs from their estimated value in financial filings.

Most stocks do rise over time, even if the company has average performance. And companies typically give out a raft of new options every year. So even if a company’s stock price plummets, directors typically get a new round of options at that lower price. Indeed, options can often be worth millions just based on normal fluctuations in a firm’s stock price.

“It’s like buying a lottery ticket you have a pretty good chance of winning,” Zweig said. “That’s not skin in game; that’s getting a skin graft from someone else.”

And a far cry from fantasy sports, too.

Overall, total pay packages have soared so high that some watchdogs worry it has gotten out of hand.

“You have to pay them, obviously, for their effort, time, and potential liability,” said Elson, the University of Delaware professor. “But when you start looking at director compensation that looks like managerial compensation, that’s where you run into problems.”

Not everyone is a Zuckerberg.


It's part of an occasional series and I'm no longer fooled by the feel-good one-day wonders while the $tatu$ quo advances.

"Marco Rubio’s N.H. surge is riddled with doubts; GOP insiders bemoan lack of staff, activity" by James Pindell Globe Staff  December 02, 2015

LACONIA, N.H. — As Senator Marco Rubio has climbed the polls, the Floridian lacks one element that has proved to be pivotal for previous winners of New Hampshire’s presidential primary: a robust ground game that can generate enthusiasm and support when voters go to the polls.

On Tuesday, Rubio and a super PAC supporting his candidacy started an onslaught of 1,900 television advertisements — approximately $2.8 million worth — on the state’s top station. But underneath the buzz, GOP activists in New Hampshire are grumbling that Rubio has fewer staff members and endorsements than most of his main rivals and has made fewer campaign appearances in the state, where voters are accustomed to face-to-face contact with presidential contenders.

For much of this year, Rubio just hasn’t been here,” said Belknap County Republican County chairman Alan Glassman, who is not backing a candidate.

That is where the turn-in comes, and one could say that about me.

Ten GOP candidates have spent more days in New Hampshire this year than Rubio so far, according to a tally from WMUR-TV. Among the top tier of Republican candidates, only retired neurosurgeon Ben Carson has spent less time in the Granite State. In what has become an unusual campaign, Rubio, businessman Donald Trump, and Carson have not invested as much in a ground operation as earlier leading presidential candidates.

Rubio’s campaign insisted it has a significant presence throughout the state and said he will increase his appearances. After two public events on Monday, he returns to New Hampshire Friday and again next week.

“We are running an aggressive grass-roots campaign in New Hampshire and will continue to do so until the polls close on February 9th,” said Jim Merrill, Rubio’s New Hampshire point man who oversaw the Mitt Romney campaigns in the state in 2008 and 2012. “Every day, our team is working hard to meet voters on their doorsteps, by phone, through social media, and at events, to earn every vote. ”

On Monday, at a midday town hall meeting in the Lakes Region, Rubio took the stage 65 minutes late. He apologized for his tardiness, blaming “traffic in Miami,” and promised to speak for only a few seconds before taking questions.

Instead, Rubio delivered a 22-minute stump speech, took questions for 11 minutes, and shook hands for 10 minutes before rushing to a live television interview with Fox News Channel. Rubio spoke to the camera in front of a campaign logo, masking the rustic wood panels of a building that had hosted decades of presidential candidates practicing the art of retail politics.

James Gaisser, a 55-year-old carpenter from Sandwich who plans to vote in the GOP primary, came to Monday’s event on the way to a doctor’s appointment in Gilford, but he left after waiting an hour for Rubio.

“He is not helping himself with barely showing up and then being late when he does,” Gaisser said. “In New Hampshire, we see this as a unique opportunity for us to see him, but also for him to see us, and introducing himself. He looks good on television, but if he keeps this up he is blowing it.”

Laying the groundwork for a Bush steal, 'er, resurgence?

In a GOP primary field filled with 14 major candidates, Rubio has ascended to the top tier, taking second place in the most recent Suffolk University/Boston Globe poll of New Hampshire Republican voters. Only Trump leads Rubio, 22 percent to 11 percent, according to the poll, which was taken in mid-November.

Yes, troublesome Trump has doubled up on just about all of them.

Rubio’s campaign said its voter-outreach program is top-notch. A campaign aide said volunteers knocked on 4,000 doors in the state last weekend and supporters are present at most local Republican gatherings, plus events such as the holiday parade in Salem.

A review by the Globe found that Rubio’s staff remains small compared to other top campaigns. He has seven paid aides in New Hampshire — a size more in line with what struggling candidates have.

Other campaigns have double that number: Trump has 15 paid aides in the state, while Carson has 10. Former Florida governor Jeb Bush recently revealed he had increased the state staff to 20 people.

Bush is also opening four offices in the state for a total of five; Rubio has one.

In addition to the staff gap, Rubio has not collected many high-profile endorsements. New Jersey Governor Chris Christie’s campaign boasts they have secured 100 endorsements, and Trump is drawing crowds of thousands also willing to volunteer for him. In New Hampshire, Rubio’s campaign boasts notably fewer, though he picked up one endorsement this week from Franklin Mayor Ken Merrifield.

Rubio’s relatively small staff means the campaign relies on other groups to host events and build an audience — another key component in generating excitement for a campaign. Most of his recent visits include a single town hall meeting and another event, such as a business tour or a speech to the local Chamber of Commerce.

“It is a risky strategy to do what Rubio is doing,” said New Hampshire-based Republican consultant David Carney, who served as the White House political director under President George H.W. Bush. “If something bad happens, then his entire house of cards will crumble. He needs personal relationships here and people willing to fight for you when times get hard. Otherwise the people with him now because he is winning will go to the next person who starts winning.”

Like Gaisser, a few other town hall meeting guests at his event on Monday left after waiting for Rubio. But more than 200 people stayed the entire time to hear him speak.

Many Republicans, including Liz Tilton of Laconia, came away impressed. Naomi Fitzgibbons, a Republican from Plainfield, said she was more likely to vote for Rubio after seeing him in person.

She just wished Rubio would have had more time for her questions.


"Mass. AG faults insurers’ use of data for rate hikes" by Deirdre Fernandes Globe Staff  December 02, 2015

Attorney General Maura Healey has found that two of the state’s largest insurance companies won excessive and unwarranted rate increases of about 9 percent for homeowners policies by taking advantage of last winter’s record snowfall and other catastrophic weather in recent years.

The rates are based so they can meet profit targets they have set, can you believe it?

Healey’s analysis is not binding, but it will probably increase pressure on the state Division of Insurance to conduct more transparent and rigorous reviews of rate increases in the future, one state lawmaker said. The insurance commissioner has the power to rescind rates, but that has rarely, if ever, happened and would be unlikely....

Then why is this the lower above-the-fold lead on the front-page?


I'm hungry for something but that is not it. 


Lawmaker wants officials to reconsider insurance rate hikes

Women, minorities have few seats in Mass. boardrooms

They still get the maximum payout, and it turns out Zuckerberg is no different than the rest of the elite crust.

"Republicans appear headed for another ‘long slog’" by Matt Viser Globe Staff  December 03, 2015

WASHINGTON — The Republican nominating contest will probably take place over a grueling, months-long grind next spring. The large field, uncertain state of the race, heavy influence of super PACs, and quirks of the calendar have triggered some concern that the eventual nominee again could emerge damaged. There is even speculation about the possibility, however remote, that the convention would begin July 18 without a clear nominee for the first time since 1976.

It wasn’t supposed to be this way. After the 2012 campaign, top Republican officials devised rule changes for a shorter nomination contest in 2016 so the party could more quickly rally behind a candidate and focus on defeating the Democrat in the general election.

The primary features a complex system in which candidates will be competing in individual congressional districts throughout the nominating contest, seeking to amass 1,237 delegates as part of a war of attrition. The outcome of Super Tuesday, with all delegates being awarded proportionally in 12 states (including Massachusetts) on March 1, could be a super muddle.

“It’s truly a wide open ballgame,” said Saul Anuzis, a former RNC member from Michigan who helped reconfigure the rules and is now supporting Ted Cruz. “The establishment has not rallied behind a candidate, the money people have not rallied behind a candidate, and the grass roots have not rallied behind a candidate. It’s unlikely that we have a drawn-out convention. But if there’s ever been a possibility, this is one of them.”

The first four states will be important, as usual, at thinning the herd of 14 candidates when they begin facing voters in February. But after Iowa, New Hampshire, South Carolina, and Nevada are done, there are no likely states that would allow someone to be declared a winner at least until March 15, when Florida will prove to be a key barometer. That is the first day when states can hold winner-take-all contests.

With enough states alloting delegates proportionally — some 54 percent of the delegates will be distributed this way, according to the RNC — candidates could have an incentive to stay in the race longer in the hopes of catching fire. And if the field remains crowded for a longer period, the contest could drag on, illustrating the limited control the party has over achieving a speedy resolution.

“There’s only so much that the national party can do from a rules perspective,” said Josh Putnam, a political science lecturer at the University of Georgia. “You can’t plan for how many candidates are going to run.

“I don’t think there were people at the RNC who said we’re going to have 14 or 15 candidate vying for this in December 2015,” he added. “But that’s where we are. And it’s an unknown factor.”

Traditionally, Putnam said, it begins to become clear who the likely nominee is by the time 50 percent of delegates have been allocated, which this time would fall on March 8. The nomination is often clinched by the time 70 percent of the delegates have been allocated, which under the current calendar would fall on April 26.

The biggest question marks remain Donald Trump and, to a degree, Ben Carson. They have commanded improbably strong first- and second-place spots in polls for months.

Jeb Bush and Marco Rubio will probably continue their heated rivalry, while Chris Christie and John Kasich attempt to get into the mix with them. Increasingly, establishment Republicans are worried about Cruz, who has a path to go deep into the race as one of the most conservative candidates remaining, but who they fear would lose badly to Hillary Clinton.

“The guy a lot of people are concerned about is Cruz,” said Tom Rath, an influential New Hampshire Republican and top Kasich adviser. “You’re seeing a lane that’s pretty open. If he were to win Iowa, which is not impossible, there’s a real pathway for him.”

Top officials at the Republican National Committee have been explaining to reporters some of the intricacies of the nominating contest. They are acknowledging that the process could become very difficult to follow, handing out a 20-page packet with maps and spreadsheets detailing how each state decides its delegates.

The consensus among Republican heavyweights was that in 2012, Romney emerged from the nomination fight as a weakened candidate, going up against an incumbent president who had a head start on the general election.

“After 2012 we tried to be thoughtful and see what went wrong — and if there are things the party can control, what should be better?” said Ron Kaufman, a top Romney adviser and an RNC member from Massachusetts.

This time around, several changes were made to try to influence the process. The nominating calendar was moved back, and with no challenges by other states to try to get into the action early, the four early states won’t vote until February, rather than early January in 2012. The convention was also scheduled for mid-July, about six weeks earlier than it was in 2012.

But although the calendar is compressed, the race could also be more competitive. March is a crucial month, when nearly 60 percent of the total delegates will be awarded. The month begins with Super Tuesday, when voters go to the polls in 12 states. But under party rules, those delegates will be awarded proportionally, making it difficult for any one candidate to sweep up the necessary delegates.

Perhaps the most important date is March 15, which is the first day that states can hold winner-take-all contests. Some of the most delegate-rich states will be voting that day, including Florida (99 delegates), Ohio (66), Illinois (69), and Missouri (52).

“Obama and Hillary went at it in 2008, and it worked out fine,” said Sean Spicer, chief strategist and communications director for the RNC, referring to the five months it took Obama to secure the nomination. “I fully expect to have a nominee by April. But if it drags out, it could be a positive thing.”

He said the primary emphasis in changing the rules was to move the convention up.

“As long as our nominee has a head start,” he said, “that’s all that matters.”


UPDATETerm limits key to diversifying boards

Related: "A simmering debate across corporate America: How many public boards are too many for one person to handle?"