CINCINNATI -- Corporate governance and innovation -- those will be the two topics that consume much of Nelson Peltz’s time and energy in his first year as a Procter & Gamble Co. board member.
But the activist investor will be on the outside looking in when it comes to matters of executive compensation because his board assignments do not include membership on the compensation committee.
"Would he rather be on compensation? Perhaps," said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "But it doesn't mean he won't influence the ultimate outcome. The full board always has input on compensation."
The Cincinnati-based maker of Tide detergent and Gillette razors has announced committee assignments for Peltz, who gained a P&G board seat by waging the most expensive proxy fight in U.S. corporate history. The hotly contested election cost at least $65 million and ended in a virtual tie, forcing two recounts and ultimately a compromise, announced in mid-December.
P&G agreed to add Peltz and Novartis CEO Joseph Jimenez to its board, starting March 1, and modify its compensation program to give more weight to how the company’s performance compares to P&G's competitors.
In exchange, CEO David Taylor told investors that Peltz agreed that P&G should not be “predisposed to taking on excessive leverage, or substantially reducing R&D spending, or advocating for a break-up of the company, or moving the company out of Cincinnati."
Peltz, 75, recently left the board of Mondelez International Inc. so he can focus more fully on P&G. The maker of Oreo cookies and Ritz crackers posted a 23 percent increase in its stock price since Peltz joined the board in 2014.
P&G late last week announced board assignments for Peltz and Jimenez. Both will serve on the innovation and technology committee, which advises management on research and commercial discoveries that help the company grow.
Jimenez will join the compensation and leadership development committee, which “has full authority and responsibility for the company’s overall compensation policies,” according to P&G’s SEC filings.
Peltz zeroed in on P&G’s pay plans as a big reason that investors should vote him onto the board, publishing a lengthy analysis showing P&G bosses can earn maximum pay even if the company grows more slowly than its rivals.
“Senior executives are being paid their full bonuses even if they continue to lose market share,” wrote Peltz in a letter to investors last September. “The board and senior management have accepted mediocrity.”
P&G hasn’t announced details on how its compensation plans have been changed, except that the board approved “modifications to its Performance Stock Program to include relative sales growth metrics and a Total Shareholder Return modifier to ensure awards reflect performance versus external competitive benchmarks.”
P&G added that the changes will be implemented this year “with additional modifications still under review.”
Peltz will have limited ability to influence those modifications because he wasn’t appointed to the compensation committee. Peltz instead has been appointed to the governance and public responsibility committee. Its duties include recruiting new board members and “overseeing the Company’s social investments and commitment to making a meaningful impact around the world.”
Elson said it's "not surprising" that Peltz wasn't offered a seat on the compensation committee, given his past advocacy. But Elson said governance, compensation and audit committee are the three most important assignments for corporate directors.
"He's on one of the three," Elson said.
