A change of reality
Companies have seen some revolutionary times in the last few years. With corporate scandals, extended governance regulation and recent financial upheaval, business as usual is no longer possible, let alone acceptable. As corporations have had to change, one of the positions most affected has been that of the corporate secretary.
At first glance, the 2007 report on corporate secretary compensation by the Society of Corporate Secretaries and Governance Professionals would seem to indicate a degree of stasis, particularly in the area of compensation. But look under the surface and you will see indications that the world - as corporate secretaries once knew it - is changing. Changes once attributed to Sarbanes-Oxley are becoming the new status quo, fueled by a continuing interest in governance. Salaries and staff numbers seem flat at best, but the corporate secretary department faces the same economic pressures as corporations and whole industries do. And all this may be masking a more fundamental change: greater awareness of governance and compliance as professions and increased respect for the role of the corporate secretary.
The 2007 study (which looks primarily at 2006 salary figures) used broadly the same questions as previous surveys (designed in cooperation with Korn/Ferry International), which allows a comparison across time. The 536 responses came from a combination of 85 percent publicly-held companies, 11 percent privately-held companies and 4 percent non-profits. In 2004, 91 percent of the respondents held the title of either corporate secretary or assistant or deputy corporate secretary, while in the new survey, that number is 85 percent. Other respondent titles (multiple answers were allowed) include vice president (26 percent in 2006 and 27 percent in 2004), general counsel (25 percent/33 percent), and senior vice president (12 percent/16 percent). But chief compliance officer, chief governance officer and director of corporate governance? Together, they went from 8 percent to 12 percent.
This is the first indication that something is happening among corporate secretaries: the position is reflecting the continuing increased emphasis on governance and compliance. An enormous number of respondents say that things have changed since Sarbanes-Oxley: they are more responsible for compliance and governance matters (76 percent) and more directly accountable for compliance and governance matters (69 percent). Workload and hours increased for 69 percent and staff numbers have either remained flat or even decreased for virtually all, so there are no people who can take some of the work off the corporate secretary's back.
The bulk of the start-up work to reach Sarbanes-Oxley compliance should have been long past and the focus moved more toward maintenance. But if you substitute the phrase 'the era of compliance' for Sox, the response makes sense. 'You start with Sarbanes-Oxley as a catalyst,' says Zsolt Besskó, executive vice president, general counsel and secretary for Centennial Bank Holdings. 'Over the past several years, it's always something else that replaces the level of work you're ramping up on, be it Sarbanes-Oxley, executive compensation or whatever the next thing will be.'
Apparently, in the world of the corporate secretary, the next things are coming along more regularly than bullet trains in Japan. As complying with Sarbanes-Oxley started to become more of a routine process than an excruciating exception, it showed that there is a new universal law: society abhors a compliance vacuum. Everyone's attention turned to majority voting and executive compensation.
'Last year people were talking about the SEC's new executive compensation disclosure rules and people thought this would be a one-year event where we'll draft everything and in following years we'll just have to update the language,' says Douglas Chia, senior counsel and assistant corporate secretary at Johnson & Johnson, and a participant in both surveys. 'The SEC said: Businesses made a good faith attempt at complying but we're expecting more. We want companies to be doing more, showing more. You can't simply rely on what you did last year while providing updates. This year is not as much of a breather as people thought it would have been, and it probably won't be that way next year either. The SEC, the companies and the investors have come to the conclusion that last year was a good step in the right direction, but we still need to hone this disclosure to make it more readable and usable for people. In some cases, companies need to disclose even more for people to get what they need out of it.'
Also elevating the level of pressure felt by companies are shareholder activists, who continue to speak out on governance issues and who are generating more demands in the form of proposals and resolutions. 'Just from the anecdotal evidence, it seems that shareholder activists' activities are up more this year than last year,' Chia says. 'Some activists are sending proposals to blocks of companies, not because they have specific problems, but to make a statement in general and that statement is: You all need to be doing more in a given area.' In a question that the Society asked on behalf of Corporate Secretary magazine, work outside of normal hours stayed the same or went up for over 63 percent of respondents, with just over 35 percent not answering. Welcome even more work for the corporate secretary.
With all the additional responsibility, a logical question to ask is how other personnel perceive their corporate secretaries. 'I think the role of a corporate secretary has become more important [since 2004],' says Charles Berardesco, chief compliance officer, corporate secretary, vice president and deputy general counsel for Constellation Energy. 'Today you spend a lot more time making sure that the board's deliberations are documented appropriately [to defend the board in case of a legal action]. That is particularly important currently because of executive compensation. I think a good corporate secretary is going to be helping a chairman or CEO when he or she has questions from the board or from a shareholder on an issue, and that advice role can sometimes be played by a corporate secretary.
'It's going to be interesting to see the anecdotal fallout from companies like Citibank and Merrill Lynch and their corporate secretaries when their boards effectively revolted and said [their CEOs] have to go,' concludes Berardesco. Plus, corporate secretaries have become de facto chief compliance officers, though they don't always hold the title.
No two corporate secretaries are the same
Complexity in the professional lives of corporate secretaries makes examining compensation a challenge. 'One of the difficulties I think when you're benchmarking corporate secretary compensation is that the people who have the corporate secretary function have vastly different responsibilities within the company and potentially vastly different backgrounds,' says Ellis Regenbogen, corporate secretary and associate general counsel at USG Corporation. 'The responsibilities run the gamut from the general counsel and corporate secretary roles being combined, to someone like me, who is the corporate secretary and who heads up the corporate side of the law department - who's the only corporate lawyer the company has. Sometimes the corporate secretary is clearly designated as the chief governance officer. Sometimes the corporate secretary will be the chief compliance officer. I am one of 16 executive officers in the company. In lots of other companies, somebody who is the corporate secretary or maybe associate general counsel isn't going to be treated as a corporate officer.'
The most challenging aspects of compensation are long-term payments, including 401k and pension contributions, stock grants and options, and SERP. They vary widely, depending on the company and the status of an employee. Survey respondents report long-term compensation that ranges from less than $1,000 in annual employer 401k contributions to $2.5 million. That makes trying to understand total compensation very difficult. Long-term incentive packages can be valued in a wide range of ways, so it is therefore very difficult to make a uniform comparison. One other thing to consider is that many of these plans are contingent on personal, corporate or general stock market performance and should not automatically be viewed as a guaranteed boost to personal net worth. How do you compare a 401k plan to stock options?
With this in mind, looking at cash components is probably one of the more useful measures when making comparisons. Even though cash isn't the same as total compensation, it does offer a directly comparable variable. Though even there, the results can be deceiving as respondents have the tangling complexity of overlapping titles. How do people break out only one part of their responsibilities when wearing multiple hats? For example, respondents with the title of corporate secretary have annual cash and additional cash compensations totaling $315,955. Those who also have the general counsel designation receive an average of $408,195. Assistant or deputy corporate secretaries are paid another amount: $163,065.
Overall, those responding to the survey have faced cash stagnation, as they have not seen a significant increase in compensation. For example, the average annual cash compensation for all respondents is $180,080 - those with law degrees seeing $215,545 and those without receiving $116,900. But the figure for those with law degrees is 1.4 percent less than in 2004. Those without law degrees actually did see an advance between the two years of around 8 percent, but because the non-lawyers are a relatively small part of the respondent group, their gains are overshadowed by the losses. And so, given the margin of error in the study, it is reasonable to state that annual compensation for the corporate secretary group has been flat year-on-year. And the average for additional cash compensation, including bonuses, profit-sharing and performance awards, is down 1.9 percent - again, flat within the statistical margin of error. In other words, from at least a cash view, on the average, corporate secretaries haven't seen an increase in pay for a couple of years.
Not getting recognition
There are a few possible reasons for this. One is the question of whether anyone other than corporate secretaries realize how their responsibilities and work have mushroomed. 'Corporate secretaries realize how much work is involved,' Chia says. 'The rest of the in-house legal world is still a little bit slow to realize how much is going on. You'll hear a lot from corporate secretaries that everyone in the legal department will wonder what the [corporate secretary's role is]. It's much different than it was prior to the implementation of Sarbanes-Oxley. Other parts of the legal department are slow to realize that.'
Ironically, another factor in flat pay and resources is that corporate secretaries apparently are not anxious to leave their positions. In a question asking how people feel about their current roles, over 51 percent describe their job satisfaction as good or extremely good, with over 35 percent not responding and just over half saying their job security is good or extremely good. If tenure in a position is an indication of satisfaction - in the 'if they didn't like it they would leave' school - then corporate secretaries are exceedingly happy with tenures that make virtually any other category of executive look like nomadic Bedouins. A full 70 percent of those responding have been in their current positions for a minimum of three years and 38 percent have at least six years in. When the proverbial squeaky wheel gets the grease, then the others are left to fend for themselves. A driving force for escalating pay in most other executive positions is the need to recruit talent - generally from a relatively small candidate pool. But as corporate secretaries spend so much time in their positions, few companies are looking for them, so they don't see the scarcity and, as a result, don't see the need to sweeten the pot to retain the ones they have.
Pay is also intrinsically tied to budgets, and in this arena, the corporate secretary's office, like many other departments, is usually viewed as a cost center. Organizations have been coming under intense pressure to cut costs but at the same time increases in personnel are required to cope with the heavier workloads. In this area, the respondents seem to have lost some ground. In 2004, 25 percent reported having six or more staff reporting directly to them and 59 percent had one to five. In the latest survey, only 20 percent have at least six direct reports and 62 percent have five or fewer. The percentage of those without any direct reports went from 14 percent to 18 percent.
'I can only speak to my experience with two companies over the last three and a half years, and the staff size has gone down,' says Regenbogen. 'In one case, it was a function of two companies merging and fairly sizeable layoffs after the merger, so the staff got pared pretty dramatically. Even since then, somebody that was really the corporate secretary has left, and the corporate secretarial function has been picked up by one of the lawyers, even though the general counsel has the title. Before I even got [to USG] 18 months ago, the staff was reduced by one and it's been reduced again since. The corporate secretary used to administer the stock plan administration. Now that is outsourced. We took away what at one time was a pretty busy function.'
Getting more money, either as increased salaries or for extra headcount, is not easy. 'Even for a general counsel that is the corporate secretary, if they want to increase headcount for the corporate secretary function, they have to sell it to the rest of the department, and the rest of the department may say, We don't understand why you need the headcount in the corporate secretary department more than in litigation or transactions, which are really short-handed right now,' Chia says. Even though 'one additional lawyer or one additional paralegal can make a great difference,' if the department or company doesn't understand the need, it won't free up the money. 'It all comes down to economics and looking at the economics trends today, either belt tightening has started or will start pretty soon in companies in quite a few sectors. In [pharmaceuticals], most companies are indicating significant job layoffs. It's hard to justify additional headcount in the corporate secretary's office when you're laying off salespeople and scientists.'
Given that compensation - in 84 percent of cases - is set by either the board of directors, compensation committee, CEO or general counsel, the only way to get pay increases is for upper management and the board to recognize exactly what the corporate secretary is doing. Fortunately, getting access to the highest levels of companies isn't difficult for this group; 87 percent of respondents report having medium to high amounts of interaction with their boards of directors.
Simply arguing for more resources is rarely a good tactic in corporations; it's better to demonstrate value, so decision-makers have an incentive to want more. As Regenbogen mentions, a corporate secretary can significantly impact 'the efficient running of board meetings through the quality of the information that is provided to the board.' Corporate secretaries can look beyond the obvious financial and operational information and package information from outside the company that can affect the jobs of the directors. 'If you choose carefully and don't inundate them, they're very appreciative of that,' he says. One important area is risk management, because boards want to understand the risks their companies face, and what management is doing to manage those risks. A good corporate secretary can help them create structures to monitor risk - charters and checklists so committees know what they have to cover, ensuring that important annual topics appear automatically on agendas, helping the board implement and use policies and procedures.
'[The directors] want to be ahead of the game and know what's coming down the pike,' Regenbogen says. 'You can be early eyes and ears on that sort of thing. Depending on a secretary's role within a particular company, there are other areas you can reach into where the board will start to see you [as the one to talk to].' That includes the linkages among the board, HR, governance and compensation. When the corporate secretary adds value, the board notices, and then the board makes others - the CEO and the general counsel - aware of that.
If the past tells the future, then the writing is definitely on the wall - in bold block letters - of the corporate secretary's office: more responsibility and more demands. On average, 92 percent of respondents attend six or more board meetings a year, and in addition, 83 percent of respondents have to attend six or more board committee meetings. The corporate secretary is intrinsically tied to the highest levels of business and the result may be to increase the position's visibility and importance.
'I've heard of some more companies that decided to split the corporate secretary position from the general counsel position,' Chia says. 'More companies are now inclined to create a separate corporate secretary position. It's increased demands. The general counsel is saying, I don't have enough time to be doing [the corporate secretary] job properly, and we need someone dedicated to it. A lot of general counsels can handle communications with the board of directors, but even that is getting increasingly burdensome,' he says, reasoning that, 'When it comes to the number of securities filings that companies need to make these days, it's probably something that general counsels should not be spending their time on.'
As the business, government and societal insistence on good governance and regulations continues, corporations will need to focus a lot more of their attention on transparency and compliance, and someone will have to take on that job. When the designated person to assume this task is the corporate secretary, then, in the long run, reliance on that person will grow. And eventually, so might the resources available for salaries, and also, for headcounts.