Meeting date 4/29/2020

Total disclosed compensation for Borg Warner CEO Frédéric B. Lissalde more than doubled in 2019: to $13,947,029 from $5,008,442 in 2018. Every component of pay increased, and the company provides an excellent example of how increasing salary inflates every element of pay. 

In the proxy statement, the company notes that Lissalde’s salary was raised by additional $75,000, representing a 6% increase. This may at first appear generous, but not necessarily unreasonable. However, the company says Lissalde’s salary at the end of 2018 was $1,100,000 million, (His total salary in the summary compensation table was $1,156,250, presumably because it did not cover a full year.) However, in the 2018 summary compensation table, Lissalde’s total reported salary was $946,235, suggesting that his salary must have increased during the year. The proxy’s reference to “the end of 2018” is a bit of a smokescreen. In 2017, Lissalde’s salary was $673,173. So from 2017 to 2019, his salary increased by 41%. This is considerably harder to justify.

The salary increase raised his annual incentive as well. The Management Incentive Plan (MIP) Payout target is set as 130% of salary. Thus, a rise in salary inflates the target. Based on the company’s results under a disclosed formula, Lisssalde was paid at 180.4% of target, thus $2,754,999.

Shareholders may also object to the metrics set for relative total shareholder return (TSR) for performance shares which can pay off even if the company does no better than its peers. If the company is performing at the 25th percentile, the award payout will still be 25% of target. Indeed, the award is paid at 100% of target even if the company is only performing at the 50th percentile of its peers. This is by definition a bonus for average performance.

Like many companies, the board has taken action to temporarily reduce compensation given the current pandemic. The company has reduced salaries by 20% for certain executives through the second quarter, including the CEO. However, as we can see above, that still is above what his salary was in 2017.

The pay ratio between the median employee and the CEO for 2019 was 314:1