If Not Target Date, Then What?

Last week, I wrote about a major problem with Target Date Funds (TDFs). I suggested that for many people, the targeting, and therefore the asset allocation, is incorrect. So, what would make it better?

The short answer, in my opinion, is that workers need to defer more income. And, the government needs to abet this process. Under current law, many individuals are limited in the amounts they can defer to a 401(k) plan. This occurs for one of a number of reasons:

• An individual bumps up against the statutory deferral limit of $16,500 ($22,000 including catch-up for those who will attain age 50 or older in that year)
• An individual bumps upon against a plan limit (usually put in place to assist in passing ADP and ACP testing (nondiscrimination testing for 401(k) plans))
• An individual defers as much money as the plan allows (or some other significant amount) and the plan is not able to pass ADP testing, so amounts are refunded

Those three reasons usually relate to higher paid people. For the lower-paid, they often cannot afford to defer enough.

I suggest that unless Congress (and the President) do something to both promote and provide an incentive for employers to sponsor more and more generous retirement plans, then employees need to better understand the plight that they face. Perhaps the government shouldn't build the model (suggesting outsourcing it here), but workers need to better understand how much they really need to save. Individuals need to be able to model their scenarios based on reasonable assumptions. They need to be able to input one-time and limited-time expenses. There should be suggestions as to assumptions with education as to why those assumptions (or range of assumptions) may be appropriate.

Then, perhaps, workers will understand when they will be able to retire. And, then and only then, might TDFs become appropriate as default investments (QDIAs) in 401(k) plans. 

Since ERISA was signed into law in 1974, the federal government, in my opinion, has done everything in its powers to gut the retirement income security system it claimed to be protecting. It's time for them to step up and tell the people how bad they've made it.

Do Target Date Funds Have it Bass Ackwards?

Target date funds or TDFs as they are sometimes known are all the rage in defined contribution (DC) plans. Perhaps, you have your money invested in one. Before I try to confront conventional wisdom, let me explain how they typically work.

Your plan account is set up on what is known as a glide path. What this means, oversimplified somewhat, is that your funds are invested in a diversified portfolio which is fairly aggressive at younger ages, and gets more conservative as it moves along the glide path toward older ages.

I'm not saying that this is wrong, but I'm going to challenge conventional thinking. I did a really simple simulation for 25 years. I assumed that a person started with annual compensation of $50,000, got annual pay increases of 4% per year, deferred 6% of pay into his 401(k) plan each year and got various rates of return on his money for each year. In the case where our hero earned a 10% rate of return in year 1 and 0% in year 25 with intermediate years sloping down smoothly, his account balance at retirement (end of Year 25) was about $182,500. When I assumed an annual rate of return of 5% (never varying), his account balance at retirement was nearly $223,500, and when I reversed the first scenario by grading upward from 0% to 10%, his account balance at retirement was just shy of $272,000.

But, the whole philosophy behind TDFs is to sacrifice potential reward for decreased risk as a participant approaches retirement. These illustrations imply that this is all wrong. Why? Well, the close that you get to retirement, the more money you have in your account. So, in Year 1, it probably doesn't make much difference what your rate of return is as there is a limit on what can happen to $3,000 deferral. But as deferrals and earnings add up, the annual rate of return becomes much more important.

This is too simplified for you, isn't it? Well, I made it more complicated. I developed multiple scenarios using a random number generator where the rates of return in Years 1 through 5 averaged 6%, in Years 6 through 10, they averaged 5.5%, in Years 11 through 15, they averaged 5.0%, in Years 16 through 20, they averaged 4.5%, and in Years 21 through 25, the average return was 4.0%. The mean ending account balance of all the simulations was about $192,000. Then, I reversed the process so that 5-year time-weighted returns averaged 4% in the first 5 years up to 6% in the last 5 years. Now, the simulated mean ending account balance was about $225,000.

Come on now. Don't do this to us. Don't mess with conventional wisdom. It hurts the brain on a Friday. What is going on here?

Let's step back and think about the underlying TDF premise. I'm going to point out a huge flaw in that premise (I'd love to be besieged with comments telling me why I am wrong). TDFs are designed so that the participant takes more risk and presumably gets more reward early in his career, and that is gradually reversed to the point where the participant takes less risk and gets less reward later in his career. This makes a big assumption which is usually false.

Read on, MacDuff!

The assumption made in TDF design is that a participant nearing retirement actually has enough money in his account that he no longer needs the upside potential that he needed when he was younger. In other words, it presumes that our participant has nearly enough money in his account to retire on as he nears retirement age, and that only some significant downtrends could disturb that.

We've all seen the data. It's just not so. Our participants rarely have enough in their accounts these days to retire on and they don't understand that. So, this de-risking strategy, while it doesn't make our participants significantly less able to retire when they plan to, also doesn't make them able to retire.

What is the answer? If I could snap my fingers and tell you, I wouldn't need to be sitting here blogging. I'd be out in northern California in my rocking chair looking out the window at my vineyard being tended to by others. But, I'd like to posit that DC plans need to learn something from defined benefit (DB) plan funding methods. I'm not talking about the current farce where all plans with pay-related benefits are forced to use a non-pay related cost method to determine contribution requirements. I'm talking about an old friend, Individual Aggregate.

If I've lost you now, I'm going to bring you back to the story. A long time ago in a faraway land (shortly after the passage of ERISA in the ivory towers of the Treasury Department), the IRS and Treasury were good enough to tell us in regulations and other guidance what constituted a "reasonable actuarial cost method." Individual aggregate was a favorite for funding one-person plans. It was constructed to produce a cost of a level percentage of pay throughout a participant's career so that a participant's retirement benefit would be fully funded at retirement, and the cost of deviations from assumptions were spread over the participant's remaining future working lifetime, so that the benefit would be fully funded at retirement. That's a really neat concept, isn't it?

What does it have to do with DC plans? Well, part of funding a DB plan is (or at least used to be before Congress starting meddling with funding rules) that the actuary makes a bunch of actuarial assumptions related to compensation, retirement date, mortality patterns (life expectancy), rates of return, and other related factors. Couldn't a participant in a DC plan do that?

So, a participant makes assumptions. He decides what percentage of pay he can defer to his plan, and through this fancy concept known as individual aggregate, he gets a necessary rate of return. Necessary rate of return is too high, he better defer more, or retire later. In any event, this would amount to sound planning.

Yes, for those who start early, defer a lot, and get a nice inheritance, TDFs will work well. Those participants will be prepared for pre-retirement in their pre-retirement years, and for them, downside risk avoidance will be paramount. But data shows that most participants are not in that situation. For them, I think we need to re-think TDFs.

Tell me why I am wrong. Tell me why I am right. Tell me something.

When the SPD is Wrong

Today, I return to an old discussion, the litigation in CIGNA Corp v Amara . This case has made it to the US Supreme Court, and in fact, oral arguments have been heard. The circumstances in this case are not unusual. A summary plan description (SPD) for an ERISA plan promised more generous benefits than were actually available under the terms of the plan. The SPD, of course, contained language saying, in essence, that where the SPD and plan document disagree, the document shall govern.

I have mixed feelings on this case. Should plan participants be entitled to a windfall merely because their employer (or some outside vendor) wrote a bad SPD? Shouldn't participants who reasonably made plans based on communications from their employer receive what was promised to them in writing?

Should an employer who cavalierly published an incorrect SPD get off scot free? Should an employer who erred in publishing an incorrect SPD be on the hook for the entire discrepancy?

This is one case where I am awfully glad that I don't sit on the Supreme Court. While I can't say that I am confident that they will use proper logic or come to a proper decision, this one is not easy. While the correct answer may be somewhere in the middle of the extremes that I posed in my questions in the two preceding paragraphs, I suspect there is no legal support for middle ground. More than likely, an extreme it shall be.

As I said when I wrote on this case a few months ago, many SPDs that I have read are seriously flawed. They are often drafted by junior communications consultants or legal assistants for review by in-house benefits specialists. None of these people try to make mistakes, but many companies do cut corners.

Historically, companies have not lost these cases. But, as I read the tea leaves from the questions asked by justices during oral arguments (some are in my original post ), I think that CIGNA could be in trouble on this one.

The message that will be sent is that companies need to get it right. The cost of an incorrect SPD could be huge. Perhaps it will be money spent wisely to get it right.

Proposal to Provide for Increase in PBGC Premiums

"The proposal is both good government and better for business," according to Pension Benefit Guaranty Corporation (PBGC) Director Joshua Gotbaum. "It protects retirement security while encouraging and rewarding responsible business behavior."

I've been in the benefits and compensation consulting business for more than 25 years. I've counseled clients to implement defined benefit plans, redesign defined benefit plans, freeze defined benefit plans, and terminated defined benefit plans. I think this makes me an educated commentator on Director Gotbaum's quote. Yet, I don't get it.

The proposal coming out of the Obama Administration would allow the PBGC, in addition to its current structure of charging both fixed-rate and variable-rate (for plans that it views as underfunded) premiums, to charge premiums related to the financial health of the company. Now, tell me, how does this protect retirement security?

What it will do instead is convince more and more companies to freeze or terminate their defined benefit pension plans, thus reducing or eliminating their prospective premium obligations. This does not protect retirement security. What it actually does, instead, is destroy the pension promise that participants thought they had.

Take note: every time that the government makes the provision of pensions more cumbersome, fewer companies sponsor defined benefit plans. How can this possibly protect retirement security? What it does is protect the PBGC against its own questionable judgment. Time and again, the PBGC has pushed for changes in pension legislation until we got to the point that plan sponsors are required to fund long-term obligations on a short-term basis. Therefore, when assets or liabilities behave poorly, the plan is left 'underfunded' and owes the PBGC more money. Note that a plan that is significantly overfunded gets no relief in its flat-rate premiums. Further, under the vague proposal from the Administration, a plan sponsor of a very well funded plan who has a short-term financial downturn could owe extra premiums to the PBGC.

Tell me again: what does this have to do with protecting retirement security?

Ways and Means Chair Sometimes Most Powerful Person in US

It must be that the benefits and compensation worlds are standing still. I'm not inspired right now to write anything truly topical. But, what does the House Ways and Means Committee have to do with this topic anyway?

Well, I'll tell you. The US Constitution says that tax legislation has to start in the House of Representatives. The House rules say that the place where tax legislation will start is in the Ways and Means Committee and the Chair controls the docket. Convinced yet?

OK, then, think about all the pay and benefits that you get from your employer, or, if you are an employer, all the pay and benefits that you provide to your employees. Companies take tax deductions for virtually all of it. But, the amount and timing of those deductions is often a major influence in determining exactly how and how much you are paid or which benefits you receive and how. It seems like taxes shouldn't have much to do with your rewards package, but alas, taxes have everything to do with your rewards package.

What will happen if the US ever adopts a Fair Tax? http://www.fairtax.org/site/PageServer  Well, for one thing, that would mean an end to the Ways and Means Committee and certainly eliminate one of the most highly-sought after positions on the hill.

If you look at the list of former (and current) Ways and Means Chairs, you'll see some names that you recognize: James Polk (became President), Millard Fillmore (became President), William McKinley (became President), Wilbur Mills (got involved with a stripper named Fanne Foxe), Dan Rostenkowski (convicted of mail fraud, but passed more legislation covering employee benefits than all other Ways and Means Chairs combined), and Charlie Rangel (censured by the House for failing to report income on his tax return of all things). There is no other House committee from which I could name 6 Chairs (actually I could name more from this one without using Google or Wikipedia).

The current Chair is a Republican from Michigan by the Name of Dave Camp. He replaced a Democrat from Michigan by the name of Sander Levin. That's two consecutive Michiganders or if you prefer, Michiganas, running this committee. By all appearance, he is not a particularly exciting man. Is this good or bad for the Human Resources world? I don't know. Frankly, Mr. Camp appears out of the current vocal Republican group clamoring for spending cuts.

From my way of thinking, this probably means that Social Security and Medicare reform will be slow (if at all) to happen during Mr. Camp's reign. I don't expect a major tax reform that many clamor for. And, since major benefits legislation always has tax implications, I don't expect much of that either. So, for 2011 and 2012, maybe we get to keep a lot of the status quo.

Top Concerns for Pension Plan Sponsors

An SEI 'Quick Poll' found that controlling funding status volatility is the number one priority for defined benefit plan sponsors. When I look at the Top 10, however, a common theme emerges: Managing Risk.

Here are the Top 10 (in traditional as compared to Letterman order):

1. Controlling funded status volatility
2. Providing senior management with long-term pension strategies
3. Improving plan's funded status
4. Conducting an asset-liability study
5. Effectively managing duration moving forward
6. Implementing a liability-driven investment (LDI) strategy using long bonds
7. Defining fiduciary responsibilities for trustees and investment consultants
8. Changing funding policies and timelines
9. Stress-testing the portfolio to gauge its ability to withstand extreme macroeconomic environments
10. Implementing a plan design change such as closing the plan to new entrants or freezing accruals in already closed plans

It's time to make a few comments on this list. First, who comes up with these choices? #9 was clearly the brainchild of someone with too much time on their hands trying to sound smart. Isn't that what you do as part of #4? Second, all ten of them address some element of risk management. Third, of the companies that chose #8, I wonder for how many of them, changing funding policies is the same thing as actually having a funding policy.

You Can Keep Your Health Care Benefits, or Can You?

We all remember the trumpeting of health care reform (PPACA). We all heard that if we wanted to, we would be able to keep our existing benefits. A recent poll suggests that is wrong.

According to data from the Society for Human Resource Managers (SHRM), 51% of HR managers say they will keep their health care offerings. That leaves 49% who either won't or are not sure. The biggest hurdle may not be cost, but the implementation process. 54% said that the provision requiring coverage of adult children is creating implementation problems. 34% complained about the exclusion on reimbursements for out-of-pocket expenses for over-the-counter medication as being an implementation challenge.

To me, this suggests that many of us will not be able to keep our health care benefits. Stay tuned.

Incentive Compensation Arrangements Under Dodd-Frank

The sky must be falling, or perhaps it has fallen already. There is no other possible explanation. On Monday, February 7, the following alphabet soup of government agencies published proposed rules under the incentive compensation provisions of the Dodd-Frank Act:

• Office of the Comptroller of the Currency (OCC)
• Federal Reserve System (Fed)
• Federal Deposit Insurance Corporation (FDIC)
• Office of Thrift Supervision (OTS)
• National Credit Union Administration (NCUA)
• Securities and Exchange Commission (SEC)
• Federal Housing Finance Agency (FHFA)

Surely my eyes deceive me in reading this: http://www.fdic.gov/news/board/2011rule2.pdf

Not only are these agencies telling large banks (assets of $50 Billion US or more) how to pay their executives, they are telling the executives (and other individuals who could subject the banks to significant risks) that they must defer large chunks of their incentive payments.

Don't get me wrong. I'm in the line of people who would tell you that many of these banks overcompensated these same people while some of these banks were in danger of failing (or did fail) without government intervention. Some of these banks did not come close to failing. They already have policies and procedures in place. Who decided that they federal government should have this kind of control? Surely, they have overstepped their bounds.

Before describing the source of my indignation, I must pause to explain what is meant for purposes of this regulation by the term, executive officer. It is any person (without regard to title, salary or compensation) who holds the title or functions as the President, Chief Executive Officer, executive Chairman, Chief Operating Officer, Chief Financial Officer, Chief Investment Officer, Chief Lending Officer, Chief Legal Officer, Chief Risk Officer, or is head of a major business line (major business line appears to be undefined).

So, what's the buzz, tell me what's a happening (with apologies to Webber and Rice for pilfering from Jesus Christ Superstar)?

I summarize for these Large Covered Financial Institutions:

• at least 50% of the compensation of executive officers would need to be deferred for a period of at least three years
• deferred amounts paid must be adjusted for actual losses or other measures or aspects or performance that are realized or become better known over the deferral period
• the release of deferrals may be as rapid as pro rata over the three-year (or longer) period
• the agencies seek comment on many things, including whether the mandatory deferral period should be longer
• the Board (or a Board committee) of each of these organizations must similarly evaluate the incentive-based compensation of other individuals who could expose the organization to high levels of risk

These are too many rules. And, these rules punish the innocent equally with the guilty. Apparently, clawbacks and similar mechanisms are not sufficient. These rules are taking business judgment out of the rulebook for the financial institutions that already have appropriate controls in place.

This could have been done differently. If we had let the banks that had been mismanaged fail, the survivors would have been rewarded for their prudence and they could continue to compensate their key people prudently. But, more regulation leads to more regulation leads to more regulation leads to weakening (rather than strengthening) of the industry.

In case you weren't sure, I don't like it.

Text Of Lifetime Income Disclosure Act

Here it is: http://www.gpo.gov/fdsys/pkg/BILLS-112s267is/pdf/BILLS-112s267is.pdf

Companies Fight Back on Say-on-Pay

I've written several times recently about Say-on-Pay under the Dodd-Frank legislation. You can see the compilation and get background here: http://johnhlowell.blogspot.com/search/label/Say%20on%20Pay

For those that don't know, there are a few firms out there, most notably Institutional Shareholder Services (ISS) and Glass-Lewis, that advise shareholders (primarily large institutional shareholders) on how to vote. The companies are now fighting back. Roughly 100 large companies through a lobbying adviser are asking that ISS, Glass-Lewis and others be investigated for conflicts of interest.

So, the battle heats up. Personally, I do think that ISS and Glass-Lewis have a bias, but they do perform an important service. Large institutional investors do not have the manpower or skill sets to be evaluating executive compensation programs. On the other hand, the services, while they have general expertise, are automatically biased against certain forms of compensation which may be appropriate in individual circumstances.

I'm not sure where this one is going, but as it moves along its path, I'll do my best to keep you informed.

Senators Introduce Lifetime Income Disclosure Act

In a bipartisan effort, Senator Jeff Bingaman (D-NM), along with co-sponsors Herb Kohl (D-WA) and Johnny Isakson (R-GA), has introduced Senate Bill 267, the Lifetime Income Disclosure Act. I would provide you with a link to the actual bill language here, but there is this little problem: it's not yet made it to the Government Printing Office (GPO), nor has it made it to Senator Bingaman's web site. For those who want to read the actual language in the future, I suggest you go to the Library of Congress web site: http://thomas.loc.gov and search on S 267.

Readers do not want the delay inherent in the GPO. If you are here, you want your news now. So, without further adieu, away we go (my tribute to Jackie Gleason). Sponsors of defined contribution (DC) plans will be required to provide participants with annual statements that are patterned after Social Security statements. They will be required to show a participant's projected lifetime income based on a number of assumptions (none of which, IMHO, will actually come true). To relieve plan sponsors of "material burden", the Department of Labor (DOL) will be directed to provide a model disclosure as well as tables to assist plan sponsors in preparing these statements.

This could be interesting. If the assumptions that are mandated or recommended by the DOL are reasonable, roughly half of plan participants will fail to have balances sufficient to support the disclosed annuities. Bring on the cavalry -- plaintiff's bar. But, who will they sue? Plan sponsors? The DOL? Congress?

This is a step in the right direction, though. A bill like this will at least get people thinking about how much annual income their account balances might provide. But, this is at best Step 5 or 6. Step 1 needs to be in the schools. By the time a participant gets into the workforce, he or she needs to have enough financial literacy to understand things like this. But, that's a different rant for a different day. In the meantime, I applaud these three senators for their efforts and I'll keep you informed as this bill moves along.

Real World Finances, or, Why The Senate HELP Committee Testimony was Ludicrous

As I noted in my last blog post (it's the one immediately below this one, so I'm not going to link to it), the testimony to the Senate Health, Education, Labor, and Pensions Committee on retirement savings was in need of some people more closely attached to reality. We had two academics, a manager from an investment consulting firm and a reporter from the Today Show.

I listened to the whole two hours, and while there were some thoughtful comments (and some far less thoughtful ones as well), both the 'experts' and the Senators need to stop to think about real life. Each of these experts thinks that auto-enrollment (the process by which a new employee is defaulted into a 401(k) plan with a specified rate of deferral, often 3% of pay) and auto-escalation (the process by which that 3% of pay increases periodically, sometimes annually, until it reaches a limit) are good things. Further, they think that default percentages should be higher than 3% of pay and that auto-escalation should go up to about 15% of pay (10% is the current auto-escalation limit).

Reality check time ... wait just a minute, Bozo!

Let's consider a new employee of a company, perhaps in their second job. I am going to make this person married, 27 years old, with no children. I am going to give this person a salary of $60,000 and I am going to assume that their spouse also has a salary of $60,000. That's pretty good for a pair of 27-year olds. I am also going to assume that of these two spouses that exactly one of them is of child-bearing gender. I am going to call this couple Jack and Jill, and I am going to make Jill the one in the new job.

With combined income of $120,000 ($10,000 per month), Jack and Jill are able to purchase a $500,000 house with a 20% ($100,000 down payment). Here's the math on that: I gave them a 30-year loan on $400,000 at 5% with no PMI and annual property taxes of $6,250. Including their homeowner's insurance, that gives them monthly payments of about $2,750, less than the old 28% qualifying threshold. Thus far, other than being able to make the down payment, I don't think this is an extraordinary scenario.

Let's do a little budgeting. My illustration here may not be perfect, but I bet it isn't too far off:

Monthly Salary                               10,000
Taxes (Federal, State, and FICA)   (3,100)
Subtotal                                           6,900
House Payments                             (2,750)
Subtotal                                           4,150
Employee cost for health ins              (450)
Subtotal                                           3,700
Utilities                                             (400)
Subtotal                                           3,300
Food and household supplies           (1,000)
Subtotal                                            2,300
Auto Insurance                                   (100)
Subtotal                                            2,200

OK, enough, you get the picture. While they're at it, Jack and Jill each are in 401(k) plans that are going to auto-escalate them to 10% of pay deferrals. Ignoring inflation, that's another $1,000 per month, leaving them at $1,200 per month, for vacations, gifts, clothing, savings, etc. Some day, they will both need new cars. And, I did mention that Jill is of the child-bearing gender. Jack and Jill would like to have two children some day. Tell me again, how does this math work?

I realize that Jack and Jill could have made a more prudent home-buying decision, but that's not reality. They saw this wonderful home in a great school district. They got pre-qualified for a mortgage and with their excellent credit, the lender wanted to lend them as much as possible. Having been pre-qualified for a $400,000 loan, of course, their real estate agent wanted to find them a $500,000 house. This is reality.

When Jack and Jill have to cut back, are they going to cut back on taxes, insurance, food, clothing, etc, or are they going to cut back on their savings in their 401(k) plans? Only one of those has much discretion in it, so I'm betting on the 401(k). When Jill takes maternity leave for their children, it only gets worse. And, then there is day care. And, you know, the job market isn't all that stable these days. There are lots of layoffs of highly qualified workers. Maybe Jack will get laid off.

I know. They should have thought of all this when they bought their house. But, they didn't. They were buying into the American dream. And, now, they are stuck with the American dream. Their parents had it ... and they had pension plans. But, Jack and Jill don't. Maybe Congress shouldn't either.

What Happened to the Real World People?

Yesterday, the US Senate Health, Education, Labor and Pensions (HELP) Committee was scheduled to hold a hearing entitled, "What can be done to help Americans Save More for Retirement." Key speakers scheduled were these:

• Jean Chatzky, financial journalist, author, and financial editor at NBC's Today Show
• Lori Lucas, executive member of the Defined Contribution Institutional Investment Association
• Julie Agnew, Associate Professor of Economics and Finance at William and Mary Mason School of Business
• Jeffrey R. Brown, William G. Karnes Professor of Finance at University of Illinois Urbana-Champaign College of Business

OK. Great. Where are the professionals? Where are the people who have spent their lives in this field. 

You can read the testimonies here: http://help.senate.gov/imo/media/doc/Chatzky.pdf   http://help.senate.gov/imo/media/doc/Lucas.pdf   http://help.senate.gov/imo/media/doc/Agnew.pdf

http://help.senate.gov/imo/media/doc/Brown6.pdf

And you can listen to the 2 hours of excitement here: http://help.senate.gov/hearings/hearing/?id=c8c1c5c7-5056-9502-5dd5-8b9f87d76457

As I listened to Senator Harkin's (D-IA) introduction, I nearly turned ill. He proves that the Senate still doesn't get it. He cites statistics out of context where he confuses the cause and effect. To his credit, he wants to schedule additional hearings on the pension system. Perhaps he will have some experts then.

We have a long way to go.

First Say on Pay Loser

You just knew there had to be a first one, the first company whose Dodd-Frank say-on-pay vote failed. Here is where you can find the 8-K for Jacobs Engineering Group, Inc, filed on January 27: http://www.sec.gov/Archives/edgar/data/52988/000119312511017395/d8k.htm

By a vote of 54% to 45% with a little more than 1% abstaining, the vote lost. It's not as if there was a complete upheaval against the company (you'll notice that other votes passed with almost no opposition), but the executive compensation got a 'NO' vote. We don't know why, the shareholders don't get to vote on individual components of executive compensation. It's just an up or down vote on the total package.

What lessons do we learn from this failure? In my opinion, the biggest one is that companies need to develop a strategy for the say-on-pay vote. What communications are necessary to increase the likelihood that shareholders will not find the executive compensation proposal unreasonable? Did Jacobs Engineering explain their proposal well? I don't know. Is there one thing in the proposal that was viewed as particularly egregious by shareholders? We have no way of knowing.

But, the simple fact is that the Compensation Committee of their Board should have had a good idea of which parts of their proposed package could be viewed negatively, and guarded against this sort of vote. It looks like they didn't do that, and for that, as the first big loser here under Dodd-Frank, they shall live in ignominy.

IMHO, Some People's Elevators Don't Make it All the Way to the Top Floor

According to a survey from ING Direct USA, way too many people, IMHO, are way too hung up on whether their team wins the Super Bowl. Here are some of the key reasons that I say this:

• 16% of men say they would give up alcohol for 1 year if it would make their team win the Super Bowl
• 17% of women say the same thing
• 5% of respondents say they would give up one paycheck for their team to win the Super Bowl. IMHO, these people have elevators that don't leave the ground floor.
• And, 3% of respondents say they would give up $100 per week for the rest of their lives for their team to win the Super Bowl. Methinks that these people are either very old, very sick, have too much money, or they are just plain stupid.

You think otherwise? Let me know.