DEF 14A: Lazard Seeks Shareholder Approval for Incentive Plan Amendment Amid Leadership Transition

Lazard's proxy statement details key governance matters, including a proposal to increase the share reserve for its incentive compensation plan and the election of directors, following a year of significant leadership changes.

Summary

• Lazard's proxy statement outlines key items for the 2024 Annual Meeting of Shareholders, including the election of three directors, an advisory vote on executive compensation, ratification of Deloitte & Touche LLP as the independent accounting firm, and approval of an amendment to the 2018 Incentive Compensation Plan.
• Effective January 1, 2024, Lazard Ltd changed its jurisdiction of incorporation from Bermuda to the State of Delaware and changed its legal name to Lazard, Inc.
• The company is requesting approval to increase the number of shares authorized for issuance under the 2018 Incentive Compensation Plan by 20 million shares.
• In 2023, Lazard's operating revenue was $2,440 million, with an adjusted compensation ratio of 69.8% and an adjusted operating margin of 6.8%.
• The company returned $330 million of capital to shareholders and reported adjusted net income of $75 million, or $0.77 per share, diluted.
• The Board of Directors recommends voting FOR all agenda items.
• The company is committed to maintaining high standards of corporate governance, with eight of ten current directors being independent.
• The roles of CEO and Chairman were split in 2023, with Kenneth M. Jacobs appointed Executive Chairman and Peter R. Orszag appointed CEO.
• The Board has adopted a majority vote policy for uncontested elections of directors.
• The company actively engages with shareholders, holding meetings with approximately 67% of active institutional shareholders in 2023.
• Lazard published its fifth annual Corporate Sustainability Report in 2023, focusing on topics important to stakeholders.
• The company's Nominating and Governance Committee will consider director candidates recommended by shareholders.
• The company has stock ownership guidelines for NEOs, requiring the CEO to own shares equal to six times his base salary and other NEOs to own shares equal to three times their base salary.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While it highlights positive governance practices and shareholder engagement, it also acknowledges a challenging financial performance in 2023 and the need for an incentive plan amendment. The leadership transition is presented positively, but the overall tone is cautiously optimistic.

Positives

• The company is committed to maintaining high standards of corporate governance, with a majority of independent directors.
• The company actively engages with shareholders and considers their feedback in compensation decisions.
• The company has a strong focus on corporate sustainability and responsible business practices.
• The company has a history of offsetting the potentially dilutive impact of equity compensation through share repurchases.
• The company has stock ownership guidelines for NEOs, aligning their interests with those of shareholders.
• The company's Board has adopted a majority vote policy for uncontested elections of directors.
• The company's Board has adopted standards for determining whether directors have material relationships with Lazard.

Negatives

• The company's operating revenue decreased by 12% in 2023 compared to 2022.
• The company's adjusted net income decreased by 80% in 2023 compared to 2022.
• The company's total shareholder return (CAGR) (3-Year) was (1)%.
• The company's burn rate is above a broad sector industry average.

Risks

• The company's performance is subject to challenging global macroeconomic and M&A market conditions.
• The company's ability to recruit, retain, and motivate key employees could be impaired if compensation levels are not competitive.
• The company's compensation strategies might result in unintended incentives.
• The company's actual amount and timing of payments under the Amended and Restated Tax Receivable Agreement could differ materially from estimates.
• The company's reliance on key personnel and the potential loss of those personnel could negatively impact the business.

Future Outlook

The company is focused on long-term growth objectives and initiatives under the Lazard 2030 plan.

Management Comments

• Mr. Orszag set out the Lazard 2030 plan, which includes a series of ambitious long-term growth objectives and initiatives.
• The Compensation Committee believes the approved awards best achieved the above objectives as the awards vest in full only if the executive (i) remains employed by the Company through the seventh anniversary of grant and (ii) the Company's stock price has appreciated to at least $68.96, which represents 100% appreciation from the grant date and would be the Company's highest stock price in its trading history.

Industry Context

Lazard operates in the highly competitive financial services industry, competing for talent with other investment banks and asset management firms.

Comparison to Industry Standards

• The company benchmarks its executive compensation against a peer group of financial services firms, including Affiliated Managers Group Inc., AllianceBernstein Holding L.P., Artisan Partners Asset Management, Inc., Blackstone Group LP, Evercore Partners Inc., Franklin Resources, Inc., Greenhill & Co., Inc., Houlihan Lokey Inc, Invesco Ltd, Janus Henderson Group PLC, Jefferies Financial Group Inc., Moelis & Co., Raymond James Financial, Inc., Piper Sandler Companies, PJT Partners Inc., Stifel Financial Corp and T. Rowe Price Group Inc.
• The company's compensation practices are aligned with competitive market practices in the financial services industry.
• The company's burn rate is above a broad sector industry average, but this traditional formulation of a burn rate does not take into account share repurchases or our people-based cost structure and compensation practices.

Management Changes

Corporate Governance

Related Party Transactions

• The company has a tax receivable agreement with LMDC Holdings, LLC.
• The company engages in asset management or other transactions or arrangements with, and provide ordinary course financial services to, entities and funds within the Vanguard Group and its affiliates or their respective clients, including by acting as a sub-advisor to certain funds managed by the Vanguard Group.
• The company and its affiliates utilize the services of affiliates of FMR LLC, including management services for our employee retirement and equity plans and distribution services for our asset management business.
• Some of our directors serve as directors of organizations to which Lazard provides services, or as directors or trustees of tax-exempt organizations to which Lazard makes charitable contributions, in each case in the ordinary course of business.
• Some of our directors and executive officers (and persons or entities affiliated with them) have funds under management with, or other accounts with, our Asset Management business, and have invested or may invest their personal funds in other funds or investments that we have established and that we may manage or sponsor.

Stakeholder Impact

• Shareholders are being asked to vote on key governance matters, including the election of directors and the approval of an incentive plan amendment.
• Employees are affected by the company's compensation policies and the potential for equity-based incentives.
• Clients are impacted by the company's ability to attract and retain talented professionals.
• The company's commitment to sustainability and responsible business practices affects its relationships with stakeholders.

Next Steps

• Shareholders will vote on the agenda items at the 2024 Annual Meeting of Shareholders on May 9, 2024.
• The company plans to meet with shareholders to further improve its compensation program.

Key Dates

Keywords

corporate governance, executive compensation, incentive compensation plan, board of directors, shareholder engagement, sustainability, director independence, financial performance, proxy statement, Lazard