Archive April 2010

What are the Top 5 Industry Groups for Equity Plan Proposal Failures?

I’ve been working on a research report that analyzes the voting trends on equity compensation plan proposals during 2007-2009 with Reid Pearson of The Altman Group, and discovered something interesting. The equity plan proposal failures seem to be concentrated in just a few industry groups. Here are the top five industry groups for equity plan failures (in order of total number of failures):

1. Semiconductor & Equipment
2. Consumer Services
3. Autos & Components
4. Commercial Services & Supplies
5. Pharmaceuticals & Biotech

The full report should be released by mid-May, and will look in greater detail at the equity plan proposals that failed and discuss the lessons that can be learned by these failures.

Engaging RiskMetrics on Proxy Voting Matters

Are you waiting for RiskMetrics/ISS to issue a proxy vote recommendation on your proxy?  Has it already done so and you’ve found errors or disagree with anything that was in its report?  Well, then you need to know the rules of engagement, i.e., the engagement policy RiskMetrics has set out for proxy voting matters.  The full policy, set out in a question and answer format, can be found at http://www.riskmetrics.com/policy/EngagingWithISS

Highlights of the policy include:

  • With whom does RiskMetrics engage?
    • Corporate issuers, dissident shareholders, and sponsors of shareholder proposals, where it believes that doing so will enable it to produce higher quality research reports for its clients
  • Meeting in person or by phone?
    • At the discretion of the analysts. between February 15 to June 30 (proxy season), it will generally not be able to have in-person meetings. Limited exceptions might be made for non-routine or contentious proxy situations.
  • Expectations for meetings
    • An informative dialogue ensuring the issuer is informed about RiskMetrics’ policies and procedures, and view of best practices in corporate governance. Prefers to receive written responses to questions.
  • Can you note that you’ve purchased services from ISS Corporate Services (ICS)?
    • No, issuers may not disclose publicly (so do not mention in your proxy) or to a RiskMetrics analyst that they have purchased products or services from RiskMetrics/ICS
  • Advice on what is needed to get a favorable vote recommendation?
    • RiskMetrics won’t tell you how it will vote or what you need to do to guarantee a particular vote outcome
  • Can RiskMetrics use confidential or non-public information?
    • No, RiskMetrics only uses publicly-available information.
  • Entitled to review analysis prior to publication?
    • In the U.S., companies in the S&P 500 index generaly receive a draft report for fact-checking on routine proxies.
  • S&P 500 company determination date for application of draft review process
    • S&P 500 membership determined as of January 31 for meetings held through June 30, then updated on a real-time basis for the remainder of the year
  • What to do when no chance to review and report contains a factual error?
    • Notify RiskMetrics immediately, and if it agrees that there is a material error, it will promptly issue an “Alert” to its clients.Note:In my experience a “material error” is one that would change the analysis presented under a specific RiskMetrics policy and/or be the basis for the vote recommendation of RiskMetrics or its clients. So for example, something like an error in the percent of the annual equity awards granted to the CEO would not be a “material error” that would cause RiskMetrics to issue an Alert.

Poll: What Is the Largest Equity Compensation Challenge You Face?

I would like to make sure that my blog focuses on the issues that will the most helpful for folks.  So, if you wouldn’t mind completing this quick 1 question poll, it would really help me figure that out.  You’ll have to register on the blog so you can respond (sorry, was getting some spam answers on the prior polls I ran), but the process is quick and painless. Thanks!

[poll id=”5″]

FASB Updates Accounting Rules for Stock Compensation

From the FASB’s April 16, 2010 e-mail release:

Today the FASB issued Accounting Standards Update No. 2010-13, Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (a consensus of the FASB Emerging Issues Task Force).

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.

Link to the Accounting Standards Update: http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176156807475

Key takeaways:

  • Applies to employee share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades that differs from the functional currency of the employer entity or payroll currency of the employee.
  • The amendments clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity.
  • The amendments to Topic 718 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.