Well, I just learned that RiskMetrics has made a bit of a change to its policy (unofficial, of course) regarding the time period companies have to cure contracts or agreements that have a single-trigger change-in-control (CIC) provision.
Old “Policy” on Contracts with Single-Trigger CIC Provisions
Last year, RiskMetrics allowed companies up to 24 months to cure such a contract. See for example, the Form 8-K filed by Inventiv Health or the Form 8-K filed by Sybase in which they committed to removing their single-trigger CIC provisions within 24 months.
New “Policy” on Contracts with Single-Trigger CIC Provisions
RiskMetrics has apparently given this some thought and decided that 24 months is too long. The time period they are willing to give companies to cure contracts with single-trigger CIC provisions is now only 6 months. See the Form 8-K filed by DSP Group, Inc.
Implications
If your company has contracts or agreements that contain single-trigger CIC provisions which would expire within 24 months and your company had publicly committed to not adopt any new contracts or extend existing contracts with such provisions, thinking that RiskMetrics would view this as being in compliance with its policies, you’ll need to be prepared. At this point it looks like RiskMetrics will require even companies that have made such commitments and whose contracts are expiring more than 6 months off to commit to removing the single-trigger CIC provision within 6 months. If a company doesn’t, then RiskMetrics will most likely apply its problematic/poor pay practices policy and recommend against the company directors–at least the members of the compensation committee, but possibly the entire board.
If your company has any contract with a single-trigger CIC provision, in order to avoid application of the problematic/poor pay practices policy to the election of some or all of your directors, your company will need to publicly commit to (a) not entering into any new contracts or extending any existing contracts that have such a provision, and (b) removing the single-trigger CIC provision from any existing contracts within 6 months. Of course, if your company has contracts with such a provision that are expiring within 6 months, your company might be able to simply commit to not entering into/extending any contract with such a provision and state when the contract(s) expire(s).
Does your company have a double trigger change-in-control agreement? Great!
Did you already look to see how your GRId score came out, i.e., went through the pre-scoring process? Do you think that score will be the one your shareholders will see? Well, as it turns out, it might not be because your company’s GRId compensation score will drop a bit as a result of a May 1 change to GRId by RiskMetrics Group.
RMG decided to revise the scoring for double-trigger change-in-control agreements as of May 1 so that instead of receiving 3 points they would only receive 0 points. The RMG explanation for this is, “[d]ouble trigger change-in-control agreements are standard practice and do not exceed best practices; therefore, the score should be a neutral 0 rather than a 3.”
The net effect of this change will be that companies with double-trigger change-in-control agreements will see their GRId compensation score drop by about 8% (estimate from RMG’s Corporate Service Group). RMG Research should release a more formal communication about this change and will communicate with impacted companies who went through the pre-scoring process.
The latest version of the GRId technical document is available at http://www.riskmetrics.com/sites/default/files/GRId_Tech_Doc.pdf . The changes made to GRId as of May 1 are detailed on page 192.
Invitation to Participate in Exequity’s New Quick-Take Survey on Executive Pay Practices
Exequity invites you to participate in our new Quick-Take Survey on Executive Pay Practices. The survey should take about 10 minutes to complete and seeks to understand how executive pay practices are changing, especially the mix of pay, long-term incentive mix, elimination of perquisites, change-in-control provisions, and changes to employment contracts.
If you know anyone who might like to participate in this survey and receive a copy of the results, please forward this invitation to them.
All participants will receive a complimentary copy of the survey results once they are released (approximately June 15, 2010).
As a special THANKS for participants* that agree to participate in our Quick-Take Surveys over the next 12 months (no more than one Quick-Take Survey per month), Exequity will provide complimentary access to our ProxEASE Parachute Modeler for up to 5 executives through the filing of their next proxy (a $5,500 value). ProxEASE provides a simple, menu-driven, web-based model to calculate the parachute excise tax implications of termination benefits, as required for disclosure in the employment termination portion of the annual proxy statement.
Existing ProxEASE subscribers are eligible to receive an extra year of the model for up to 5 executives if they agree to participate in our Quick-Take Surveys over the next 12 months.
If you have any questions about the survey, please contact:
- Ed Hauder at (847) 996-3990 or edward.hauder@exqty.com or
- Jeff Pullen at (847) 996-3967 or jeff.pullen@exqty.com
