Category Equity Compensation Plans

A Rose By Any Other Name?

My ears always perk up when I hear about a “new” compensation design, especially when it revolves around long-term incentives (LTI) and trying to structure them to bring better alignment with shareholders.  So I paid attention several weeks ago when I was at the Southeastern Chapter of the Society for Corporate Governance’s annual meeting and heard a director say that he had worked with a management team to revamp their LTI program to make it better aligned with shareholders for next year  The director was Daniel G. Beltzman, director of Regis Corporation, who is also General Partner, Birch Run Capital Advisors, LP, an investor in Regis Corporation.

Critical Points of Regis Corporation’s FY19 LTI Design

  • One LTI Grant equal to 3.5x FY2018 LTI grant in FY19
  • Covers 5 years of LTI grants for an initial grant in FY19 covering approximately 3.5x the 2018 annual LTI grant (about 70% of what a participant would have received as annual grants over the 5-year period)
  • No additional LTI grants until after the 5 year period
  • Participants can get additional shares if they elect to defer up to 50% of their net, earned annual cash incentive into shares of company stock, for which the company will make a grant of RSUs equal to 200%. These RSUs have 5-year cliff vesting.

Initial Thoughts

This design is rather unique and more closely aligned with how LTI is structured in a company that is owned/controlled by private equity. It requires executives to invest money in the business to maximize their potential rewards.  Theoretically, this should help ensure that the executives will remain focused on what will drive the company’s stock price higher.

This plan will work so long as executive believe there is an upside to the company’s stock price in the mid-term, 5-year period.  If they decide there isn’t, they may go looking for new challenges, especially if the company enters into a scenario where the annual cash incentive plan doesn’t pay out and there is no additional investment possible in company shares which will be matched.  As long as the future looks bright for the company (at least from an executive perspective), this plan should help drive focus on the company’s goals that will lead to an increased stock price.  But, if the company’s prospects dim, then this design could cause some serious issue with morale and retention and could lead the company to award some form of supplemental incentives. This might increase the cost of this design to be higher than a traditional annual LTI grant-focused design.

The good news is that one of the company’s shareholders has already backed this design (and even helped create it).  So the company should not face the issue of trying to effectively communicate this design to all of its shareholders to convince them it is a good thing. Having a significant shareholder represented on the board and taking an active part in developing this design should ease concerns of other shareholders and make their buy-in to the design less of an issue for the company.

The real test of this design will be what happens.  No one has a crystal ball. Sometimes you have to design the best plan you can at the time given everything you can see and predict. If the future is bright for the company and no significant headwinds come to press against it and throw a spanner wrench into the works, then this design could be quite useful.  We will have to wait and see how things look in FY 2025 to be able to gauge if this design is a winner.  Furthermore, we will have to wait to see this design tested against falling company and market fortunes to see how well it holds up.  But for companies that have significant owners that want a “better” alignment between executives and shareholders, this design might offer at least another alternative to consider.  Time will tell whether LTI designed in such a way will smell as sweet as the typical, annual LTI grant approach.

For more information, please see Regis Corporation’s proxy statement filed for 2019, the CD&A begins on page 19, and the new FY19 LTI program is detailed starting on page 21:

https://www.sec.gov/Archives/edgar/data/716643/000114036118037937/bp11671x1_def14a.htm#regis-def14a_102318a11

 

Related EC Minute Episode

Episode 28 of the EC Minute also covers Regis Corporation’s new LTI design for fiscal 2019.

http://www.ecminute.com/2018/10/31/episode-28-a-new-lti-design/

Print Friendly, PDF & Email

ISS Issues FAQs on New GICS Group

On September 20, 2018, ISS issued a series of FAQs concerning Global Industry Classification Standard (GICS) Code 5020 Implementation (available at: https://www.issgovernance.com/file/policy/active/americas/GICS-5020-FAQ.pdf). This change caused a number of companies to be moved from the GICS 2540, Media, group to the new GICS 5020, Media & Entertainment, group.

The key points from these FAQs are:

  • Companies in the new GICS 5020 group should see higher Burn Rate Thresholds than in the old GICS 2540 group.
  • ISS peer groups being constructed for shareholder meetings starting September 15, 2018 have been updated to reflect the new GICS group.
  • ISS will continue to use a company’s legacy GICS group to assess non-employee director pay (under ISS’ excessive NED pay policy) until February 1, 2019. At that date, ISS will switch over to utilizing the new GICS group in assessing NED pay.
  • ISS will update the GICS groupings used to determine median 1-, 3- and 5-year TSR starting September 30, 2018.
  • ISS will evaluate equity plan proposals using the updated GICS group for burn rate information starting with meetings on February 1, 2019.
Print Friendly, PDF & Email

Overview of ISS’ Equity Plan Scorecard Model

Is your company thinking about asking shareholders to approve more shares for your equity compensation plan? Are your shareholders influenced by ISS? Then be sure to read the latest Exequity Client Briefing I wrote. The Client Briefing provides an overview of the ISS Equity Plan Scorecard model and some of the insights I have gained running it for nearly two decades.

Exequity’s Client Briefing: An Overview of ISS’ Equity Plan Scorecard Model, can be found at:

https://www.exqty.com/newsroom/an-overview-of-iss-equity-plan-scorecard-epsc-model

 

Print Friendly, PDF & Email

News Roundup

News Roundup

This week there were several news items regarding executive, director and equity compensation, including:

Print Friendly, PDF & Email