Category Executive Compensation

Exequity Is Tracking Pay Changes Due to COVID-19

Print Friendly, PDF & Email

On April 2, 2020, Exequity issues a new Client Alert, How COVID-19 Is Impacting Pay (available at https://www.exqty.com/newsroom/how-covid-19-is-impacting-pay), which looks at the disclosures from companies that have changed their pay programs through April 1, 2020, because of the COVID-19 crisis. Exequity will also update the statistics included in that Client Alert. Exequity will post updated statistics regarding such changes to its website at https://www.exqty.com/newsroom/covid-19-impact-on-pay-summary-statistics.

The CARES Act Would Place Limits on Compensation

Print Friendly, PDF & Email

On the evening of March 25, 2020, the U.S. Senate passed H.R. 748, the CARES Act (Coronavirus Air, Relief, and Economic Security Act). Among helping folks with direct payments of cash and increase both the amount and length of time unemployment will be paid to folks out of work, the Act also provides the Secretary of the Treasury the authority to make loans and guarantee loans for certain businesses in distressed industries including air carriers and U.S. businesses that have not otherwise received adequate economic relief in the form of loans or loan guarantees under the Act.

Section 4004 places limitations on the compensation of certain employees of businesses that receive loans or loan guarantees under the Act. Specifically, the Act makes two separate limits for employees:

  1. General limit applies to officers and employees whose total compensation exceeded $450,000 in calendar year 2019 (except for pay pursuant to certain collective bargaining agreements in place prior to March 1, 2020).
    • Cannot receive total compensation which exceeds, during any 12 consecutive month period, the total compensation received in 2019.
    • Cannot receive severance pay or other benefits upon termination that exceeds twice the maximum total compensation received in 2019.
  2. Special limit applies to officers and employees whose total compensation exceeded $3 million in calendar year 2019.
    • Cannot receive total compensation during any 12 consecutive month period that exceeds the sum of:
      1. $3 million, and
      2. 50% of the excess over $3 million of the total compensation received in 2019

Total compensation includes salary, bonuses, awards of stock, and other financial benefits provided by a business.

UPDATE: These limits on compensation continue until 12 months after a company pays back any loan. During the time that a company has a loan with the federal government, it must also agree not to repurchase any of its equity securities listed on a national securities exchange (no share buybacks), except in accordance with a contractual obligation in place when the Act becomes effective, through 12 months after the company pays back the loan. Additionally, companies taking loans cannot pay dividends or make other capital distributions (no dividends) until 12 months after the loan is repaid. See Section 4003, Emergency Relief and Taxpayer Protections.

The House is expected to take up this Act today, March 26, 2020.

I was able to find the text of this Act on the website of the Tax Foundation. The text of the Act is not yet available on Congress’ website, Congress.gov. Here is the link to the text of the Act on which this post was based:

https://files.taxfoundation.org/20200325223111/FINAL-FINAL-CARES-ACT.pdf

As You Sow Releases 2019 Annual Report on Overpaid CEOs

Print Friendly, PDF & Email

As You Sow published its annual report on the Top 100 Overpaid CEOs among S&P 500 companies on February 21, 2019. As you might expect, the report details those companies who in As You Sow’s view have overpaid CEOs.

https://www.asyousow.org/report/the-100-most-overpaid-ceos-2019/

Key findings of the report:

  • Large institutional shareholders are opposing more CEO Pay packages by voting Against Say-on-Pay votes
  • The number of companies where a large number of shares were voted Against the CEO pay package has increased
  • Companies that As You Sow’s first report 5 years ago identified as Overpayers have underperformed the S&P 500

The report also includes many helpful charts and graphs looking at institutional shareholders and how they have reacted to CEO pay and their votes against CEO pay packages.

Incentive Plan Changes Making News

Print Friendly, PDF & Email

We are on the cusp of the 2019 proxy season. Reporters are getting geared up to review the proxy statements of large, household named, public companies and report what they discover. Ahh, the sweet smell of anticipation! A heady aroma of blood, sweat, tears, and a bit of nervousness?

In any event, reporters got started a bit early this year (and who could really blame them given what companies have already disclosed). There have been a number of stories that look at changes in incentive plans that have been announced by companies so far in 2019:

  • Shell–will link high-level employee pay to carbon reduction targets after engaging with shareholder activist Climate Action 100+
  • BP— will factor greenhouse gas emission reductions into rewards for 36,000 employees worldwide after engaging with Climate Action 100+
  • Chevron— plans to set greenhouse gas emissions targets and tie executive compensation and rank-and-file bonuses to the reductions
  • Facebook–plans to incorporate social issue-related metrics into its employee bonus program to reflect updated company goals; none of the factors reportedly will have pre-assigned weightings or monetary values attached to them, instead Committee will use discretion to determine performance.
  • Goldman Sachs–announced that as a result of the on-going investigation into the Malaysian investment fund if the investigation reveals information that would have impacted the company’s year-end compensation decisions, the Committee may reduce or clawback the executives’ 2018 year-end equity awards.

All of the above companies are in a similar situation–events outside of their immediate control (shareholder activists or the media) caused them to revise how they will measure compensation. As shareholder activism increases and the notion of what is good for our society under goes a shift as younger folks begin taking over key roles in society, we are likely to see this trend continue.

Consequently, companies should keep a close eye on emerging issues in their industry and the broader market, identifying those that may require changes to their compensation plans and designs, and keep a “work in progress file on how such changes potentially could be made as well as potential implications for the company of both making and not making such changes. For companies with the foresight to do such planning, they will be rewarded with the ability to better respond to changing events more rapidly, instead of floundering for a bit to find the path that best suits the company’s long-term, strategic goals.