With all the focus recently on Say on Pay issues, I have launched a new website to focus on Say on Pay, www.say-on-pay.com. The site is in its early stages (just went up today – 12/15/2010), but I hope to add to it over the next week so it becomes a useful resource to companies as they contemplate Say on Pay issues. I’ve dedicated a page to tracking the say on pay vote frequency recommendations from companies, and have it updated through the proxies filed today, http://say-on-pay.com/say-on-pay-frequency-tracking/.
Ed Hauder will be participating in several upcoming events that will look at preparing for the 2011 proxy season:
December 9, 2011—Webinar: 2011 Proxy Season Update: Insiders’ Perspectives. Ed will join Michael Diver, Wayne Wald and Robert Wild of Katten Muchin Rosenman LLP and Rhonda Brauer of Georgeson Inc. for this webinar. The webinar will include an overview of the SEC’s new proxy Say on Pay rules and what to expect from the coming proxy season, with insights and preparation tips from legal, proxy solicitation and executve compensation experts. To register for this webinar, please click: http://www.kattenlaw.com/events/register.aspx?event=1590
December 14, 2011—How to Prepare for the Upcoming Proxy Season. Ed will participate in this Practising Law Institute seminar to be held at the University of Chicago Gleacher Center in Chicago, IL. For more information and to register for this seminar, please click: http://www.pli.edu/product/seminar_detail.asp?id=88599
January 18, 2011—Webcast: The Proxy Solicitors Speak on Say-on-Pay. Ed will join Art Crozier of Innisfree M&A, David Drake of Georgeson and Reid Pearson of Alliance Advisors for this CompensationStandards.com webcast that will cover what companies are doing to engage their shareholders, the “hot button” compensation issues for shareholders and ISS, what tactics have been successful to bring in the vote at the last minute, and how to solicit now that say-on-pay will be on the ballot. For more information and to register, please click: http://www.compensationstandards.com/webcast/2011/01_18/index.asp
Will your company be taking an equity plan to shareholders in 2011? Do you any assistance in determining the best plan design and structure to help minimize negative shareholder reaction from ISS, Fidelity, etc. to your proposal? Do you want to figure out how Say-on-Pay might influence your pay disclosures and pay design going forward? If so, Ed would be happy to help. Ed has limited capacity to help a few additional companies with their 2011 proxies and proposals. If interested, please contact him at: email@example.com or at (847) 996-3990.
Well, it is that time of year when ISS becomes a bit of a flirt and shows us a little bit of what its policy updates for the next proxy season might look like (but not all of them). ISS just posted some of the draft policies its thinking of issuing as final policies to apply to the 2011 proxy season. ISS is asking for comments on these specific draft policies (which I expect won’t be the only policy updates that get issued in November) before November 11, 2010.
The draft 2011 policies out for public comment and ISS’ request for comments can be found HERE.
So what are the US draft Compensation Policies that ISS has out for comment?
ISS will evaluate votes of golden parachutes in accordance with Dodd Frank Act requirements on a CASE-BY-CASE basis.
However, consistent with ISS’ problematic pay practices policy the following items could cause ISS to recommend AGAINST the golden parachute proposal:
Recently adopted or amended agreements that include excise tax gross-up provisions (since prior annual meeting);
Recently adopted or amended agreements that include modified single trigger agreements (since prior annual meeting);
Single trigger payments that will happen immediately upon a change in control, including cash payments and such items as the acceleration of performance-based equity despite failure to achieve performance measures;
Single-trigger vesting of equity based on a definition of change in control that requires only shareholder approval of the transaction (rather than consummation);
Potentially excessive severance payments;
Recent amendments or other changes that may make packages so attractive as to influence merger agreements that may not be in the best interests of shareholders;
In the case of substantial gross-up from pre-existing/grandfathered contract: what triggered the gross-up—option mega-grants at low point in stock price, unusual or outsized payments in cash or equity made or negotiated prior to the merger;
The company’s assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory vote.
ISS is asking the following questions about this proposed policy:
Whether the potential for having disparate recommendations (e.g., FOR a transaction, but AGAINST on the non-binding vote on parachute payments) raises any concerns?
Whether the factors listed above are appropriate?
Whether the total cost of severance payments serve as a primary or secondary consideration in the evaluation of say-on-golden parachute proposals?
Unless you’ve been living under a rock or vacationing at the South Pole, you probably know that President Obama signed the Dodd-Frank Act into law on July 21, 2010. If you’re like most folks, the thought of wading through over 2,200 pages of the Act isn’t all that appealing (especially if all you’re interested in are the changes to executive compensation). Well, I’ve pulled together several presentations on the topic (all are available under my user account on SlideShare.net), but thought a quick run-down of the big ticket items that will impact executive compensation might be helpful for folks.
Say on Pay Vote – nonbinding shareholder vote on the compensation of executives as disclosed in the proxy must be held at least once every 3 years.
Say on Pay Vote Frequency Vote – a nonbinding shareholder vote on the frequency of the say on pay vote must be held at least once every 6 years.
Vote on Golden Parachutes – a nonbinding shareholder vote on golden parachutes as part of a deal proxy; exception if the arrangement was previously approved by shareholders as part of a say on pay vote (SEC hopefully will offer some further details on how the exception will apply).
Independent Compensation Committees – most public companies will be required to have only independent directors on their compensation committees (SEC needs to develop definition of “independence” that will be applied; most commentators believe the SEC will draw heavily from the audit committee independence requirements).
Independent Advisers – most public companies’ compensation committees will be required to at least consider the independence of their advisers, e.g., attorneys, compensation consultants, and other advisers.
Compensation Committee Authority – mandates that most public company compensation committees must be given authority to retain a compensation consultant and independent legal counsel and other advisers, including fiscal authority.
Increased Disclosure About Executive Compensation – requirement for most public companies to disclose more information executive compensation, including:
Pay versus performance (hopefully SEC will clarify what will be required);
Median annual total compensation of all employees;
CEO’s annual total compensation; and
Ratio of median annual total compensation of all employees to that of the CEO (will require a lot of extra work for a figure that has questionable utility for shareholders).
Clawbacks Required – public companies will be required to implement a clawback policy (broader than the Sarbanes-Oxley Act’s clawback provision; likely will cause implementation issues for companies with existing clawback policies; several unanswered questions that I hope the SEC addresses).
Executive and Director Hedging – public companies must disclose their policy with respect to executive and director hedging of company securities.
Financial Institutions Subject to Greater Scrutiny – covered financial institutions will be subject to enhanced compensation structure reporting and prohibitions (important for all companies to watch executive compensation developments for financial institutions as these may eventual migrate over to all public companies through shareholder demand or otherwise).
Voting by Brokers – broker votes are eliminated on director elections, executive compensation, or any other significant matter, as determined by the SEC, for uninstructed shares held by beneficial owners.
Proxy Access – public companies will be required to (1) include a shareholder nominee to serve on the board of directors, and (2) follow a certain procedure with respect to the solicitation of proxies (the SEC is meeting this week to consider the proxy access rules).
Chairman and CEO Disclosures – SEC will issue rules that require public companies to disclose in their annual proxies the reasons why the company has chosen: (1) the same person to serve as chairman of the board and CEO, or (2) different individuals to serve as chairman of the board and CEO.
If you want to hear more about some of the practical things and action steps compensation professionals should be taking now to prepare for implementation of Dodd-Frank, tune in to the webcast, What compensation professionals need to know about financial reform legislation, I’ll be conducting with Dan Walter of Performensation and sponsored by HCR Software. The webcast is this Wednesday (8/25) from 2 to 3 pm Eastern. Here’s the link to the registration page: https://www1.gotomeeting.com/register/361114697