Exequity Launches Quick-Take Survey Series: Invitation to Participate

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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.

Click HERE to take the survey

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

*Public or private companies that are not direct competitors of Exequity LLP

RMG Issues FAQs on New SEC Proxy Disclosure Rules

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RiskMetrics Group (RMG) recently issued several FAQs related to the new SEC proxy disclosure rules.  Previously, I blogged about the RMG FAQ regarding Compensation Risk Disclosures, and today I will address the two other FAQs, one on compensation consultant conflicts and the other on the enhanced disclosure about directors – qualifications, diversity policies, and board leadership and risk oversight of risk management.

Compensation Consultant Conflicts

RMG was asked whether it would do with compensation consultant fee disclosures.  RMG indicated that since this disclosure is new, it is waiting to gather and analyze the data after the proxy season and develop any new policies in consultation with its clients.  So stay tuned, this one has the feel of the director overboarding issue and the tax gross-up issues which RMG first took some time to study and then came out with policies that directly dealt with the issues.

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Directors Enhanced Disclosures

RMG was asked what its views and the prospects for related voting recommendations were given the new director qualifications, diversity policies, and board leadership and oversight of risk management disclosures. Again RMG deferred a bit indicating that it was waiting to gather information and analyze the disclosures made this proxy season, but would not implement any policy changes as a result of these disclosures for 2010.  My guess is that RMG will study the disclosures made, discuss the issues internally and with its clients and develop a set of new policies for 2011 that will seek to encourage a minimum level of disclosure on these issues and some minimum level of corporate governance as to this items.

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RiskMetrics Weighs In on Compensation Risk Disclosures

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The new proxy disclosure rules (Item 402(s) to be precise) require public companies to include a narrative disclosure discussing the company’s compensation policies and practices as they relate to the company’s risk management if risks arising from the company’s compensation policies and practices for its employees are “reasonably likely to have a material adverse effect on the company.” The new rule does not require a company to provide a negative disclosure, e.g., “We reviewed our compensation policies and practices and found no material adverse risks.”

Speculation is that the SEC Staff likely will focus on this Item 402(s) disclosure as part of its review of proxies filed during the 2010 proxy season. However, it is unclear whether these comments will be primarily filed this proxy season as it is the first in which this disclosure will be in place, and will then be somewhat dropped going forward.

Companies considering how and where to address this disclosure item in their proxies need to also consider a FAQ issued yesterday by RiskMetrics Group (along with 2 others I’ll deal with in another post):

What will RiskMetrics be looking for in the new disclosure requirement on risks raised by compensation programs? In particular, how will RMG react to non-disclosure?

RMG understands that issuers typically do not like to provide negative disclosures (e.g., “we found no material adverse risks caused by compensation”) due to concerns over liability, and the SEC generally does not require them to make such statements. As a result, some companies may choose to say nothing in their proxy statement this season with regard to searches for material adverse effects from pay which conclude there are no such risks. While RMG does not have a policy regarding non-disclosure, we advise issuers to, at a minimum, talk about their process and any mitigating features (such as claw-backs or bonus banks) that they have adopted. We view this disclosure as an opportunity for communication, not simply compliance, and we expect that shareholders will be looking for a reasonably substantive discussion of the board’s process to determine whether the company’s incentive pay programs might motivate inappropriate risk-taking, and what they are doing to mitigate that.

RMG’s view may spur a few companies to address the risks associated with their compensation policies and practices and any risk assessment that was conducted.  However, note that this is not an RMG policy. As such, it is not required that companies follow this guidance from RMG or risk a negative vote recommendation against directors or an equity compensation plan proposal. That being said, companies may be better off coming up with a paragraph of disclosure that walks through the steps they have in place that mitigate any risks that exist, i.e. clawback provisions, stock ownership guidelines, stock retention guidelines, a particular balance of compensation, the performance goals utilized, mechanisms like bonus banks to keep a portion of previously “earned” compensation at risk, etc.  Doing so would be far more instructive to shareholders about what is currently in place to help mitigate risks than any statement that says, we found no risks to exist.  As such, this type of statement is likely to be well received by RMG and would not necessarily require a company to include a dreaded negative disclosure (“We determined after a careful review and assessment that Company does not have any risks  from its compensation policies and practices for its employees that are reasonably likely to have a material adverse effect on the Company”).

Of course, the next question is where to place this disclosure? I think most folks realize that it does not have to (and in the vast majority of cases should not) be included in the Compensation Discussion & Analysis (CD&A) section. However, the SEC Staff has issued guidance (C&DIs, Regulation S-K, Q. 128A.01) to the effect that it expects the Item 402(s) disclosure to be with the other Item 402 disclosures on compensation and would not expect it to be hidden, obscured, or difficult to locate. So, perhaps this should go somewhere in the narrative section following the Summary Compensation and the Grants of Plan-Based Awards Tables.

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