Archive March 26, 2020

The CARES Act Would Place Limits on Compensation

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, Here is the link to the text of the Act on which this post was based:

Glass Lewis Changes Policy on Virtual Meetings

Given the current COVID-19 crisis and the difficulty of having large, in-person meetings, many companies are considering or have decided to have their annual meeting be done this proxy season in a virtual format to help protect the health of everyone in attendance. Until Glass Lewis issued this update on March 19, 2020, its policy was to recommend Governance Committee members who approved a company’s virtual meeting.

However, recognizing the challenges presented by COVID-19, Glass Lewis issued an immediate update to its virtual meetings policy. Under Glass Lewis’ revised policy, Glass Lewis will review virtual meetings on a case-by-case basis. Glass Lewis will be noting whether a company indicates its intention to resume holding in-person or hybrid meetings under normal circumstances. This revised policy will be effective for shareholder meetings from March 1, 2020 through June 30, 2020.

Glass Lewis also offered an example of a company that handled switching to a virtual meeting format correctly, Starbucks Corporation. Starbucks issued an announcement about its change to a virtual meeting for its 2020 annual shareholders meeting on March 4, 2020, available at:

Note: Starbucks did not specifically indicate that it intended to return to its normal in-person meetings once the crisis is over.

I know several companies have been re-tooling their proxy statements to allow them to make their annual meeting a virtual meeting if necessary. To those companies, if they still have time, they may want to include a statement about their intent to return to an in-person meeting format once the COVID-19 crisis passes if a virtual meeting is used.

Glass Lewis’ announcement about the immediate change in its policy can be found in its blog post, Immediate Glass Lewis Guidelines Update on Virtual-Only Meetings due to COVID-19 (Coronavirus), available at:

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