These days, everyone’s got an opinion on executive pay – even the Pope! This article from The Guardian is one of several sources that recaps remarks that Pope Leo made in his first media interview – to Crux, a Catholic-focused newspaper. He had this to say when discussing why the world is so polarized:
Add on top of that a couple of other factors, one which I think is very significant is the continuously wider gap between the income levels of the working class and the money that the wealthiest receive. For example, CEOs that 60 years ago might have been making four to six times more than what the workers are receiving, the last figure I saw, it’s 600 times more than what average workers are receiving. Yesterday the news that Elon Musk is going to be the first trillionaire in the world. What does that mean and what’s that about? If that is the only thing that has value anymore, then we’re in big trouble…
Will the Pope’s remarks affect upcoming faith-based voting policies? Here’s what ISS’s Catholic US Voting Guidelines currently say for shareholder proposals on limiting executive compensation:
▪ Vote for proposals to prepare reports seeking to compare the wages of a company’s lowest paid worker to the highest paid workers.
▪ Vote case-by-case on proposals that seek to establish a fixed ratio between the company’s lowest paid workers and the highest paid workers.
The say-on-pay sections are not much (or any?) different from the regular benchmark policy – they focus on alignment of pay & performance, excessive risk taking, etc.
I sorta doubt the Pope’s remarks are going to make a dent in executive pay practices and voting outcomes, but like his predecessor, Pope Leo is a member of the Jesuit order – and as John has pointed out, you can never underestimate the Jesuits.
The Pope will not be speaking at our upcoming “2025 Proxy Disclosure & 22nd Annual Executive Compensation Conferences” – but plenty of folks who are steeped in compensation practices, SEC disclosure rules, and corporate governance will be there. Check out the full agenda – two days of great info on the many regulatory and practical updates we expect going into the 2026 proxy season – and here are the fabulous speakers. The Conferences are happening in Vegas on Tuesday & Wednesday, October 21st & 22nd. Fly in on Monday, October 20th, to join us at our 50th anniversary celebration!
Register now to attend in person or virtually. You can also reach out to our team by emailing info@ccrcorp.com or calling 1.800.737.1271.
We’ve noted a couple of times on this blog that Glass Lewis is updating its say-on-pay methodology for the upcoming proxy season. The proxy advisor has now launched a new pay for performance modeling tool that is built on the updated assessment methodology – which companies can use to forecast scores and analysis that investors will see in 2026. Companies can download the modeler on the Glass Lewis website.
Meredith recently blogged about engagement topics following a low say-on-pay vote. This memo from ClearBridge Compensation Group looks at the characteristics of the 29 companies that failed say-on-pay in 2024 – and what they said in 2025 about their compensation programs. Here were some of the most common changes:
– Commitment to No/Limited New Special Awards – 41%
– Increased Disclosure of Incentive Metrics/Goals – 34%
– Modified Performance Share Unit Metrics – 31%
– Decreased CEO Target Compenstion – 28%
– Increased Weighting of Performance-Vested LTI – 21%
– Added or Modified Stock Ownership Guidelines – 10%
ClearBridge notes that 92% (~27) of the companies that failed say-on-pay in 2024 achieved majority support in 2025. That’s good news, although the memo doesn’t specify whether the companies also reached the higher thresholds needed to get credit with ISS and Glass Lewis, which are described in Chapter 19 of “Lynn & Borges’s Executive Compensation Disclosure Treatise.” Mark Borges also recently blogged about an example of “responsiveness” disclosure on his “Proxy Disclosure Blog” on this site.
If you’re not already a member with access to those resources and the rest of our content library, sign up today so that you’re ready for the upcoming proxy season! New members can take advantage of our no-risk 100-day trial by signing up online, calling 800-737-1271, or emailing info@ccrcorp.com.
As I shared last month, many investors still like performance-based awards and it’s unlikely that companies will entirely abandon that structure anytime soon. At the same time, if you’ve worked with companies that grant options, you know that it can come as a surprise and create more than a small amount of resentment that this type of award is not considered “performance-based” – even though it is only valuable if the stock price increases.
Those companies, and others that just like to have more flexibility in plan design, were happy to see (via proxyadvisor surveys) that some investors may be open to giving “credit” for equity awards that vest over a 5-year period or have some combination of a vesting plus holding requirement that reinforces executives’ alignment with long-term stock performance. If proxy advisor policies do become more flexible, this FW Cook blog discusses some things to think about if your company considers shifting its equity mix to incorporate stock options. Here are the three main concepts (paraphrased):
1. Options may be more effective than time-based restricted stock when it comes to maintaining leverage in long-term incentive programs, because a greater number of stock options than restricted shares are granted for a given award, and they allow for leveraged, pre-tax wealth accumulation over a longer time period.
2. Not all institutional investors may view long-horizon restricted stock as performance-based. Depending on a company’s ownership profile, certain investors may perceive the company as having a performance-based LTI program if they use a blend of long-horizon restricted stock and stock options. To add more certainty that investors (and proxy advisors) assess an LTI program as performance-based while avoiding the need to set multi-year financial goals, companies could add stock price hurdles (i.e., 15% cumulative stock price growth over three years) to stock options before any vesting or could grant premium-priced stock options.
3. Higher market volatility may make stock options more appealing. Volatility often increases the magnitude of in-the-money exercise opportunities for executives, and it also increases the accounting cost per stock option, which reduces share usage for companies that have dollar-denominated equity programs.
I mentioned the proxy advisor policies. The FW Cook blog highlights how influential those policies have been in shaping compensation practices, along with accounting standards. That’s contributed to the homogenization of executive pay that Meredith recently discussed – where differences in pay structures and effectiveness turn on subtle details. The FW Cook team explains a couple of inflection points that have affected pay practices:
The 2007 and 2008 FW Cook Top 250 Long-Term Incentive Reports described the reallocation of long-term incentives from stock options as the sole LTI vehicle to a portfolio approach of stock options and full-value shares (performance shares or restricted stock). The primary driver of the change was the implementation of Accounting Standards Codification (ASC) Topic 718 (formerly known as FAS 123R), which resulted in a charge to earnings for granting stock options and a greater focus on controlling potential shareholder dilution.
A few years later, the 2011 FW Cook Top 250 Long-Term Incentive Report marked the first time in the history of the report that the prevalence of performance shares was higher than stock options, reflecting the advent of Say on Pay and the increased influence of proxy advisors, such as Institutional Shareholder Services (ISS) and Glass Lewis. Neither ISS nor Glass Lewis credits time-based stock options as performance-based, so companies implemented performance shares at higher rates to receive credit for performance-based LTI programs and bolster the likelihood of a “For” vote recommendation on Say on Pay from the proxy advisors.
Obviously, proxy advisor policies are not the only driver when it comes to structuring executive pay programs, but it does look like companies have tried to do what investors say they want.
As John shared last Friday on TheCorporateCounsel.net, the SEC’s Spring 2025 Reg Flex Agenda was released late last week. Here’s where things stand on some of the potential SEC rules that we’ve been following:
John said this is probably the most issuer-friendly Reg Flex Agenda he’s ever seen and, based on SEC Chairman Paul Atkins’ statement on the Agenda, that seems by design.
While executive compensation disclosures and equity practices may be implicated in some of the above topics (e.g., EGC accommodations, shareholder proposals), John pointed out that all of the SEC’s recent activity on the executive comp disclosure front is not specifically called out in the Reg Flex Agenda. He guessed that proposed changes to those rules may be part of the “Rationalization of Disclosure Practices” agenda item – and that agenda item’s title suggests that there may be more areas of the public company disclosure regime that the SEC is thinking about revamping.
John’s blog notes that this is also one of the most ambitious Reg Flex Agendas he’s ever seen. Corp Fin has its work cut out for it — and a newly named Corp Fin Director coming in to lead the charge!
If you have registered, you should have received an email from “no-reply@events.ringcentral.com” (our event platform) confirming your registration and containing your unique link to our conference site (for both virtual and in-person attendance). You may receive a second email from Ring Central on account creation if you’ve never attended a RingCentral event before. The RingCentral Events app (available for both iOS devices or Android devices) will include the live sessions, schedule, course materials, hotel maps and more! The app is also the best place to submit questions.
The IRS has finally rolled out a way to submit Section 83(b) elections through an online filing system. Until very recently, taxpayers were obligated to write a letter to the IRS to claim the Section 83(b) election and mail that letter to their designated IRS office within 30 days.
The IRS adopted a one-page standard form for a Section 83(b) election that incorporates the requirements of Treasury Regulations Section 1.83-2 and IRS Revenue Procedure 2012-29 (Form 15620). This is a streamlined way to notify the IRS of the election, but taxpayers are still permitted to use alternative forms.
The adoption of IRS Form 15620 paved the way for electronic filing of Section 83(b) elections, which the IRS launched earlier this year. Taxpayers who want to submit the election online must sign in or create a new account on the IRS’s ID.me page, complete IRS Form 15620 on the IRS website and then either submit the completed form electronically (preferred method) or download the completed form and file it by mail.
This Sidley alert highlights some quirks of the online filing system that filers and companies should be aware of:
A cap on quantity. Each online filing currently accepts a maximum of 999,999 securities per submission. Very large founder grants and early-exercise option exercises can exceed this.
Two-decimal input for per-security values. The online form only allows two decimal places for the fair market value per security and the amount paid per security. This could be a problem for many typical startup early common stock prices (e.g., US$0.0001 per share) and a source of rounding noise in the form’s auto-calculated totals.
With these issues in mind, the alert suggests:
– Quantity: If your grant runs over [the] limit, consider filing by mail on paper Form 15620 (or a compliant letter election) to preserve accuracy and avoid partial filings until the online tool is updated.
– Per-security value: In our view, where the amounts are not material, rounding in a manner that is most conservative from a tax perspective is the better approach. The election’s legal effect is to include in income the difference between the fair market value and the purchase price of the underlying security as of the transfer date (thus eliminating the need to later include the value of the underlying securities in income as they vest), so if the per security purchase price is a fraction of a cent the total purchase price (or taxable spread) may not be material.
Additionally, a filer’s actual cost basis and consideration paid and actual fair market value determinations are evidenced by the grant/purchase documents and other records and should be reflected on the applicable tax return, as well as in the company’s records. (For avoidance of doubt: keep precise calculations and documentation in your files, and if the chosen rounding convention results in a material difference in basis or taxes consider doing a paper filing with the correct fractional purchase price and/or correct fractional fair market value.)
On Friday, the FTC announced that it is voluntarily dropping its appeals in two court cases where employers had challenged the legality of the 2024 rule banning most non-competes and won a nationwide injunction. The Fifth Circuit issued its dismissal order yesterday. The day prior, the FTC had charged a company with violating Section 5 of the FTC Act, alleging that the company’s policy to require nearly all newly hired employees to sign 12-month post-employment non-compete agreements was an unfair method of competition.
This White & Case alert notes that the consent order carves out “the use of non-compete agreements for directors, officers and senior employees in connection with the grant of equity or equity-based awards, non-competes entered into in connection with the sale of a business by the pre-existing equity holders of such business, as well as for certain individuals where non-compete agreements are justified to protect legitimate business interests.” It highlights a few key takeaways from these developments:
– The administrative complaint shows that protecting workers from what it views to be the unfair use of post-employment non-compete agreements remains a priority for the FTC.
– Employers that broadly use non-compete agreements, regardless of employee title, compensation or ability to cause harm to the employer, may be susceptible to enforcement action.
– A consent order and resulting compliance requirements can be burdensome.
It stresses that a tailored approach to the use of non-competes could potentially stave off FTC investigation or action.
Last week, every newsoutlet reported on Tesla’s newly announced pay package for Elon Musk. Since it’s hard to piece together from the news what you may want to know about this grant in your professional life — or even for cocktail party banter — here’s the TL; DR on what happened from a legal and compensation perspective:
– The proxy “unveils a longer-term CEO compensation strategy” consisting of a new performance award that is in some ways similar to, and in other ways different from, the 2018 award. (A chart on page 70 compares Musk’s 2012 award, 2018 award and 2025 award.)
– Performance Milestones: There are 12 milestones relating to market capitalization, starting at $2 trillion and going up to $8.5 trillion, over the 10 year performance period. Tesla stresses that If Elon achieves all the performance milestones, Tesla would become the most valuable company in history. The award also includes 12 operational milestones relating to products — like 10 million active autonomous driving subscriptions, 1 million AI robots delivered and 1 million robotaxies in commercial operation — and Adjusted EBITDA goals, which includes achieving Adjusted EBITDA of $400 billion over four consecutive fiscal quarters.
– Other Features: The shareholder letter says the award has “innovative structural features, born out of the special committee’s considered analysis, and extensive shareholder feedback.” For example:
Vested shares remain subject to a five-year holding period from the date they’re earned (if still in effect at the time of vesting).
The award gives Musk voting rights as the shares are earned, while economic rights remain subject to vesting over a 7.5+ year period.
Two tranches are only earned if Mr. Musk has developed a framework for CEO succession.
And two interesting “features” are meant to avoid volatility. First, Musk is supposed to dispose of these shares in an “orderly” way in coordination with Tesla. Second, there are only two dates the shares will vest despite the many tranches. Shares earned by the award’s 5th anniversary vest on the 7.5th anniversary and shares earned after the 5th anniversary vest on the 10th anniversary.
– The proxy asks shareholders to approve this new long-term grant — not for fiduciary purposes but under stock-exchange listing rules (so Elon and Kimbal Musk are entitled to vote on the proposal). Approximately 15 pages are dedicated to background and discussion of the process followed by the two member special board committee. The special committee’s full report is also appended to the proxy.
– The proxy also asks shareholders to approve an amendment and restatement of Tesla’s 2019 equity plan to increase the share pool. The original 2019 equity plan seems to have been intended for awards to employees other than Musk. The amended and restated plan creates a special share pool for the previously-announced $30 billion replacement grant to Musk and increases the general share pool for grants to other employees.
The proxy says the preliminary aggregate fair value estimate of the new award is $87.75 billion. Why are news outlets reporting the value at almost $1 trillion? That’s what the approximately 12% stake would be worth if the greatest market cap target is achieved. Not surprisingly, everyone seems to be sharing reactions on LinkedIn, and they range from Obi-Wan to Twister.
I blogged a few years ago about a survey from Professors Alex Edmans, Tom Gosling, and Dirk Jenter that found CEOs are more motivated by a sense of “fairness” than by adding a few more zeros to their bank accounts. In a follow-up study that was just published in the American Economic Review: Insights, Professor Edmans teamed up with Pierre Chaigneau and Daniel Gottlieb to examine what type of “fairness” concerns are most motivating.
The pre-print version of the study is available here. In addition to including a lot of complex equations that reminded me why I became a lawyer and blogger instead of an economist, it offers these findings about pay-for-performance:
We showed that fairness concerns do not lead to the agent being paid fair wages for all output levels; in contrast, unfair wages can induce effort efficiently. The optimal contract involves two thresholds for output. The agent receives zero below the lower threshold, the entire output above the upper threshold, and the fair wage in between. When fairness concerns are sufficiently strong, the top region disappears, and the contract becomes performance-vesting equity. Most other contracting theories predict continuous contracts, or extreme discontinuities where the agent’s pay switches from zero to the entire output.
Even if the incentive constraint is slack, pay is increasing in output – paying the agent the fair wage over a range of outputs reduces perceived unfairness and satisfies the participation constraint efficiently. As a result, the firm can induce CEO effort “for free”, potentially rationalizing why incentives are given even to intrinsically motivated agents.
It makes sense that the threat of “no payout” is a big motivator. Money doesn’t buy happiness, especially when you’re already wealthy. So it sounds like companies are on to something by requiring “threshold” performance for a payout. It makes you wonder whether “moonshot awards” move the needle, but it’s probably difficult to generalize human motivations across the board…
As Meredith shared in early July, Glass Lewis is planning to change its quantitative pay-for-performance model for the 2026 proxy season. We probably won’t know all the details until mid-October (at least), but this FW Cook blog describes what we know so far about the new multi-test scorecard. Here are a few key points:
– Replaces the current letter grading system (i.e., A to F) with a numerical scorecard
– Extends the pay-for-performance alignment measurement period from 3 years to 5 years
– Expands the relative pay and performance comparisons beyond the GL peer group to include broader general industry and market capitalization peers
– Utilizes multiple definitions of pay with the introduction of CAP to the model
The blog provides detailed charts about Glass Lewis’s new scorecard approach. According to FW Cook’s summary, there will be five relative tests and one qualitative test (i.e., six total) – and the charts summarize the various tests and factors.
Under this model, you want to get a high score. Glass Lewis will use the relative tests to calculate a numerical overall P4P alignment score that ranges from 0 to 100, and will apply the qualitative test as a negative modifier – i.e., it can only reduce the overall P4P alignment score. The overall score translates to a level of P4P misalignment concern ranging from negligible (81 – 100) to severe (0 – 20).