The Advisors' Blog

This blog features wisdom from respected compensation consultants and lawyers

November 30, 2023

Cybersecurity Breaches: Adjustments to Earned Compensation

Some of the largest US companies are implementing (or considering) cybersecurity metrics in comp programs — and specific metrics may be appropriate in certain cases (for example, after a cyber event or when upgrades are planned) — but this Semler Brossy article highlights an important cybersecurity-related consideration for comp programs at all companies. That is, whether the board has the flexibility to make compensation adjustments when a cyber event occurs.

The article argues that boards should have the freedom to adjust earned compensation based on a qualitative assessment that considers whether the related cyber risk was avoidable, the level of communication to the board, whether mitigation plans were implemented and the appropriateness of management’s situation-specific judgment calls. For example, this WSJ article highlighted one company with no cybersecurity metrics in its executive compensation programs whose board canceled short-term incentive bonuses for certain top executives after a significant cyber event.

Clawbacks may play a role here as well. Here’s an excerpt from the Semler Brossy article:

In addition to developing a framework for determining adjustments to current-year compensation, boards should review the clawback language to assess where there is flexibility to claw back compensation, if appropriate (e.g., the breach was caused by gross negligence or reasonable mitigation steps were not taken to limit damage after the breach). In considering whether to add such a clawback, and the appropriate language, a review of risk clawbacks added by many large financial institutions after the financial crisis may also be informative.

Meredith Ervine 

November 29, 2023

Glass Lewis Peer Group Deadline for 2024 Proxy Season

Liz recently shared that ISS’s peer group review & submission window is open until next week Tuesday, December 5th. Glass Lewis has also opened its peer group submission window for companies with meetings from March 2024 to September 2024, and it runs until Friday, December 15th. Glass Lewis walks through how and why to submit your peer group on its website. If you’re looking for a resource to share internally that’s a “one-stop-shop,” check out this Compensia alert with info on the process for both ISS and Glass Lewis.

Meredith Ervine 

November 28, 2023

The Pay & Proxy Podcast: FAQs on Implementing Dodd-Frank Clawback Policies

Last month, the Latham team released a client alert with 24 frequently asked questions on the SEC’s final clawback rule and the related listing standards. In the latest Pay & Proxy Podcast, I’m joined by Keith L. Halverstam & Maj Vaseghi, Global Chair and Vice Chair, respectively, of Latham’s Public Company & Board Representation Practice, to discuss some of the FAQs related to the implementation of a clawback policy. In this 24-minute podcast, Keith and Maj cover the following topics:

– “Little r” restatements & the SEC’s expansive interpretation of what constitutes “material noncompliance with any financial reporting requirement”
– Steps a company needs to take under a clawback policy following a determination that a restatement is required
– “Difficult” financial metrics where the erroneously awarded compensation can’t be determined by a simple mathematical recalculation
– Challenges with collecting erroneously awarded compensation
– Planning ahead for policy implementation
– When erroneously earned shares have been sold at a gain

We’re always looking for new podcast content, so if you have something you’d like to talk about, please reach out to me at

– Meredith Ervine

November 27, 2023

Just in Time for the Holidays: More PvP CDIs Are Here!

Just before Thanksgiving, the SEC gave us even more to be thankful for — eight new and two revised CDIs on the pay-versus-performance disclosure requirements. I’ve paraphrased each new CDI and linked to the full text below.

1. New Question 128D.23 – Dividends or dividend equivalents paid that are not already reflected in the fair value of stock awards or included in another component of total compensation must be included in the calculation of executive compensation actually paid.

2. New Question 128D.24 – If a registrant uses more than one published industry or line-of-business index for purposes of Item 201(e)(1)(ii), the registrant may choose which index it uses for purposes of its PvP disclosure and should include a footnote disclosing the index chosen. If the registrant chooses to use a different published industry or line-of-business index from that used by it for the immediately preceding fiscal year, it is required to explain the reasons for the change in a footnote and provide a comparison against both the newly selected peer group and the peer group used in the immediately preceding fiscal year.

3. New Question 128D.25 – A registrant may not use the broad-based equity index it uses to determine the vesting of performance-based equity awards based on relative TSR as its peer group for purposes of Item 402(v)(2)(iv).

4. New Question 128D.26 – Market capitalization-based weighting is required for purposes of Item 402(v)(2)(iv) only if the registrant is not using a published industry or line-of-business index pursuant to Item 201(e)(1)(ii).

5. New Question 128D.27 – If a registrant uses a benchmarking peer group and adds or removes companies, is it required to footnote the changes and compare its cumulative total shareholder return with that of both the updated peer group and the peer group used in the immediately preceding fiscal year. However, if an entity is omitted solely because it is no longer in the business or industry or the changes were made pursuant to pre-established objective criteria, presenting both comparisons is not required, but a specific description of the change and the basis for the change must be disclosed, including the names of the companies removed. This is consistent with CDI 206.05 regarding disclosure under Item 201.

6. New Question 128D.28 – The staff will not object if a registrant that loses SRC status as of January 1, 2024 continues to include scaled disclosure under 402(v)(8) in its proxy filed not later than 120 days after its 2023 fiscal year end, forward incorporated into the 10-K. The PvP disclosure must cover fiscal years 2021, 2022, and 2023.

Unless the registrant subsequently regains SRC status, any other proxy filed after January 1, 2024 must include non-scaled PvP disclosure. However, a registrant generally is not required to revise disclosure for prior years to conform to non-SRC status, and the staff will not object if the registrant does not add disclosure for a year prior to those included in the first filing with PvP disclosure. But the registrant should include peer TSR — measured from the market close on the last trading day before the registrant’s earliest fiscal year in the table — and its numerically quantifiable performance under the Company-Selected Measure for each fiscal year in the table, and disclosure provided for all fiscal years must be XBRL tagged.

7. New Question 128D.29 – The registrant is required to include PvP disclosure in any proxy or information statement filed after it loses its EGC status, but may apply the transitional relief in Instruction 1 to Item 402(v) (that disclosure may be provided for three years instead of five in the first filing with PvP disclosure and an additional year in each of the two subsequent annual filings).

8. New Question 128D.30 – When multiple individuals served as PFO during one covered fiscal year, for purposes of calculating average compensation for the NEOs other than the PEO, the registrant may not treat the PFOs as the equivalent of one NEO. Each must be included individually in the calculation of the average, but additional disclosure regarding the impact on the calculation should be considered.

I’ve also included marked versions of the revised CDIs.

Revised Question 128D.07

Question: In each of 2020 and 2021, a registrant provided the same list of companies as a peer group in its Compensation Discussion & Analysis (“CD&A”) under Item 402(b) but provided a different list of companies in its CD&A for 2022. With respect to a registrant providing initial Pay versus Performance disclosure in its 2023 proxy statement for three years (as permitted by Instruction 1 to Item 402(v) of Regulation S-K), may the registrant present the peer group total shareholder return for each of the three years using the 2022 peer group?

Answer: No. In this situation, the registrant should present the peer group total shareholder return for each year in the table using the peer group disclosed in its CD&A for such year. In the 2024 proxy statement, if the registrant uses the same peer group for 2023 as it used for 2022, the registrant should present its peer group total shareholder return for each of the years in the table using the 2023 peer group. If it changes the peer group in subsequent years, it must provide disclosure of the change in accordance with Regulation S-K Item 402(v)(2)(iv).

Revised Question 128D.18

Question: Some stock and option awards allow for accelerated vesting if the holder of such awards becomes retirement eligible. If retirement eligibility was the onlysole vesting condition, would this condition be considered satisfied for purposes of the Item 402(v) of Regulation S-K disclosures and calculation of executive compensation actually paid in the year that the holder becomes retirement eligible?

Answer: Yes. However, for awards with additional substantive conditions, in addition to if retirement eligibility, such as a market is not the sole vesting condition as described in Question 128D.16, those, other substantive conditions must also be considered in determining when an award has vested. Such conditions would include, but not be limited to, a market condition as described in Question 128D.16 or a condition that results in vesting upon the earlier of the holder’s actual retirement or the satisfaction of the requisite service period.

– Meredith Ervine 

November 21, 2023

Clawback Policies Will Make Internal Investigations More Complex

With the December 1st compliance deadline looming for listed companies to adopt a Dodd-Frank clawback policy, most companies have survived “step 1” of this new requirement. Unfortunately, adopting the policy was the easy part. This King & Spalding memo points out that the specter of recoupment likely will complicate internal investigations into financial errors. Here’s an excerpt:

If executive officers received incentive-based compensation based on a financial reporting measure that subsequently must be restated, clawbacks may be required no matter how small the original errors were, no matter whether misconduct led to the errors and no matter whether the executives in question had any role in the errors. It will be natural for executives to prefer not to return compensation to a company once they received it, so the executives naturally would prefer that no restatement occurred. The new requirement that actions taken pursuant to required clawback policies must be disclosed puts even more pressure on these executives because any return of compensation will become public. As a result, the new rules create a potential conflict of interest that must be examined at the outset of every internal investigation involving a potential accounting restatement.

The memo concludes on this cheery note:

In short, audit committees may be conducting more internal investigations and executives may not get information during the investigations. These circumstances will be frustrating to everyone, and experienced outside counsel will be essential to navigating them. Outside counsel advising companies and their audit committees should thoroughly understand the potential errors being investigated and how they might have impacted incentive-based compensation that could be subject to clawback in order to assess potential conflicts of interest of current and former executives.

And companies can no longer take comfort that “little r” restatements (correcting an immaterial error from a prior period that would result in a material misstatement if the error were corrected, or left uncorrected, in the current period) have no significant impact. The impact on financial statements may not be significant, but if clawbacks are required, that can be very significant to current and former executives.

John shared tips on internal investigation processes last week on We have a lot of resources on that site in our “Internal Investigations” Practice Area. And now that everyone’s required Dodd-Frank clawback policies are in place, we will be sharing more & more about navigating recoupment issues in the “Clawbacks” Practice Area of this site.

This blog will return next week. Happy Thanksgiving!

Liz Dunshee

November 20, 2023

Glass Lewis: New Policies on Clawbacks & Ownership Guidelines

Late last week, Glass Lewis issued its 2024 Voting Guidelines – which include several updates on executive compensation topics. Here’s an excerpt:

Clawback Provisions – In addition to meeting listing requirements, effective clawback policies should provide companies with the power to recoup incentive compensation from an executive when there is evidence of problematic decisions or actions, such as material misconduct, a material reputational failure, material risk management failure, or a material operational failure, the consequences of which have not already been reflected in incentive payments and where recovery is warranted. Such power to recoup should be provided regardless of whether the employment of the executive officer was terminated with or without cause. In these circumstances, rationale should be provided if the company determines ultimately to refrain from recouping compensation as well as disclosure of alternative measures that are instead pursued, such as the exercise of negative discretion on future payments.

Executive Ownership Guidelines – We have added a discussion to formally outline our approach to executive ownership guidelines. We believe that companies should facilitate an alignment between the interests of the executive leadership with those of long-term shareholders by adopting and enforcing minimum share ownership rules for their named executive officers. Companies should provide clear disclosure in the Compensation Discussion and Analysis section of the proxy statement of their executive share ownership requirements and how various outstanding equity awards are treated when determining an executive’s level of ownership.

In the process of determining an executive’s level of share ownership, counting unearned performance-based full value awards and/or unexercised stock options is inappropriate. Companies should provide a cogent rationale should they count these awards towards shares held by an executive.

Proposals for Equity Awards for Shareholders – Regarding proposals seeking approval for individual equity awards, we have included new discussion of provisions that require a non-vote, or vote of abstention, from a shareholder if the shareholder is also the recipient of the proposed grant. Such provisions help to address potential conflict of interest issues and provide disinterested shareholders with more meaningful say over the proposal. The inclusion of such provisions will be viewed positively during our holistic analysis, especially when a vote from the recipient of the proposed grant would materially influence the passage of the proposal.

The updated guidelines also clarify the proxy advisor’s approach to these issues:

Non-GAAP to GAAP Reconciliation Disclosure – We have expanded the discussion of our approach to the use of non-GAAP measures in incentive programs in order to emphasize the need for thorough and transparent disclosure in the proxy statement that will assist shareholders in reconciling the difference between non-GAAP results used for incentive payout determinations and reported GAAP results. Particularly in situations where significant adjustments were applied and materially impacts incentive pay outcomes, the lack of such disclosure will impact Glass Lewis’ assessment of the quality of executive pay disclosure and may be a factor in our recommendation for the say-on-pay.

Pay-Versus-Performance Disclosure – We have revised our discussion of the pay-for-performance analysis to note that the pay-versus-performance disclosure mandated by the SEC may be used as part of our supplemental quantitative assessments supporting our primary pay-for-performance grade.

Company Responsiveness for Say-on-Pay Opposition – For increased clarity, we amended our discussion of company responsiveness to significant levels of say-on-pay opposition to note that our calculation of opposition includes votes cast as either AGAINST and/or ABSTAIN, with opposition of 20% or higher treated as significant.

During last week’s webcast for members, our expert panelists noted that these guidelines set an expectation that companies will adopt clawback policies that go beyond what’s required by the listing standards adopted under the Dodd-Frank Act and SEC Rule 10D-1. That program is now available to members for on-demand listening, and the transcript will be available in a few weeks. (If you aren’t already a member, you can sign up online or email

Also check out John’s blog on on Friday for info on other changes to Glass Lewis’s Voting Guidelines that you’ll need to know for proxy season. You may need to beef up your charters on board oversight of E&S issues….

Liz Dunshee

November 16, 2023

Today’s Webcast: “More on Clawbacks: Action Items and Implementation Considerations”

Join us today at 2 pm Eastern for our webcast “More on Clawbacks: Action Items and Implementation Considerations” to hear Compensia’s Mark Borges, Ropes & Gray’s Renata Ferrari, Gibson Dunn’s Ron Mueller and Davis Polk’s Kyoko Takahashi Lin continue their excellent discussion from our 20th Annual Executive Compensation Conference on complex decisions and open interpretive issues that unlucky companies faced with a restatement will need to tackle.

Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. The webcast cost for non-members is $595. You can sign up by credit card online. If you need assistance, send us an email at – or call us at 800.737.1271.

We will apply for CLE credit in all applicable states (with the exception of SC and NE which require advance notice) for this 1-hour webcast. You must submit your state and license number prior to or during the program using this form. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval; typically within 30 days of the webcast. All credits are pending state approval.

– Meredith Ervine

November 15, 2023

A Big, Expensive “Nothingburger”?

SEC Commissioner Mark Uyeda isn’t a fan of the pay-versus-performance rule — or the process by which the SEC adopted it. He gave his thoughts on the PvP disclosure requirements in a recent speech.

The speech has gotten a fair amount of attention — mostly for suggesting that the SEC re-propose climate disclosure requirements before the Commission adopts a final rule that significantly deviates from the proposed. But his PvP comments are also noteworthy — as he cites some of the eccentricities of PvP disclosures as his “case study” on why re-proposing rules is often appropriate. Here’s an excerpt from his remarks:

Approximately 34% of companies subject to the new rule reported a negative amount for the principal executive officer’s “compensation actually paid” in one of the three years included in the new pay versus performance table. Although the statute’s focus is on the relationship between an executive’s “compensation actually paid” and the company’s financial performance, it is hard to believe that Congress would have expected the Commission to adopt a rule where more than one-third of companies explain this relationship by reporting a negative number.

[…] In reporting on pay versus performance disclosure, one publication questioned whether shareholders might interpret negative “compensation actually paid” as if the CEOs theoretically owed their companies money and another observed that “the new ‘compensation actually paid’ in not compensation actually paid.”

It is bad enough that the disclosure may not be understandable or material, but even worse, preparing the disclosure may impose significant costs on companies. Much of these costs arise from hiring consultants to make the equity award fair value calculations not otherwise required by the Commission’s prior executive compensation rules. According to one trade association survey, over 50% of companies expect to spend at least $40,000 on consultants to make these calculations.

Since the treatment of equity awards was changed from the proposed to final rule, he then speculates that the calculation of CAP — and ultimately the utility of the PvP disclosure — could have been improved through the comment process:

In the 2015 proposing release, the Commission discussed the approach of including equity awards based on changes in fair value and noted that such changes could result in a negative number. Of the more than 150 comments received on the rulemaking, only two commenters supported this approach. The only mention of this approach in the 2015 proposing release was as an “implementation alternative” in the economic analysis section.

If the Commission had re-proposed the rule in 2022 with the modified calculation of “compensation actually paid” based on changes in fair value, would things have come out differently? While we may never know, doing so would have at least offered market participants an opportunity to focus on the issue. The Commission would then have had a broader set of views on the approach’s advantages and disadvantages. Some commenters might have discussed whether the potential for disclosure of negative “compensation actually paid” is useful to investors.

As for the title of this blog, according to Cydney Posner’s Cooley PubCo post, one panelist at the Annual Institute on Securities Regulation remarked that no proxy advisor or institutional investor has incorporated PvP disclosure into their decision-making. Another speaker referred to it as a “nothingburger.” While I’ll be adding that term to my lexicon — especially since it was used multiple times at the Institute — I’m not sure we can conclude that just yet with only one year of disclosure behind us. Only time will tell!

Meredith Ervine 

November 14, 2023

Whistleblower Enforcement: Amend Restrictive Language & Add Remedial Language

As we’ve covered extensively on, the SEC’s Enforcement Division has been on the lookout for provisions in employment or separation agreements that violated whistleblower protection rules for years, and, in the last few months, multiple enforcement actions have again been brought targeting these provisions. As Liz noted, that brings the running total of Rule 21F-17 enforcement actions to “nearly 20” since 2015. As we’ve seen, these provisions continue to linger on in forms, and the SEC’s view seems to be that added language and/or communications to employees that the provisions shouldn’t be construed to prevent whistleblower claims may not be sufficient to address the problem.

This recent Proskauer blog says these settlements should remind “companies to review their existing employment documents and internal policies, including confidentiality policies, to ensure that restrictive language is removed and that appropriate whistleblower carveout language is included” and that “even a minor deviance from the SEC’s recommended verbiage could result in a costly enforcement action – scrutiny which may be avoided by closely hueing to language the SEC has previously approved in other enforcement actions.” To that end, the blog describes provisions the SEC has taken issue with in enforcement actions:

– Release stating that the individual would not discuss the matter with FINRA, the SEC, or anyone else.
– Language stating that the employee was “waiving your right to any monetary recovery or other individual relief” in connection with any charge or complaint filed with governmental agencies.
Separation agreement providing that reporting to administrative agencies was allowed, “but only if I notify the Company of a disclosure obligation or request within one business day after I learn of it and permit the Company to take all steps it deems to be appropriate to prevent or limit the required disclosure.
Separation or similar agreements requiring the employee to certify that they had “not filed any complaint or charges against [the company], or any of its respective subsidiaries, affiliates, divisions, predecessors, successors, officers, directors, shareholders, employees, representatives or agents…with any state or federal court or local, state or federal agency.”
Separation agreements providing that employees would not “at any time in the future voluntarily contact or participate with any governmental agency in connection with any complaint or investigation pertaining to the Company, and [may] not be employed or otherwise act as an expert witness or consultant or in any similar paid capacity in any litigation, arbitration, regulatory or agency hearing or other adversarial or investigatory proceeding involving the Company.”
Compliance policy language stating that employees are “strictly prohibited from initiating contact with any Regulator without prior approval from the Legal or Compliance Department.”
Employee confidentiality agreements broadly defining “Confidential Information” to include all company financial information and financial reports and imposing a liquidated damages provision for violations, where the agreements did not also include “whistleblower carve-out” language.
A settlement agreement with investors that required confirmation that investors and their counsel have not contacted, and would not in the future contact, the SEC or other governmental agencies concerning matters in the agreement.

It also provides examples of carveout language that the SEC has cited with approval:

– “Nothing in this Section shall be construed or deemed to interfere with any protected right to file a charge or complaint with any applicable federal, state or local governmental administrative agency charged with enforcement of any law, or with any protected right to participate in an investigation or proceeding conducted by such administrative agency, or to recover any award offered by such administrative agency associated with such charge or complaint.”
– “Nothing in this policy or any other Company policy or agreement is intended to prohibit you (with or without prior notice to the Company) from reporting to or participating in an investigation with a government agency or authority about a possible violation of law, or from making other disclosures protected by applicable whistleblower statutes.”
Where restrictive confidentiality provisions exist: “Employee can provide confidential information to Government Agencies without risk of being held liable for liquidated damages or other financial penalties.”

Meredith Ervine 

November 13, 2023

Survey Results: Clawback Policies

Here are the results from our recent survey on clawback policies:

1. Did your company have a clawback policy in place prior to the final Dodd-Frank mandate?

– Yes, a standalone policy – 61%
– No standalone policy, but equity award and/or contractual provisions allow forfeitures and/or clawbacks – 26%
– No standalone policy or contractual provisions – 13%

2. If your company has a pre-Dodd Frank clawback policy and/or provisions, what do they cover?

– Restatements resulting from misconduct – 63%
– Misconduct (e.g., harassment) or gross negligence that may cause reputational harm – 34%
– Allows the board/compensation committee to determine triggers in their discretion – 21%
– Restatements regardless of misconduct – 18%
– A policy violation or breach of a noncompetition obligation or similar agreement – 17%
– Inadequate oversight of behavior by subordinates that may impact financial results or cause reputational harm – 9%
– Not applicable: We don’t currently have a clawback policy or provisions – 18%

3. When the stock exchange clawback listing rules are final, do you intend to adopt and/or maintain the clawback and forfeiture triggers that go beyond the proposed rules?

– No, we will just comply with the listing standards – 46%
– Yes – 43%
– We haven’t decided – 11%

4. When the stock exchange clawback listing rules are final, do you plan to have one policy or multiple?

– A standalone Dodd-Frank policy, plus maintain existing policies and/or provisions – 42%
– A single policy that will satisfy the listing exchange standards – 41%
– One combined policy that will cover restatements and other triggering events – 17%

5. How will you ensure you have the ability to enforce your clawback policy?

– We will have each executive sign a standalone document, such as an acknowledgment of the clawback policy or amendment to an existing agreement – 46%
– We will rely on provisions in equity award agreements and contracts – 39%
– We’ll cross that bridge when we come to it – 25%
– We will adopt a mandatory deferral program – 0%
– Something else – 5%

5. Do you intend to make any changes to your compensation program as a result of the new listing standards?

– No, we are not considering any changes to our compensation program – 86%
– Yes, we are considering shifting compensation more toward types not covered by the clawback rules (such as time vesting, non-financial/stock price measures or discretionary awards) – 5%
– Yes, we may move away from metrics that would complicate the recovery process, like stock price or TSR – 2%
– Yes, we are considering other changes – 8%

Reminder to tune into our webcast “More on Clawbacks: Action Items and Implementation Considerations” this Thursday, November 16, at 2:00 pm Eastern.

– Meredith Ervine