The Advisors' Blog

– Broc Romanek, CompensationStandards.com

I just learned of this recent Corp Fin no-action response to Navistar, in which the Staff allows the company to exclude a proposal from the Teamsters General Fund. This shareholder sought inclusion of a proposal for shareholder approval of future severance agreements with senior executives that provide benefits in an amount exceeding 2.0x the sum of salary plus bonus.

The Staff response relies on Rule 14a-8(i)(10) to permit exclusion on the basis that the company will soon substantially implement the proposal because the company intends to include a say-on-golden-parachute vote as part of its say-on-pay vote for the upcoming proxy season (thus, taking advantage of the Dodd-Frank “exception” that allows for this combination).

Among other arguments, the shareholder unsuccessfully argued that the SEC’s pending say-on-pay rule proposal would render shareholder proposals seeking a more specific vote on particular elements of compensation non-excludable. The shareholder also argued that giving shareholders a triennial vote on the entirety of executive compensation practices is different than giving shareholders an opportunity to weigh in on a company paying out 2x salary and bonus as a severance package.

Interestingly, a few months back, Navistar settled a SEC Enforcement action regarding years-long accounting fraud (see this article). The CEO Dan Ustain that presided over this alleged fraud was the subject of a relatively rare Section 304 clawback action from the SEC – but he still runs the company (see this blog from Francine McKenna). Thus, one can understand why shareholders might want to limit the severance packages at this company.

I haven’t had time yet to confer with the usual shareholder proposal experts to fully analyze this development – but will do so and provide some gloss on this after the holidays…