As noted in this recent blog by Ning Chiu of Davis Polk, some confusion exists about which of the SEC’s forms can companies use to disclose their SOP frequency in the wake of their annual meeting.
While Ning addresses the ambiguities in the SEC’s rules as to whether the determination can be made in the Form 8-K announcing the annual meeting results that is filed within 4 business days after the meeting, as compared to an amendment of the Form 8-K filed within 150 days after the meeting (Ning notes that many companies have indeed gone the original 8-K route rather than wait for a later amendment), there also remains the question of whether this determination can be filed in a Form 10-Q if that filing is otherwise due and a company is ready to disclose its determination. Although a CDI exists that would seem to support that avenue of disclosure, a member recently posted a discussion with a SEC Staffer in TheCorporateCounsel.net’s Q&A Forum (Q&A #6432) that said:
In response to a similar question, the SEC’s Office of Chief Counsel confirmed by telephone that an Item 5.07 triggering event must be filed on Form 8-K. Their reasoning was that there is an expectation that the issuer will be filing an amendment, either to report final voting results or to report the board’s determination on the frequency of say on pay votes, and that for ease of finding the information they want it all to be reported on an 8-K or 8-K/A.
The staff person I spoke with acknowledged the C&DI referenced above (Question 101.01) and indicated that they are looking into providing an update to that C&DI to address this particular issue.
So it seems that perhaps we may see some CDIs that address these murky issues sometime soon…
For those who want the skinny on every single vote on say-on-pay so far, Womble Carlyle released this comprehensive survey yesterday of 1600 SOP votes (here’s the related memo). This section of our “Say-on-Pay” Practice Area includes a bunch of resources that have been keeping track of the latest results. Another popular item is this list from Semler Brossy of the 69 companies that have filed additional soliciting materials to combat the negative recommendations that their pay agenda item received from ISS.
As noted in this recent Towers Watson study, many companies are making changes to the CD&A sections of their proxies. One-half of the 170 Fortune 1000 companies that Towers Watson studied (50%) added an executive summary to their 2011 proxy statements, and as a result, nearly two-thirds (64%) of companies now include an executive summary. Additionally, 85% disclosed specific performance goals for the 2010 plan year, while more than three-fourths (78%) showed actual performance attained for 2010 to support the annual bonus paid.
Other findings from the Towers Watson proxy analysis include:
– Almost three in 10 (29%) companies made one-time and/or retention grants in 2010, compared to 16% in 2009. The vast majority of grants in both years were awards that vest solely on the basis of time.
– One-fourth (25%) of companies changed the performance measures used for 2010 annual bonuses, while slightly fewer (24%) changed performance goals for long-term incentive awards.
Last month, Equilar released a research report on equity trends in the S&P 1500 (you can request a copy). Some of the findings include:
– Stock options are declining: From 2006 to 2010, the median number of total stock options granted fell at an annual rate of 3.6 percent.
– Restricted stock is on the rise: In the same period, the prevalence of companies awarding restricted-stock grants rose from 74.9 percent to 90.2 percent.
– An early look at 2010 proxies: In proxies filed so far, 48.8 percent of CEOs received a grant of performance-based equity. 60 percent of CEOs received shares with performance periods spanning multiple years.
In addition, I have found a Form 8-K filed by IsoRay from back in February where the company reported failing its SOP even though there were many more “For” votes than “Against” based on the way it decided to interpret Minnesota law (in comparison, Target – another Minnesota corporation – described the SOP standards a bit differently in its proxy statement). Actually, Seth Duppstadt of SharkRepellent.net found this for us – thanks!
Earlier this week, the American Federation of State, County, and Municipal Employees released its annual report regarding how mutual funds vote on compensation agenda items. The report reviews how 26 large fund groups voted on 10 specific items, including the voluntary “say on pay” votes at Motorola and Occidental Petroleum, compensation committee members at Nabors and Abercrombie & Fitch, and a shareholder proposal to end “golden coffin” benefits at Verizon Communications. The report doesn’t include any 2011 votes, as mutual funds aren’t required to disclose those votes until this August.
As noted in their press release, the report criticizes four mutual fund groups as “pay enablers” (Vanguard, BlackRock, ING and Lord Abbett). On average, these four fund groups supported over 90 percent of management proposals. In comparison, AFSCME praises four other fund families for being “pay constrainers” (Dimensional, Dreyfus, Oppenheimer and Wells Fargo).
Here’s something that I just blogged on our firm’s new Governance Blog: When the SEC decided to eliminate the ability of brokers to vote on a discretionary basis without specific client instruction for director elections in July 2009, many predicted that it would seriously affect the ability of directors to obtain majority support. The concern proved to be a false alarm. As a result, when the Dodd-Frank Act required the elimination of broker discretionary voting for executive compensation matters, including say-on-pay, there wasn’t nearly the same chatter.
But it turns out that given the closeness of many of the failed say-on-pay votes, the reported broker non-votes would have made a real difference. We calculated that 7 of the 21 companies reporting failed votes so far would have passed, in some cases by a decent margin, if the non-votes had actually been counted as “for” say-on-pay, which is not an unreasonable assumption given these discretionary votes generally favored management. For one company, there were more broker non-votes reported than “for” votes.
Currently for most companies the only proxy item that brokers can continue to vote on without client direction is auditor ratification. In addition, many are not aware that the NYSE usually permits brokers to vote at their discretion on most management proposals to amend charters, including to declassify boards, eliminate supermajority provisions or allow special meetings of shareholders. Since NYSE Rule 452 governing discretionary voting has a specific list of “cannot vote” items, items not on the list, and not viewed as contested, can be marked as a broker-may-vote matter by the NYSE.
Here is a good reminder courtesy of this Troutman Sanders memo:
As the anxiety dies down from watching the proxy returns for the new
say-on-pay votes, it’s easy to forget that your obligations regarding
say-on-pay aren’t over quite yet. In addition to reporting the results of the say-on-pay and frequency votes within four days of the meeting, companies also are required to amend the voting results reported in their Form 8-Ks to disclose their decisions, in light of the votes, on how often say-on-pay votes will be held in the future. The amendment must be filed no later than 150 calendar days after the meeting where the frequency of say-on-pay was voted on, but in no event later than 60 calendar days prior to the deadline for submission of shareholder proposals under Rule 14a-8 for next year’s meeting. The penalty for missing this deadline can be harsh – the loss of Form S-3 eligibility as a result of the late filing.
While the natural reaction is to take a breath following the annual meeting, make sure you don’t relax too much and accidentally miss this new requirement. Also, where the board of directors has made a decision on frequency in advance of the shareholder meeting it can be included in the initial voting results Form 8-K, although that has not been the prevailing practice this year.
Thanks to Dave, we have greatly expanded the list of additional soliciting materials filed by companies who campaigned for their say-on-pay – typically by disputing recommendations made by ISS in a letter to shareholders – in our “Say-on-Pay” Practice Area. We have 31 examples posted.
A note from a respected compensation consultant: “One of the reasons the Europeans are so muted in their criticism of pay is they get a fraction of the information the US and UK puts out. It is also worth noting that equity is vastly less in the EU than the US, so pay levels are much less.”