As noted in this press release, a group consisting of AFL-CIO, CREDO Action, MoveOn.org, Americans for Financial Reform and Public Citizen delivered a petition to the SEC yesterday that numbered 165k signatures. Not sure whether that will influence the SEC to act any sooner since other petitions have not resulted in any action – although the rumor is that these rules will be adopted on August 5th.
There have been false starts before – this poll of the community as to when the pay ratio rules would be adopted fared well as the “winners” were those that guessed that the pay ratio rules would be adopted later than any of the offered poll choices. Here’s a new poll for you to make a prediction:
Here’s a blog by Steve Quinlivan about Friedman v. Dolan:
Members of the Dolan family hold 73% of the voting power of Cablevision Systems Corporation’s stock. A shareholder commenced a derivative action regarding the executive compensation paid to Dolan family members serving as Executive Chairman and Chief Executive Officer and the Delaware Court of Chancery dismissed the claims.
In setting the compensation for the two family members that serve as Executive Chairman and Chief Executive Officer of Cablevision, the compensation committee used a peer group of 14 publicly traded companies. The court, in analyzing the case, also looked to additional companies in Cablevision’s ISS peer group, for a total peer group of 26 companies. 18 members of the peer group had market capitalizations of over $10 billion and the average total revenue was $30.87 billion. By comparison, Cablevision had a market capitalization of $4.39 billion and $19.58 billion in revenue.
Of the 17 peer companies with less than $30 billion in market capitalization, only two paid their CEO more than Cablevision paid its CEO. The Executive Chairman earned more than 14 (of 17) CEOs at peer companies with a market capitalization below $30 billion.
The plaintiff claimed that the entire fairness standard should apply to review of the executive compensation rather than the business judgment rule. The rational that was advanced was that transactions between controllers and a controlled company are reviewed under the entire fairness standard regardless of whether the transaction is approved by a committee or whether challenged in a merger or non-merger.
The Court agreed with the defendants’ analysis about the need to distinguish an independent committee’s compensation decisions from other matters warranting default entire fairness review. For example, major concerns in applying entire fairness review are informational advantages and coercion. The Court noted the complaint does not support its allegations of leveraging control over the compensation committee with a factual basis to make that inference, and the Court did not believe the Executive Chairman and the CEO had a material informational advantage over the compensation committee about the value of their services. Additionally, the Court would not endorse the principle that every controlled company, regardless of use of an independent committee, must demonstrate the entire fairness of its executive compensation in court whenever questioned by a shareholder. Finally, the Court stated it was especially undesirable to make such a pronouncement here, where annual compensation is not a “transformative” or major decision.
The Court found the compensation committee was independent and rejected the plaintiff’s allegations of non-independence based on long-term board service, service at other Dolan controlled entities, age, retirement status, a sibling’s employment, and continued self-nomination with board approval. The Court stated it was not reasonable to infer that age and retirement defeated independence — the plaintiff did not make fact-based allegations suggesting that the compensation committee defendants had infirmities or were dependent on their compensation. In addition, there were no allegations of how a compensation committee member’s decision were tied to his brother’s general employment by a Dolan entity that would lead the Court to deem the director’s decisions were discretion sterilized. According to the Court, the totality of the complaint did not make a reasonably conceivable case that the directors wanted to remain on the board so much that they sacrificed their professional integrity.
It’s time to vote! Thanks to the many who submitted nominations – it was hard to pare those down (& apologies to those that didn’t get their candidates onto our final slate). I tried to limit the number of nominees to three for each category – but sometimes that was challenging because we had so many candidates submitted for certain categories. Folks are proud of their executive summaries! Please take a moment to vote for these 12 categories of awards. Voting is anonymous – and ends on Friday, July 24th. Here’s the FAQs…
Don’t forget to tune into today’s webcast – “Clawbacks: What Now After the SEC’s Proposal” – to hear Compensia’s Mark Borges, Semler Brossy’s Blair Jones and Morrison & Foerster’s Dave Lynn discuss the SEC’s latest proposal…
Tune in tomorrow, July 15th, for the webcast – “Clawbacks: What Now After the SEC’s Proposal” – to hear Compensia’s Mark Borges, Semler Brossy’s Blair Jones and Morrison & Foerster’s Dave Lynn discuss the SEC’s latest proposal…
With the July 6th deadline behind us, roughly 60 comment letters have been submitted to the SEC on its pay-for-performance proposal. The commentators are from all walks of our community, including investors, issuers, comp consultants, law firms and others (like this one from the Aspen Institute, a broad-based nonpartisan group).
Meanwhile, the SEC’s hedging & pledging proposal drew about 20 comment letters.
Don’t forget to tune in for Wednesday’s webcast – “Clawbacks: What Now After the SEC’s Proposal” – to hear Compensia’s Mark Borges, Semler Brossy’s Blair Jones and Morrison & Foerster’s Dave Lynn discuss the SEC’s latest proposal…
For years courts have struggled with defining what qualifies as a “top hat plan.” The stakes in these cases are often high, as top hat plans are exempt from most of ERISA’s substantive requirements, including from its funding requirement which is necessary for the plan to be tax efficient, and from its minimum vesting requirements which is frequently necessary for the plan’s design objectives to be achieved. For example, non-qualified deferred compensation plans must be unfunded to avoid participants from being currently taxed on their benefits until those benefits are actually paid. In addition, many plans are designed to promote employee retention and to enforce non-competition and other post-termination restrictions by using vesting and forfeiture provisions that generally are not permissible under ERISA.
Part of the difficulty in this area has been the absence of interpretive standards, either in ERISA, its legislative history or in regulations. ERISA defines the exemption as covering a plan that “is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” There is very little in ERISA’s legislative history to help interpret this “select group” requirement, and the U.S Department of Labor (DOL) has never issued regulations. Instead, the DOL has issued a handful of advisory opinions on this topic over the past 41 years. The early advisory opinions, and the courts that drew from those opinions, focused on various objective factors to determine top hat plan status. Factors frequently considered by the courts were the percentage of the employer’s workforce covered under the plan, how the average compensation of plan participants compared with that of the rest of the employer’s workforce and the compensation levels of participants in absolute terms.
Beginning in 1990, the DOL adopted two additional interpretations narrowing the scope of top hat plan the exemption (see DOL Advis. Op. 90-14A). First, the DOL adopted the position that a select group is limited to persons who “by reason of their position or compensation level, have the ability to affect or substantially influence, through negotiation or otherwise, the design and operation of their deferred compensation plan.” This bargaining power factor has since been accepted by a number of courts as one, but not the exclusive, means of evaluating a plan’s status. In addition, the DOL adopted the position that the word “primarily” relates solely to the purpose of the plan and not to the determination whether the plan covers a select group. In the DOL’s view, the exemption applies to a plan if the primary purpose of the plan is to provide deferred compensation; not to a plan that “primarily covers” of select group of management or highly compensated employees.
Both of these interpretations recently have been reiterated by the DOL in an amicus brief filed in a top hat plan case on appeal to the Fourth Circuit Court of Appeals. The case, Bond v. Marriott International, Inc., involves a plan that provided deferred stock bonus awards to participants that vested on a pro rata basis between the date the award was granted to the date on which participant attained age 65.
Tune in next Wednesday, July 15th for the just-calendared webcast – “Clawbacks: What Now After the SEC’s Proposal” – to hear Compensia’s Mark Borges, Semler Brossy’s Blair Jones and Morrison & Foerster’s Dave Lynn discuss the SEC’s latest proposal…
Is executive pay becoming a hot button issue for activist hedge funds? While executive pay has long been under scrutiny from standard-issue corporate governance activists, such as union pension funds, the interest of some hedge fund activists in executive compensation issues has the potential to introduce a more disquieting note to the compensation conversation.
This article by Jeremy Goldstein from the HLS Forum on Corporate Governance and Financial Regulation argues that “activists will not hesitate to use pay as a wedge issue, even if there is nothing wrong with a company’s pay program.” But when pay issues have been identified, compensation can assume greater prominence, and, in some cases, can appear to be the principal concern. The article identifies some considerations regarding executive compensation for companies intent on deterring hedge fund activists as well as for those hoping to avoid unintended consequences in the event of an activist strike.
The author first observes that low levels of support for a company’s say-on-pay proposal could signal that shareholders have identified performance issues at the company and make the company particularly vulnerable to an activist attack “because a failed vote can result in tension between managements and boards.”
With the comment letter deadline for the SEC’s recent release of additional economic analysis looming – this Monday, July 6th – the SEC’s Division of Economic and Risk Analysis posted another memo on Tuesday about the potential effects on the accuracy of the proposed pay ratio rule calculation of excluding different percentages of certain categories of employees.
It sure looks like the rumor of August 5th being an adoption date might come true as the SEC seems to be getting its ducks in a row to minimize the risk of losing a court battle if rules do indeed become final…