– Broc Romanek, CompensationStandards.com

Courtesy of Proxy Insight, here is a summary of the votes made by the following institutional investors on key compensation agenda items at US company meetings held between July 1, 2014 & June 30, 2015:

– BlackRock
– Fidelity
– CalPERS
– CalSTRS
– Florida
– Norges
– AllianceBernstein

– Broc Romanek, CompensationStandards.com

We are excited to announce that we have just posted the registration information for our popular conferences – “Tackling Your 2017 Compensation Disclosures: Proxy Disclosure Conference” & “Say-on-Pay Workshop: 13th Annual Executive Compensation Conference” – to be held October 24-25th in Houston and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. The panels include:

1. Keith Higgins Speaks: The Latest from the SEC
2. SEC Speaks: Post-Panel Commentary
3. The SEC All-Stars: The Bleeding Edge
4. The Proxy Designers Speak: How to Make Disclosure Usable
5. Navigating ISS & Glass Lewis
6. Hot Topics: 50 Practical Nuggets in 60 Minutes
7. Pay-for-Performance Disclosure: Now What
8. P4P: Post-Panel Commentary
9. Creating Effective Clawbacks (& Disclosures)
10. Clawbacks: Post-Panel Commentary
11. Pay Ratio: Now What
12. Pay Ratio: Post-Panel Commentary
13. Pay Ratio: The In-House Perspective
14. Pay-for-Performance: How to Do The Proper Messaging
15. Proxy Access: Tackling the Challenges
16. Proxy Access: Post-Panel Commentary
17. Pledging & Hedging Disclosures: What to Do Now
18. Pledging & Hedging Disclosures: Post-Panel Commentary
19. Dealing with the Complexities of Perks
20. The Big Kahuna: Your Burning Questions Answered

Early Bird Rates – Act by May 20th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by May 20th to take advantage of the 20% discount.

– Broc Romanek, CompensationStandards.com

As noted in this Davis Polk memo, the SEC recently decided not to pursue two clawback actions under Section 304 because the individuals reimbursed the company for compensation they received after the company filed misleading financials…compare this to yesterday’s blog where the SEC instituted an action to recoup $11 grand…

– Broc Romanek, CompensationStandards.com

Here’s a blog by Steve Quinlivan:

The SEC alleges that Marrone Bio Innovations, Inc. misstated its revenue. The SEC recently brought a settled enforcement action against its former CFO. The SEC alleges the CFO received bonuses during the 12-month periods following the filings containing financial results that MBI was required to restate. The settlement requires the former CFO to reimburse MBI for a total of $11,789 pursuant to Section 304(a) of the Sarbanes-Oxley Act of 2002. The SEC did not allege that the former CFO participated in the misconduct giving rise to the restatement.

Section 304 of SOX requires the chief executive officer or chief financial officer of any issuer required to prepare an accounting restatement due to material noncompliance with the securities laws as a result of misconduct to reimburse the issuer for: (i) any bonus or incentive-based or equity-based compensation received by that person from the issuer during the 12-month periods following the false filings; and (ii) any profits realized from the sale of securities of the issuer during that 12-month periods. According to the SEC, Section 304 does not require that a chief executive officer or chief financial officer engage in misconduct to trigger the reimbursement requirement.

According to the SEC the former CFO violated SOX by not voluntarily tendering a check to MBI. The settlement also orders the former CFO to cease and desist from committing or causing any violations and any future violations of Section 304 of the Sarbanes-Oxley Act. The former CFO did not admit or deny the facts in the SEC order.

– Broc Romanek, CompensationStandards.com

Here’s a blog by Cleary Gottlieb’s Caroline Hayday and Sasha Belinkie:

It is well known that specified employees of publicly-traded companies must wait at least six months following a separation from service to receive payments of deferred compensation triggered by such separation. The six-month delay requirement must be set forth in the plan establishing the right to the payment of deferred compensation on or before the date the applicable individual first becomes a specified employee. Failure to do so, either as a matter of documentary or operational compliance, could result in the imposition of draconian penalty taxes and interest charges on the service provider under Section 409A of the Internal Revenue Code of 1986 (the “Code”).

What is perhaps less well known is that a non-employee director may also be considered a specified employee. A specified employee is defined by reference to Section 416(i) of the Code and includes “an employee who, at any time during the plan year, is”:

– An officer whose annual compensation is greater than $170,000 (up to the lesser of 10% and 50 employees),
– A 5% owner, or
– A 1% owner receiving annual compensation of more than $150,000.

While there has been some discussion about directors who also hold (formally or informally) an officer position, very little attention has been given to the two ownership prongs of the definition and how they might trigger specified employee status for non-employee directors. On their face the two ownership prongs do not appear to apply to non-employee directors since they simply refer to “employees”; the preamble to the regulations, however, declined to accept the request by certain commenters to limit the universe of specified employees to common law employees. Section 416(i)(3) of the Code provides that self-employed individuals described in Section 401(c)(1) of the Code “shall be treated as an employee,” with Section 401(c)(1) defining a self-employed individual simply as an individual who has earned income from self-employment. Since Section 401(c)(1) addresses qualification of retirement plans in which non-employee directors do not commonly participate, the broad definition of employee may not have been focused on non-employee directors, but it does not specifically exclude them from its reach. The Internal Revenue Service generally considers directors fees to be self-employment income (and in fact the proposed Cafeteria Plan Regulations specifically call out directors as being self-employed individuals). Furthermore, Dan Hogans, one of the IRS architects of Section 409A, noted at a 2007 Steptoe & Johnson LLP audio-conference (memorialized in the annotated Section 409A regulations) both that the determination of who is a specified employee is by reference to the top-heavy rules and that directors could be picked up on the basis of share ownership.

Both 1% and 5% ownership of a public company are certainly a significant stake that may be uncommon among non-employee directors, although that level of ownership may be more likely among founders and long-time directors. Companies should also be aware that the ownership need only exceed the requisite threshold at any point in the year and such ownership is determined pursuant to the attribution rules of Section 318 of the Code. Section 318 of the Code sweeps in significantly more than the beneficial ownership rules applicable to public disclosure (e.g., unvested stock options regardless of whether they would vest in the relative short term). These rules may also require attribution of the ownership by partnerships and corporations, relevant for representatives of private equity, hedge fund and venture capital firms who serve on the board of a company in which such a firm holds a stake (although in practice these representatives may not receive compensation for the board service that is settled upon ceasing to be a board member, making designation as a specified employee effectively irrelevant).

Absent additional guidance to the contrary, public companies should consider making sure that their arrangements with their non-employee directors are in documentary compliance on this point, and including non-employee directors in their internal process around determining who their specified employees are and which payments may need to be delayed. For example, many companies provide for director awards that are settled at the time of departure from the board (e.g., restricted stock units that settle upon ceasing to be a board member and deferred fee arrangements) and thus, to the extent the departing director is a specified employee, settlement of those awards would almost certainly need to be delayed the requisite six months.

– Broc Romanek, CompensationStandards.com

Recently, NorthWestern Energy filed its preliminary proxy statement – which includes two different pay ratios for 2016 – one based on how they’ve previously calculated the ratio (the ‘NorthWestern Calculation’) – and another which they believe will meet the future SEC requirements (the ‘Dodd-Frank Calculation’). The company also disclosed a pay ratio last year.

Interestingly, the pay ratio actually dropped considerably using the Dodd-Frank Calculation: Dodd-Frank = 19:1. NorthWestern = 26:1 (it was 24:1 last year). I think the primary reason for the difference is that their officers receive the same benefits as employees. The NorthWestern Calculation doesn’t include the value of benefits, which will be required to be included by the SEC’s rules. When you add approximately $20k of benefits onto compensation for the CEO and the median employee, the denominator gets considerably larger. All of this is spelled out in narrative & numerical detail on pages 24 and 25 of the preliminary proxy statement…

– Broc Romanek, CompensationStandards.com

I haven’t seen any law firm memos yet – but here are two more blogs about the Yahoo! case that I blogged about last week:

– Francis Pileggi’s “Chancery Determines that Electronically Stored Information and Personal Emails of Directors Must Be Provided to Stockholders”

– Keith Bishop’s “Delaware Inspection Ruling May Cause Yahoo! Inc. To Regret Not Incorporating In Nevada”

– Broc Romanek, CompensationStandards.com

Here’s the teaser for this new set of survey results from Stanford:

Recently, the Rock Center for Corporate Governance at Stanford University conducted a nationwide survey of 1,202 individuals — representative by gender, race, age, political affiliation, household income, and state residence — to understand public perception of CEO pay levels among the 500 largest publicly traded corporations. Key takeaways are:

– CEOs are vastly overpaid, according to most Americans
– Most support drastic reductions
– The public is divided on government intervention

74 percent of Americans believe that CEOs are not paid the correct amount relative to the average worker. Only 16 percent believe that they are. While responses vary across demographic groups (e.g., political affiliation and household income), overall sentiment regarding CEO pay remains highly negative.

This part doesn’t surprise me – but it’s still pretty amazing:

Public frustration with CEO pay exists despite a public perception that CEOs earn only a fraction of their published compensation amounts. Disclosed CEO pay at Fortune 500 companies is ten times what the average American believes those CEOs earn. The typical American believes a CEO earns $1.0 million in pay (average of $9.3 million), whereas median reported compensation for the CEOs of these companies is approximately $10.3 million (average of $12.2 million).2

Responses vary based on the household income of the respondent, but all groups underestimate actual compensation. Lower income respondents (below $20,000) believe CEOs earn $500,000 ($9.7 million average), while higher income respondents ($150,000 or more) believe CEOs earn $5,000,000 ($14.9 million average).

– Broc Romanek, CompensationStandards.com

A few weeks ago, Nasdaq proposed a rule change that would require listed companies to disclose “golden leash” arrangements. As noted in this Dorsey memo, the proposed rule would require listed companies to disclose on their website or in their proxy all agreements between any director or nominee any person or entity (other than the company) that provide for compensation or other payment in connection that the person’s candidacy or service as a director. The proposed rule is meant to be interpreted broadly – so it would apply to payments for items such as health insurance premiums. However, disclosure of arrangements that relate only to reimbursement of expenses incurred in connection with a nominee’s candidacy for director, or that existed before the nominee’s candidacy would not need to be disclosed.

– Broc Romanek, CompensationStandards.com

Tune in tomorrow for the webcast – “How to Get Your Equity Plan Approved By Shareholders” – to hear Towers Watson’s Jim Kroll and Brian Myers, Fenwick & West’s Shawn Lampron and Alliance Advisors’ Reid Pearson explain how to navigate the NYSE & Nasdaq rules – as well as the proxy advisor and institutional investor policies – to obtain shareholder approval for your equity compensation plans.