– Broc Romanek

Yesterday, ISS posted this updated set of FAQs for equity compensation plans, complete with 2019 burn rate benchmarks. There are 8 new or modified FAQs…

– Broc Romanek

The SEC just posted this 104-page adopting release for the new hedging disclosure rules. We’re posting memos in our “Hedging” Practice Area. Ho, ho, ho…

– Broc Romanek

Last week, ISS released its “final” compensation FAQs – the “preliminary” set was issued last month. Here’s a blog from FW Cook’s Samantha Nussbaum about the final FAQs…

– Broc Romanek

Yesterday, the SEC adopted the hedging rules required under Section 955 of Dodd-Frank. The SEC adopted these rules a day before its open Commission meeting that included it on the agenda. Today’s meeting agenda is a full one, so the SEC adopted these rules – and requested comments on quarterly reporting & earnings releases – ahead of schedule to provide more time for the other rulemakings still on the agenda.

Here’s the SEC’s press release (the adopting release isn’t available yet) – and we’ll be posting memos in our “Hedging” Practice Area. Except for “smaller reporting companies” and “EGCs” – which get a one-year pass to mid-2020 – the new hedging rules apply to proxies filed during fiscal years beginning after July 1, 2019.

– Broc Romanek

Here’s the inaugural “Global Top 250 Compensation Survey” from FW Cook, FIT Remuneration Consultants & Pretium Partners, which contains information on compensation levels for CEOs & CFOs, the design of long-term incentives, and share usage at the 250 largest listed companies globally…

– Broc Romanek

Here’s news from this ‘Willis Towers Watson’ blog:

Companies preparing for Year 2 CEO pay ratio disclosures now have more questions to consider. Recently, Fortune 500 company compensation committees began receiving a letter from a group of 48 institutional investors requesting them to disclose more information on workforce compensation practices.

The letter posits that since “disclosure of the median employee’s pay provides a reference point for understanding the company’s workforce,” companies should move “to help investors put this pay information into the context of your company’s overall approach to human capital management” with more expansive disclosure.

– Broc Romanek

We blogged several weeks ago about a scheduled open Commission meeting to consider a “request for comment” on the nature & content of quarterly reports & earnings releases. That meeting was cancelled due to President George H.W. Bush’s funeral. Yesterday, the SEC posted this Sunshine Act notice for the rescheduled meeting, to be held next Wednesday – December 19th. And at this meeting, the SEC will also consider adopting the long-pending hedging rules – as required by Section 955 of Dodd-Frank…

– Broc Romanek

A few months ago, Liz blogged about new Section 83(i) of the Internal Revenue Code – it allows private company employees to defer taxes for up to five years from the exercise of a stock option or settlement of a RSU. Last week, the Treasury Department & IRS issued this notice about this new provision. This memo from Davis Polk outlines the key takeaways (we’re posting memos in our “Restricted Stock” Practice Area):

– The measurement period to determine whether the employer satisfied the eligibility requirement that 80% of U.S. employees received grants is measured on a single calendar year basis and does not take into account grants made in prior years

– Employers must withhold taxes at the maximum individual rate in effect at the time the stock with respect to which a Section 83(i) election has been made (deferral stock) is treated as received in income and will be treated as a noncash fringe benefit, which will provide employers additional time to collect amounts required to be withheld from employees

– The employee and employer must agree to place deferral stock in escrow to ensure that applicable withholding taxes are deducted

– An employer may opt out of Section 83(i) by not establishing an escrow arrangement

– Broc Romanek

This memo by Meridian Compensation Partners lays out how TSR has fallen on hard times. Here’s the intro:

During the past decade, the use of total shareholder return (TSR) has risen rapidly in prevalence as a performance metric in executive long-term incentive plans. Many compensation committees believed this was a direct way to align executive pay and performance. But is it? A notable number of large-cap companies are now not so sure.

Meridian tracked the use of TSR since 2011 via an annual survey and recently published this year’s findings in 2018 Trends and Developments in Executive Compensation. The prevalence of TSR increased annually from 39 percent in 2011 to 63 percent in 2017. Then, in 2018, there was a reversal: only 53 percent of survey participants used TSR. Moreover, there was a decline in using TSR as the sole performance metric (39%, down from 48%), an increase in coupling TSR with an earnings or return measure, and an uptick in those now using TSR just as a modifier and not a baseline measure.

– Broc Romanek

Here’s a practice tip from Hunton Andrews Kurth’s Tony Eppert that could help increase the life expectancy of the share reserve under its shareholder-approved equity incentive plan. Here are Tony’s thoughts to consider when implementing an inducement grant program:

– Will the use of inducement grants with respect to new hires be used on a regular basis or on an ad hoc basis? If the former, consider drafting an inducement plan document with form of award agreements. And if the use of inducement grants will be on an ad hoc basis, then stand-alone inducement grants could be approved because the formality of a “plan” is not needed.
– Consider filing a Form S-8 to register the shares subject to the inducement grant (i.e., every “offer” of a security must either be registered or subject to an exemption).
– However, if the inducement grant consists of restricted stock and the use of this inducement grant exception is intended by the issuer as a one-time event (or infrequently), then consider whether the “bonus stock exemption” could be utilized in lieu of filing a Form S-8. Under the “bonus stock exemption,” restricted stock could be treated as if it were registered stock if certain conditions are satisfied. See SEC Release No. 33-6188, SEC Release No. 33-6281 and a series of SEC no-action letters. However, a drawback of the bonus stock exemption is that “affiliates” would be subject to Rule 144 resale restrictions (though the holding period should not apply because the shares are not deemed “restricted securities”).

Here’s my ten cents. Remember that ISS closely scrutinizes these types of awards…