– Liz Dunshee

Tune in tomorrow for the webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season.

– Liz Dunshee

Time to act. Register now for our popular conferences – “Proxy Disclosure Conference” & “16th Annual Executive Compensation Conference” – to be held September 16-17th in New Orleans and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days.

Among the panels are:

– The SEC All-Stars: A Frank Conversation
– Hedging Disclosures & More
– Section 162(m) Deductibility (Is There Really Any Grandfathering)
– Comp Issues: How to Handle PR & Employee Fallout
– The Top Compensation Consultants Speak
– Navigating ISS & Glass Lewis
– Clawbacks: #MeToo & More
– Director Pay Disclosures
– Proxy Disclosures: 20 Things You’ve Overlooked
– How to Handle Negative Proxy Advisor Recommendations
– Dealing with the Complexities of Perks
– The SEC All-Stars: The Bleeding Edge
– The Big Kahuna: Your Burning Questions Answered
– Hot Topics: 50 Practical Nuggets in 60 Minutes

Reduced Rates – act by June 14th: Proxy disclosures are in the cross-hairs like never before. With Congress, the SEC Staff, investors and the media scrutinizing disclosures, it is critical to have the best possible guidance. This pair of full-day Conferences will provide the latest essential—and practical—implementation guidance that you need. So register by June 14th to take advantage of the discount.

– Liz Dunshee

As they do every year, Semler Brossy has been publishing regular updates on the voting results for say-on-pay, equity plans, director elections and other proposals – as well as this year’s pay ratio stats. We post these memos in our “Say-on-Pay” Practice Area. Their latest report shares these details:

– The current failure rate (1.9%) is 20 basis points lower than the failure rate at this time last year (2.1%)

– The 91.3% average vote result thus far in 2019 is 40 basis points higher than the average vote result at this time last year (90.9%)

– Nearly one-third of the S&P 500 has received vote support below 70% at least once since 2011

– 9% of the Russell 3000 and 7% of the S&P 500 constituents have failed Say on Pay at least once over the same period

– The average vote result for companies that received an ISS “Against” recommendation is 31% lower than for companies that received an ISS “For” recommendation

And when it comes to pay ratio, here’s how S&P 500 and Russell 3000 companies compare, based on nearly 2000 disclosures:

– The median CEO Pay Ratio of the S&P 500 is 2.1x the median CEO Pay Ratio of the Russell 3000, which is slightly lower than the 2.2x multiple we observed between the two indices at this time last year

– The range of median employee compensation for the S&P 500 is slightly higher than the Russell 3000, except at the 90thpercentile, where the Russell 3000 is 12% higher

– The Russell 3000 CEO Pay Ratio distribution trails off near the 300:1 while the S&P 500 distribution trails off near 500:1

– The distribution of CEO Pay Ratios is most highly concentrated near 60:1 for the Russell 3000 and near 120:1 for the S&P 500

– The median change in Pay Ratio by company in the Russell 3000 is +2% and in the S&P 500 is + 1%; the median change in Summary Compensation Table CEO pay by company in the Russell 3000 was +6% and in the S&P 500 was +4%

– Liz Dunshee

We have posted the transcript for the recent webcast: “Termination – Working Through the Consequences.” The agenda included:

1. Think Ahead When Timing Executive Terminations
2. Case Study Facts
3. Accounting Consequences of Award Modifications
4. Termination Arrangements May Change Who Is An NEO
5. Planning Opportunities
6. Corporate Tax Deductions
7. Say-on-Pay Strategies
8. Mitigating Features: Clawbacks & Forfeitures
9. Shareholder & Proxy Advisor Engagement
10. Importance of Modeling

– Liz Dunshee

A recent Bracewell memo notes that – in light of the Delaware Supreme Court’s 2017 Investors Bancorp decision – nearly 75% of surveyed LTIPs now include a director-specific limit on the size of annual grants, with many plans also capping total annual compensation for board members.

That trend isn’t likely to die out any time soon. Last week, the Delaware Court of Chancery reaffirmed that the entire fairness standard applies to most decisions that directors make about their own compensation. The opinion – Stein v. Blankfein – says that director pay decisions can be actionable even if the directors held a “good-faith, Stuart-Smalley-like belief” that they were “good enough, smart enough, and doggone it, they were worth twice—or twenty times—the salary of their peers” (bravo to the Vice Chancellor on the SNL reference – and in this case, it’s not much of a stretch to envision the Goldman Sachs directors holding that belief).

This Stinson blog has the details about the case & its implications – here’s an excerpt:

The following courses of action remain available to public company boards in approving director compensation:

– Have specific awards or self-executing guidelines approved by stockholders in advance; or

– Knowing that the entire fairness standard will apply, limit discretion with specific and meaningful limits on awards and approve director compensation with a fully developed record, including where appropriate, incorporating the advice of legal counsel and that of compensation consultants.

It may also be possible to obtain a waiver from stockholders of the right to challenge future self-interested awards made under a compensation plan using the entire fairness standard. To do so, stockholders would have to approve a plan that provides for a standard of review other than entire fairness, such as a good faith standard. In addition stockholders would have to be clearly informed in the proxy statement that director compensation is contemplated to be a self-interested transaction that is ordinarily subject to entire fairness, and that a vote in favor of the plan amounts to a waiver of the right to challenge such transactions, even if unfair, absent bad faith. Note that the Court did not conclude, because it was not required to do so, that such a waiver was even possible.

– Liz Dunshee

Here’s the intro from this Pearl Meyer memo:

We researched 10 years of say-on-pay proxy advisory recommendations and results to understand how common it has been for a company to receive an “Against” vote recommendation or low say-on-pay support in a given year. The results are illuminating; more than 40% of Russell 3000 companies have received an “Against” vote recommendation from ISS, and almost half have received low say-on-pay support. The trend also suggests that these percentages will continue to increase each year. Therefore, we believe companies would be well served to conduct regular, proactive stockholder outreach and engagement to mitigate the impact of a future negative vote recommendation.

The memo offers 5 tips for planning say-on-pay engagement. And as this Georgeson blog concludes – based on an analysis of recent voting behavior of the top 10 investors at companies that have failed say-on-pay – success really hinges on understanding your shareholders’ unique concerns:

Lack of strong correlation among investors’ votes at these failed say-on-pay proposals suggests that how one of the investors voted was not a strong signal as to how another one would vote. Early negative votes by some of these investors does not mean that others among these investors would be non-supportive, as well. It also means that engagement with investors should not be a one-size-fits all approach. Even among the key index investors, there are differences in the likelihood of gaining their support and the issues they focus on. Companies should understand the key issues an individual investor considers in its analysis, and in their outreach try to mitigate any concerns associated therewith. Demonstrating awareness of an investor’s priorities when communicating your story will show that you have done your homework and best position you to gain the investor’s support.