Here’s the intro from this piece by Semler Brossy’s Seamus O’Toole and Olivia Tay:
When Actavis PLC (now Allergan Inc.) compensation committee members voted in 2014 to award the company’s named executive officers (NEOs) with a front-loaded long-term equity incentive, they had a convincing rationale (Actavis 2015). The company was in the midst of executing a new transformational strategy focused on growth, as well as absorbing the recent $28 billion acquisition of Forest Laboratories Inc. The complex and multifaceted strategy would take several years to execute, so the new compensation plan aimed to focus executives on just one set of goals for the next three years.
The long-term incentive — and the strategy — was a big bet. Executives would forgo annual equity awards for three years. But if they delivered the transformation and achieved an annual total shareholder return (TSR) of at least 10%, they would earn awards ranging from a grant-date fair value of $5.6 million to $34.5 million — the top figure for CEO Brent Saunders. The equity, in the form of performance stock units and options, would fully vest in 2019.
Front-loaded awards typically lump into one sum the expected value of grants that will be made over the ensuing three to five years. Instead of an annual grant schedule, the full award is made upfront (see Figure 1). Oftentimes, companies will design these awards to have a higher-than-normal risk profile as well, but that isn’t always the case.
Last night, the SEC posted this Sunshine Act notice to announce it will hold an open meeting next Tuesday, November 5th to propose rule changes for proxy advisors & shareholder proposal thresholds. My blog yesterday included an excerpt from an FT article about what may be in the proposals. Check that out for a possible preview.
We’ll be covering the SEC’s Rule 14a-8 proposal during our upcoming TheCorporateCounsel.net webcast – “Shareholder Proposals: What Now” – on Thursday, November 21st. In that program, Davis Polk’s Ning Chiu, Morrison & Foerster’s Marty Dunn and Gibson Dunn’s Beth Ising will also be discussing Corp Fin’s new approach for processing shareholder proposal no-action requests and the expected impact of Staff Legal Bulletin No. 14K.
Here’s something that Liz just blogged over on TheCorporateCounsel.net: Although we haven’t yet seen a Sunshine Act notice from the SEC, the Financial Times is reporting that the SEC could propose new rules for proxy advisors & shareholder proposal thresholds as soon as next Tuesday. For now, here’s what’s being reported as part of the proposal:
– Proxy advisors would be required to give companies two chances to review proxy voting materials before they are sent to shareholders
– Shareholder proposal resubmission threshold would increase to 6% approval in year one, 15% in year two and 30% in year three – if a shareholder proposal doesn’t hit those thresholds, companies would be able to exclude proposals on the same subject matter for the next three years
These things are always very speculative – both the substance & timing could change, and nothing’s certain till we see the proposal. The FT article emphasizes that too:
The Commission is expected to vote to put the changes out for comment on November 5, according to the people, who cautioned that the plans and the timing were still in flux and could change before the vote next month.
If the proposal is issued, you can bet we’ll be covering it during our upcoming TheCorporateCounsel.net webcast – “Shareholder Proposals: What Now” – on Thursday, November 21st. In that program, Davis Polk’s Ning Chiu, Morrison & Foerster’s Marty Dunn and Gibson Dunn’s Beth Ising will also be discussing Corp Fin’s new approach for processing shareholder proposal no-action requests and the expected impact of Staff Legal Bulletin 14K.
This memo from Fisher Phillips is pretty practical as far as what things the board should make sure management is considering when it comes to gender pay equity – it points out that some states have a safe harbor if you conduct an equal pay audit. But obviously there are risks to that too. Note the memo’s “pay equity interactive map” that shows only two states haven’t adopted some form of equal pay law…
This memo from Willis Towers Watson says that compensation committee names & charters are starting to reflect issues that investors say they care about. Here’s some stats:
– Nearly 40% of the S&P 500 (192 companies) currently refer to the committee responsible for executive compensation oversight as something beyond just the “compensation committee”
– Over half of the companies require committees to maintain oversight of broad-based compensation programs and benefits
– One-third of the companies have given the committee diversity and inclusion program oversight
– Only 14% of the sample had oversight of employee culture, employee relations and engagement, but when the compensation committee’s name was broadened toinclude additional responsibilities, these charges are included in charters at a rate six times higher than at companies using the traditional term of compensationcommittee (24% versus 4%)
The memo goes on to note that in the last 10 years, only 9% of companies have changed their name to reflect oversight of human capital issues. However, the rate of change is accelerating: 26 companies changed their name from 2016 to 2019, compared to 11 from 2012 to 2015. We have lots of resources about committee responsibilities & trends in our “Compensation Committees” Practice Area.
The annual “Corporate Governance & Executive Compensation Survey” of the 100 largest companies from Shearman & Sterling is always a “hot ticket” item, perhaps because it’s one of the oldest. Here’s a few key takeaways about clawback policies, from page 92:
– 88 of the Top 100 Companies expressly disclose that the maintain a financial-related clawback policy
– 45 of the clawback policies are triggered by a finding fraud or misconduct related to the financial statement – 40 don’t require fraud or misconduct
– 26 of the clawback policies use multiple trigger events
We just wrapped up the latest edition of “Lynn, Borges & Romanek’s Executive Compensation Disclosure Treatise” — and it’s been sent to the printers. The 2020 Edition includes updates to disclosure examples, info about the evolving link between ESG topics & executive pay, and a brand new chapter on hedging policy disclosure. All of the chapters have been posted in our “Treatise Portal” on this site.
How to Order a Hard-Copy: Remember that a hard copy of the 2020 Treatise is not part of a CompensationStandards.com membership – so it must be purchased separately. Act now to ensure delivery of this 1710-page comprehensive Treatise as soon as it’s done being printed. Here’s the “Detailed Table of Contents” listing the topics so you can get a sense of the Treatise’s practical nature. Order Now.
Today’s blog falls in the “be careful what you wish for” category. A recent FTI memo says the diminishing influence of proxy advisors may be contributing to lower say-on-pay support. Here’s an excerpt:
The guarantee of 95%+ shareholder support with a positive ISS recommendation is fading as investors and shareholders are more apt to formulate their own opinions on executive pay matters. Historically, a positive recommendation from a proxy advisory firm (e.g., ISS, Glass Lewis, etc.) signified that shareholders rarely examined a program before voting in favor of it.
Over the past couple of proxy seasons, most large institutional shareholders have conducted their own due diligence in conjunction with their own independent policy positions, even if the proxy advisory firms recommended “for” a say-on-pay proposal. The most notable example of this paradigm shift occurred during the 2018 proxy season: CalPERS voted “against” 43% of say-on-pay proposals for US companies in the Russell 3000, while by comparison, ISS only recommended “against” for 13.5% of these companies.
I admit that CalPERS is an extreme example – but the stats in the memo imply that they weren’t the only cause of lower support at ISS-endorsed companies last year. And that all adds up to a greater engagement burden (opportunity?) for those in the trenches…
During the recent proxy season, one-quarter of the companies in the Tech 150 submitted new or amended stock plan proposals to shareholders for approval, as analyzed by this annual Compensia memo…
Here’s a nice piece from SquareWell Partners that reports back on conversations with institutional investors about their perspectives on executive pay…