As I blogged last week on TheCorporateCounsel.net, just in time for our “Proxy Disclosure & Executive Compensation Conferences” – where our agenda includes a panel covering “clawbacks” issues – the SEC issued this Sunshine Notice about an open meeting tomorrow. The purpose of the meeting is to consider whether to re-open the comment period for the clawback proposal that the Commission issued back in 2015, which would – at a very high level – direct the stock exchanges to require listed companies to implement policies to recover incentive-based pay in the event of an accounting restatement.

This doesn’t come as a huge surprise, because consideration of a re-proposal has been an item on the SEC’s “Reg Flex Agenda” for the past two years. Consistent with the priorities that he identified in that Agenda, SEC Chair Gary Gensler also has been remarking at recent conferences, such as the CII Fall Conference, that he wants to knock out remaining Dodd-Frank rulemaking in short order.

The clawback proposal was criticized at the time because it would be triggered only be formal restatements, which have been on the decline. And in the years since, some people think it’s become even more antiquated. But although a clawback sounds simple on its face, it is very complex in practice. That’s why most of the big “clawbacks” that we’ve seen in the past few years are actually forfeitures of future incentives that have not yet been paid. So, it will be interesting to see whether the comment period is reopened and – if so – what comments roll in.

If & when clawback rules are finalized, that would satisfy the requirement in Section 954 of the Dodd-Frank Act. A couple weeks ago, the SEC proposed “say-on-pay” voting disclosure requirements that would take care of the rulemaking mandates under Section 951 of that Act. As I blogged about a year ago, the list of outstanding Dodd-Frank rulemaking requirements rightfully continues to shrink.

– Liz Dunshee

As a “sneak peek” for our members who are attending our “Proxy Disclosure & Executive Pay Conferences” that are starting next Wednesday, October 13th, we have posted the “Course Materials” – 167 pages of practical nuggets. Our expert speakers go the extra mile to deliver originally crafted insights! In addition, our conference platform will be going live soon – with fun 1-minute speaker videos, a “101” resource page, info from our amazing sponsors (thank you in particular to Diligent & Morrison & Foerster!), and calendar links for each session that you want to attend.

Here’s some other info:

– How to Attend: There’s still time to register for our pair of upcoming conferences, and once you do, you’ll receive an email with login details for the conference platform. Follow the agenda tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here are the agendas for all three days! If you have any questions about accessing the conference, please contact Victoria Newton at VNewton@CCRcorp.com.

– How to Watch Archives & Read Transcripts: Members of TheCorporateCounsel.net or CompensationStandards.com who register for the Conferences will be able to access the conference archives by using their existing login credentials beginning about a week after the event, and unedited transcripts will be available beginning about 2-3 weeks after the event. If you’ve registered for the conferences through CCRcorp but are not a member, we will send login information to access the conference footage and transcripts on TheCorporateCounsel.net or CompensationStandards.com.

If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP.

– How to Earn CLE Online: Please read these “CLE FAQs” carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts every 15-20 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.

– Liz Dunshee

This 7-page memo from Compensation Advisory Partners looks at how 2020 CFO pay compared to CEO pay, based on 135 companies with median revenue of $12 billion. As you might expect, annual incentive payouts were lower at some companies based on 2020 performance – and proxy-disclosed LTI awards don’t yet reflect changes due to the pandemic. CFO total compensation is about one-third of CEO total pay and the target mix hasn’t changed in a decade (if it ain’t broke…). Here’s more detail:

– Salaries: In 2020, the salary increase prevalence declined by about 10% from historical practice. We believe the COVID-19 pandemic was the main factor for the decrease. However, salary increases were still quite prevalent for CEOs and CFOs, at 44% and 55% of the sample, respectively. Median 2020 salary increases were 2.7% for CFOs (or 4.3% for those receiving an increase) and 0% for CEOs (or 4.1% for those receiving an increase).

– Actual Pay: The actual total cash compensation for 2020 was generally flat among our sample with only CFOs seeing a minor salary increase in salary levels. On a total compensation basis (including long-term incentive awards), the median rate of increase continued to trend lower for CEOs and was generally flat for CFOs (3.3% for CEOs and 4.1% for CFOs).

– Target Pay Mix: The pay program structure for CEOs and CFOs has remained largely unchanged since 2011. CEOs continue to receive less in the form of salary and more in variable pay opportunities, especially LTI, than CFOs.

– Target Bonuses: Target bonus opportunities as a percentage of salary remained unchanged for the CEOs in the sample. For CFOs, the 25th percentile increased to 90% of salary from 80% last year. We expect target bonuses will continue to remain largely unchanged.

– LTI Design: The use of two different vehicles to deliver LTI remains the most prevalent approach, used by almost 60% of companies. Approximately 30% of companies in the sample use all three equity vehicles (stock options, time-based stock awards, and performance plan awards).

The portion of LTI awards granted in Performance plans decreased slightly in 2020 at the expense of higher time-based awards. The stock option portion remained unchanged. Even though most of the awards in the analysis were granted before the onset of the COVID-19 pandemic (due to disclosure rules), the minor increase in time-based awards was expected.

– Liz Dunshee

Willis Towers Watson recently announced results of their 2021 study on CEO pay in the S&P 1500. Here are the key findings, by the numbers:

– 4.7% – Increase in target total direct pay for S&P 1500 CEOs. Target pay for S&P 500 large-cap CEOs increased 5.4%. Pay for S&P 600 small-cap CEOs grew just 3.7% over the prior year, while S&P 400 CEOs saw a 4.4% increase. These figures reflect a slower rate of growth compared with the 6% increase last year, and the lowest results since the 2015-2016 cycle. This was partially due to the pandemic resulting in lower earned incentives at some companies.

– 3.9% – Increase in earned pay for S&P 1500 CEOs, down from the 5.5% increase observed in 2019. Mid-cap CEOs saw the biggest shift in earned pay, moving from just a 0.2% bump in the 2018 – 2019 cycle to a 7.6% increase in 2020.

– 47.5% – Percentage of S&P 1500 CEOs who did not receive a base salary increase in 2020. This contributed to no change in base salary at the median. Performance-based awards continue to be the primary element of CEO compensation programs.

– 102x – 2020 median ratio of CEO pay to median employee for S&P 1500 companies in this study. The pay gap at S&P 500 companies has widened the most over the past three years, reaching 174:1 in 2020. Conversely, the 2020 pay ratio for small-cap CEOs has returned to its 2018 level of 57:1 after an increase to 63:1 in 2019. Median pay ratios vary considerably by industry sector.

– Liz Dunshee

On Friday, ISS announced the results of its 2021 benchmark policy survey. 159 investors responded – as well as 246 companies, advisors and affiliates. Here are some of the executive pay-related highlights (see my blog on TheCorporateCounsel.net for details on other findings):

1. Non-Financial ESG Performance Metrics in Executive Compensation: When asked whether the use of non-financial ESG metrics is an appropriate way to incentivize executives, over half of investor respondents replied yes, but that they should be specific and measurable, and targets communicated transparently. Only a small number of investors replied no, and that companies should only use traditional financial metrics in compensation plans. About a third of investors replied yes, and that even metrics that are not financially measurable can be an effective way to incentivize important outcomes if chosen well. That answer choice was the most popular among non-investor respondents.

Most respondents thought that non-financial ESG metrics could be appropriate as part of either short- or long-term incentives. Among investors that chose one or the other, almost all chose long-term incentives as the more appropriate place for non-financial ESG metrics.

2. Long(er) Term Perspective on CEO Pay Quantum: 85% of investors and 67% of non-investors agreed that the inclusion of a longer-term perspective of CEO pay quantum is relevant and would be helpful. For example, ISS might add a three-year assessment of CEO pay quantum to its pay-for-performance screen.

3. Mid-Cycle LTIP Changes: Investors were fairly evenly split on the question about whether mid-cycle changes to long-term incentive programs should still be seen as a problematic response to the pandemic. Over half of investor respondents replied that they should continue to be viewed as problematic. Forty percent said that they may be reasonable for companies that have experienced long-term negative impacts from the pandemic.

Don’t miss our “Navigating ISS & Glass Lewis” panel coming up next Thursday, October 14th, at our virtual “Proxy Disclosure & Executive Compensation Conferences” – which runs October 13th – 15th. We’ll be discussing policy expectations, engagement do’s & don’ts, and more. You can still register – and anyone who has a paid subscription to any one of our sites gets a discount! Check out the agenda – 18 panels over 3 days.

– Liz Dunshee