Join us tomorrow at 2pm Eastern for the webcast, “Pay Vs. Performance: Lessons From Season 1.” We’ll be hearing practical “lessons learned” from Weil’s Howard Dicker, Freshfields’ Nicole Foster, Aon’s Daniel Kapinos, and Mercer’s Carol Silverman.
For all the lawyers out there, if you attend the live version of this 60-minute program, CLE credit will be available. You just need to fill out this form to submit your state and license number and complete the prompts during the program.
Members of CompensationStandards.com are able to attend this critical webcast at no charge. The webcast cost for non-members is $595. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund. If you have any questions, email sales@ccrcorp.com – or call us at 800.737.1271.
– Liz Dunshee
As Liz blogged yesterday and today on TheCorporateCounsel.net, NYSE and Nasdaq have now filed amendments to their proposed listing standards, which set an October 2nd effective date. If the amendments are approved by the SEC as proposed, companies will have until Friday, December 1st to adopt a compliant Dodd-Frank clawback policy covering incentive-based compensation received by executives on or after October 2, 2023.
In addition, the NYSE Amendment changes the proposal to allow for a cure period when the Exchange believes that a company has failed to enforce the policy. It still requires NYSE companies to provide notice to the Exchange if they haven’t adopted a compliant clawback policy before the compliance date (and the proposal continues to provide a cure period for late adoption scenarios). NYSE’s changes to the delisting procedures align with comments on the proposal and the Nasdaq approach to delisting for lack of clawback policy enforcement. This Wilson Sonsini blog provides color here:
Other than the change to the effective date, proposed Section 303A.14 of the NYSE Listed Company Manual is the same as proposed in the NYSE’s initial filing and as noted above, closely follow the requirements outlined in Rule 10D-1. Notably, this means that, similar to Nasdaq’s proposed listing standards, proposed Section 303A.14 does not include any guidance or factors that the NYSE will consider when making a determination as to whether the issuer has recovered “reasonably promptly” the amount of erroneously awarded incentive-based compensation.
However, the blog also highlights that in Amendment No. 1, the NYSE stated the following:
“The issuer’s obligation to recover erroneously awarded incentive based compensation reasonably promptly will be assessed on a holistic basis with respect to each such accounting restatement prepared by the issuer. In evaluating whether an issuer is recovering erroneously awarded incentive-based compensation reasonably promptly, the [NYSE] will consider whether the issuer is pursuing an appropriate balance of cost and speed in determining the appropriate means to seek recovery, and whether the issuer is securing recovery through means that are appropriate based on the particular facts and circumstances of each executive officer that owes a recoverable amount.”
We’ve posted several very helpful sample policies on this site. In our “Proxy Season Post-Mortem: The Latest Compensation Disclosures” webcast coming up on June 27th, Morrison Foerster’s Dave Lynn, Gibson Dunn’s Ron Mueller and Compensia’s Mark Borges will be sharing even more practical insights on how to finalize your policy. If you don’t already have access to CompensationStandards.com, email sales@ccrcorp.com to start a no-risk membership or sign up online.
– Meredith Ervine
A CEO transition is anxiety provoking for all involved. It’s a complex process with many legal and business challenges. This Skadden article identifies nine common mistakes companies often make during a CEO transition. Here are some compensation-related reminders from the article:
– Failing To Consider How the Rights of Other Senior Executives May Be Triggered by the CEO’s Termination — The termination of a CEO may trigger contractual rights for other senior executives within the organization, such as “good reason” provisions. Boards should carefully review the provisions in those employment agreements to ensure compliance and avoid potential legal disputes.
Apart from any legal rights, the impact of a CEO transition on retention of other key leaders (who often were, or considered themselves, candidates for the CEO role) should also be considered, and a plan should be developed to address those concerns via compensation or some other means.
– Neglecting the Impact of Termination on Noncompetes and Restrictive Covenants — The nature of a CEO’s discharge can impact the enforceability of noncompetition covenants and other restrictive covenants. In some states, for instance, non-competition and similar covenants may not be enforced against an employee who was discharged without cause.
– Meredith Ervine
Compensation committees have a lot on their shoulders. And they rely on compensation consultants for information, expertise and objective advice to make important decisions impacting the company — and its executives! Based on interviews with Compensation Committee Chairs, CHROs, and compensation consultants of large companies across multiple sectors, the Center On Executive Compensation (a division of HR Policy Association) recently released this report, Selecting an Independent Compensation Consultant: A CHRO Guide, with a curated collection of insights, tips, and tools for successfully navigating the process of selecting an independent compensation consultant. Here are the topics covered in the guide:
– Common triggers for making a change
– Details on the process — including who is involved and how the process is orchestrated
– Criteria for compensation consultant selection and evaluation
– The benefits of scanning the market periodically
It even includes a sample RFP, questions for reference checking and a consultant performance evaluation in the appendix!
– Meredith Ervine
Those familiar with Amazon’s executive compensation may not be surprised by this, but, having forgotten about the simplicity of the program, this took me by surprise initially when I saw an Equilar blog with sample PVP disclosures and commentary from the team at Equity Methods. Here’s an excerpt:
Finally, Amazon’s disclosure is a good example of a non-smaller reporting company (SRC) that does not have a company-selected measure (CSM). Remember, the CSM is the most important financial metric that explains changes in CAP. A CSM is required except if there is not a metric that meets the criteria.
Amazon’s proxy includes the following explanation in its PVP disclosure:
Consistent with SEC guidance, no additional performance measures are shown because, as discussed in the Compensation Discussion and Analysis, the Company does not use any financial performance measures to link executive compensation to company performance since our executives’ compensation is tied directly to the creation of shareholder value, as reflected by changes in our total shareholder return.
In the CD&A, in addition to clear disclosure upfront that the company’s executive compensation program consists of base salaries and time-vested RSUs, the proxy calls out a few unique features that reflect the company’s goals and philosophy, including the following bullet:
We do not tie cash or equity compensation to one or a few discrete performance goals. To have a culture that relentlessly pursues invention and is focused on building shareholder value, not just for the current year, but five, ten, or even twenty years from now, we must encourage experimentation and long-term thinking. By definition, this means we do not know in advance exactly what will work. We do not select one or a few discrete goals that address one-, two-, or three-year performance horizons because we do not want employees to focus on short-term returns or discrete criteria at the expense of long-term growth and constant innovation and reinvention. Instead, to align our executives with long-term value creation, we compensate them primarily with restricted stock unit awards that have long vesting periods, generally five years or more. Simply put, while we could establish safe, short-term vesting conditions that constrain innovation and deter our executives from taking longer-term risks (and that could result in above-target payouts even when our stock price declines) and focus on the trees rather than the forest, we believe our consistent focus on performance across the enterprise over the long term has served our Company and our shareholders well since our founding. AWS, Kindle, Alexa, Fulfillment by Amazon, Marketplace, Prime Video, and The Climate Pledge might not exist today if our horizons were so limited.
For Amazon, the 2023 proxy season followed a year of low say-on-pay support, with 56% of votes cast in 2022 supporting the company’s executive compensation program, so the proxy also describes an engagement program and the decision not to grant any CEO equity awards in 2022. Notably, Amazon highlighted the PVP disclosure — in particular, negative compensation actually paid in 2022 — in the say-on-pay proposal:
As shown in the Pay Versus Performance Table on page 106, Compensation Actually Paid to Mr. Jassy in 2022 was negative $148 million, largely attributable to the 2022 decline in value of restricted stock units scheduled to vest over the next 8 years, while his 2022 realized compensation declined by 25% from 2021, both as a result of our stock price decline and fewer shares vesting compared to 2021, showing the alignment between our executive compensation program and our shareholder returns.
As a reminder, on Tuesday, June 13th, at 2 pm Eastern, our esteemed panelists, Weil’s Howard Dicker, Freshfields’ Nicole Foster, Aon’s Daniel Kapinos, and Mercer’s Carol Silverman, will discuss lessons learned from the first year of PVP in our “Pay Vs. Performance: Lessons From Season 1” webcast.
– Meredith Ervine
A week before its annual meeting this year, JPMorgan Chase posted this letter to its website and filed it with the SEC as additional soliciting material. The letter highlights that ISS had favorably changed its voting recommendation for the company’s say-on-pay resolution.
This can happen sometimes if the company agrees to resolve a problematic pay practice. But here, the proxy advisor didn’t make the change because of any commitment by JPM. Instead, the company was somehow able to identify that ISS had used incorrect data for one of the ISS-selected peer companies, which caused a “technical error” in the proxy advisor’s quantitative pay-for-performance screen. ISS agreed to re-run its analysis, and the data change caused JPM to move from “medium” concern to “low” concern. Three days after JPM first publicly communicated about the perceived error, ISS changed its voting recommendation from “against” to “for.” JPM reported that 89% of voting shareholders ended up supporting the say-on-pay resolution.
This is a reminder that everyone makes mistakes – even proxy advisors. What’s difficult for companies is identifying and communicating errors in pay-for-performance models in time to salvage the voting outcome. This blog from Ed Hauder offers verification steps that other companies should consider whenever they are faced with a negative say-on-pay recommendation:
– Review your company’s compensation data used in the report to ensure it is accurate.
– Pull the compensation data for the proxy advisor’s peer group to see if it conforms to the data presented in the report.
– Have your staff or your compensation consultant analyze whether the compensation data used is the latest that should be used according to the proxy advisor policies.
JPM was also proactive in messaging its views about the ISS’s original recommendation prior to ISS agreeing to change it, with its first public letter coming 10 days before the meeting. I can only imagine the effort and resources that went into identifying the error, correcting it, respectfully communicating, and soliciting proxies.
– Liz Dunshee