If you have already signed up to attend our Conferences next week, please be on the lookout for an email from info@ccrcorp.com with instructions for logging on to the Conference platform.
Next week, you will receive additional attendee communications with your unique direct link to access the Conferences for which you have registered. We will be sending the direct access link the day before the applicable event. So, for the “2nd Annual Practical ESG Conference,” attendees will receive their direct access link on Monday, September 18th, and attendees will receive the direct access link for the “Proxy Disclosure & 20th Annual Executive Compensation Conferences” on Tuesday, September 19th.
I blogged last week on TheCorporateCounsel.net about ISS’s Annual Global Benchmark Policy Survey, which is open until next Thursday, September 21st at 5 p.m. Eastern. The survey’s lead question relates to non-GAAP adjustments to executive incentives. Here’s the intro:
U.S. companies routinely use non-GAAP metrics in their incentive pay programs, and the performance results (and consequently the payouts) can be significantly affected by the non-GAAP adjustments approved by the board. However, many companies do not disclose in the proxy statement a line-item reconciliation of non-GAAP to GAAP for incentive program metrics. Recent events resulting in increased investor scrutiny of non-GAAP adjustments include direct and indirect COVID-19-related impacts, adjustments related to the Russia-Ukraine conflict, and costs arising from litigation. A growing number of investors believe that disclosure of line-item reconciliation is needed to make an informed assessment of executives’ incentive pay.
The survey asks investors and others to weigh in on whether companies should always provide a line-item reconciliation whenever non-GAAP metrics are used, provide a reconciliation when the adjustments significantly affect payouts or significantly differ from GAAP, or provide a reconciliation only in unique circumstances.
ISS’s current focus on this issue aligns with a letter that the Council for Institutional Investors recently submitted to the SEC, which resurrects a 2019 petition that asked the Commission to adopt rules that would require more transparency about non-GAAP adjustments in executive compensation disclosures (see pg. 7). The SEC, including Former Corp Fin Director Bill Hinman, put the kibosh on that notion at the time, but CII has persisted via its comments on the SEC’s pay versus performance proposal, and this new letter. Now, based on ISS’s commentary, it’s possible that adjustments and related disclosures may become more of a factor in say-on-pay votes, regardless of SEC rulemaking. Companies may also want to think about whether they would be vulnerable to shareholder proposals on this topic.
All that said, it’s important to note that the policy survey is not a definitive sign that ISS will adopt a new approach on this matter. In addition to feedback from the annual survey, as ISS develops its 2024 voting policies, it will also gather input from investors, company directors, and others by hosting various regionally-based, topic-specific roundtable discussions and other engagements. ISS will then publish for public comment the key proposed changes to its voting policies for next year, before adopting and publishing the final policies that will apply to 2024 meetings.
When it comes to getting the votes you want during proxy season, if you want to look especially smart to your boss and save your company (and yourself) from time-consuming back & forth, the best thing you can do is sign up for our “Proxy Disclosure & 20th Annual Executive Compensation Conferences.” Our panel on “Navigating ISS & Glass Lewis” features a conversation with Rachel Hedrick – who is VP of US Executive Compensation Research at ISS – and Krishna Shah – who is Director of North America Executive Compensation at Glass Lewis – moderated by Davis Polk’s Ning Chiu. This is going to be a very practical session on the types of disclosures & practices that will (or won’t) help your cause on say-on-pay, compensation committee elections, and equity incentive plan approvals. Rachel & Krishna will bust some myths and share a few predictions for 2024.
Here’s something that Meredith blogged yesterday on TheCorporateCounsel.net:
We got word last week that NYSE sent an email blast to listed issuers regarding the new clawbacks listing rules. After reminding companies that issuers must adopt a Dodd-Frank clawback policy no later than December 1st, NYSE noted that it is also requiring each listed issuer to confirm via Listing Manager, by December 31st, either that it adopted a policy by December 1st or that it is relying on an applicable exemption. NYSE plans to require such confirmation for initial listing applications as well for companies applying to list their securities on or after October 2nd. The email noted a subsequent communication with more details would be sent in the fourth quarter.
On a related note, at the “Dialogue with the Director” session on Friday at the ABA’s Business Law Section Fall Meeting, Corp Fin Director Erik Gerding was asked who should field interpretive questions regarding Dodd-Frank clawback requirements — the SEC or the stock exchanges. While “both” may not be the answer we wanted to hear, Erik’s suggestion — that interpretive questions first be directed to the relevant stock exchange and then its response be conveyed to the Commission — makes a lot of sense.
We’ll be discussing what you need to do about clawback policies – and Dave Lynn will also be interviewing Erik Gerding about the latest Corp Fin updates – at our upcoming “Proxy Disclosure & 20th Annual Executive Compensation Conferences“. The conferences are coming up virtually next week, September 20th – 22nd.
We’ve got a terrific lineup of speakers who will be delivering practical takeaways & action items. Here’s the 3-day, action-packed agenda for both Conferences, which are bundled together (here’s the agenda specifically for the Executive Compensation Conference). Make yourself look good by getting insights direct from the experts! And for the lawyers out there, get CLE credit while you’re at it! This year, we are also offering on-demand CLE credit for the archive replays, so you can come back for that after the Conference if you miss any sessions.
A recent Bloomberg article noted that SEC Chair Gary Gensler is taking longer than his predecessors to finalize the plethora of rules on his agenda. Out of the rules that have already been proposed, over two dozen are still in the queue to be adopted.
Moreover, the article points out that the “human capital management” proposal – which is on the Commission’s “Reg Flex” Agenda for the latter part of this year – could be dead on arrival if it isn’t published for comment soon. Here’s an excerpt from the article that explains why:
A federal law, the Congressional Review Act, would let a Republican-controlled House and Senate in the next Congress quickly revoke regulations the SEC and other agencies issued in late 2024, if they avoid a presidential veto.
Gensler only has to finalize the climate rule within about a year to sidestep the Congressional Review Act, however. Other agenda items are more likely to encounter that challenge if they’re in the earlier stages of the rulemaking process.
One such agenda matter is a plan to require companies to report more details about their workforces. The SEC is looking to release a formal proposal by October. But the agency usually takes at least a year to turn a proposal into a rule, increasing the risk of a Republican Congress easily overturning it under the CRA.
During the “Dialogue with the Director” session on Friday at the ABA’s Business Law Section Fall Meeting, Jay Knight, Chair of the Federal Regulation of Securities Committee, asked Corp Fin Director Erik Gerding about the SEC’s forthcoming proposals. Erik didn’t comment on timing, but he did note that for all of the SEC’s rulemaking, the focus is on helping investors get the information they say the need in order to make investment & voting decisions.
It just so happens that investors will be weighing in on what they need when it comes to human capital at next week’s meeting of the SEC’s Investor Advisory Committee. The agenda allocates 20 minutes to discussing a recommendation on human capital management disclosure. I’m not in the forecasting business, but at the very least, this shows that the topic is still moving along – and has reached the stage of the IAC making an advisory recommendation. Stay tuned.
We’ve got a terrific lineup of speakers who will be delivering practical takeaways & action items – essential info for all of us who are grappling with the SEC’s ambitious regulatory agenda. Here’s the 3-day, action-packed agenda for both Conferences, which are bundled together (here’s the agenda specifically for the Executive Compensation Conference). Make yourself look good by getting insights direct from the experts! And for the lawyers out there, get CLE credit while you’re at it!
The Conferences are virtual, September 20th – 22nd. You can also add registration for our “2nd Annual Practical ESG Conference” that’s happening virtually on September 19th, for an additional discount. Register online by credit card – or by emailing sales@ccrcorp.com. Or, call 1.800.737.1271.
This recent Fenwick alert discusses considerations when establishing a new 401(k) plan. I almost missed this one — with our focus on executive and director compensation, we don’t often highlight complications with widely available plans unless we’re discussing something specific to executives, like NEO compensation disclosures. But this alert has a detailed discussion on shielding the compensation committee from liability that warrants some attention here.
It recommends that companies avoid delegating responsibilities for the 401(k) plan to the compensation committee. Instead, a 401(k) plan committee should be established, and individuals with appropriate experience and sufficient time to handle day-to-day administration should serve on that committee. Here are specific considerations from the alert related to that practice:
– Ensure that the compensation committee charter, the board resolutions and the 401(k) plan documentation do not name the compensation committee as the plan administrator or charge it with responsibility for either performing fiduciary functions and/or delegating fiduciary responsibility to individuals and/or a committee appointed by the compensation committee. Empowering the compensation committee with fiduciary oversight responsibilities with respect to a 401(k) plan can potentially result in the entire board and its members being held personally liable as ERISA co-fiduciaries in the event of a 401(k) plan litigation.
– The entire board should retain sole responsibility to appoint and remove 401(k) plan committee members. This responsibility should not sit with the compensation committee. The board’s fiduciary responsibilities should be limited to this function and high-level monitoring of the actions taken by the 401(k) plan committee in fulfillment of the 401(k) plan committee’s duties. The board’s non-fiduciary responsibilities should be limited to making decisions from a business perspective, such as concerning plan design and the budget allocated to the plan.
– Ensure that the various plan documents that address the delegation of fiduciary responsibility are clear and consistent. Inconsistent documentation can result in co-fiduciary liability of the board and/or its members for the actions or inactions of other plan fiduciaries.
Beyond the board’s role, the alert also makes some helpful suggestions regarding the composition of the 401(k) committee, the frequency of meetings, involvement/observation by in-house counsel, indemnification and insurance coverage.
Executive compensation practices, disclosures, and the regulatory environment have evolved considerably since Dodd-Frank, and Say-on-Pay has become a key process for shareholder-board dialogue. With the new Pay-versus-Performance disclosure requirement and soon-to-be-effective listing standards on clawback policies, all the generally applicable executive compensation rules mandated by Dodd-Frank will be in place. We are entering a new era for Say-on-Pay!
Tune in tomorrow at 2 pm Eastern for the free webcast – “The Evolution of Say-on-Pay: Where We Started; Where We Are Now; What’s Next” – co-hosted by ISS Corporate Solutions and CCRcorp – to hear ISS Corporate Solutions’ Cameron Abrahams O’Neill & Valeriano Saucedo, yours truly and our own John Jenkins as moderator, as we examine the history of Say-on-Pay, current trending topics in executive compensation, a look back at the 2023 U.S. Proxy Season, and the future of pay-for-performance and pay practices.
Cybersecurity has been on my mind lately. As Dave blogged on TheCorporateCounsel.net, in late July the SEC adopted amendments to its rules that will require periodic disclosures regarding cybersecurity risk management, strategy and governance, as well as current disclosure on Form 8-K of material cybersecurity incidents. The compliance timeline is tight — with periodic disclosures required starting with annual reports for fiscal years ending on or after December 15, 2023 and the 8-K incident disclosure required starting December 18, 2023 (for non-SRCs) — so the rules require immediate attention.
It’s not a topic we often blog about here, but this WSJ article about another cyber development got my attention. Companies are starting to use cybersecurity metrics in their annual bonus plans for top executives.
The practice is inching up among the biggest U.S. companies, with nine of the Fortune 100 companies linking a portion of short-term bonuses for named executive officers to a cyber goal in 2022, according to new research from accounting and consulting firm EY. That is up from zero in 2018, EY said. ISS ESG, the data arm of proxy-advisory firm Institutional Shareholder Services, found 86 of the more than 15,000 public companies it tracks globally did so last year.
The article cites Equifax as an example of a company that incorporates cyber goals, which was part of a multiyear plan following the company’s 2017 breach. Here’s a snippet from Equifax’s 2023 CD&A:
In 2018, the Committee added a cybersecurity performance measure as one of the metrics under the AIP, in order to promote a Company-wide focus on data security and reinforce our overall security program goals. Non-financial goals have proven to be an effective tool for motivating executives to execute on our key strategic initiatives.
Given the significant progress we made in strengthening our data security program, the positive feedback we received from shareholders on incorporating cybersecurity performance in the executive compensation program and the continued importance of prioritizing cybersecurity in our strategic priorities, beginning in 2021, the Committee determined to move cybersecurity from a single Companywide AIP performance metric to a required component of the non-financial goals that comprise up to 20% of the AIP opportunity for all bonus-eligible employees.
As a result, Equifax employees who participate in the AIP have a mandatory security-focused performance goal as part of their individual objectives, which is designed to support the highest level of performance under our global cybersecurity awareness program. Employees are required to identify one or more pre-determined security goals, established by the Security Department, that are most appropriate to their role and scope of responsibility.