The Advisors' Blog

Late last week, Glass Lewis issued its 2024 Voting Guidelines – which include several updates on executive compensation topics. Here’s an excerpt:

– Clawback Provisions – In addition to meeting listing requirements, effective clawback policies should provide companies with the power to recoup incentive compensation from an executive when there is evidence of problematic decisions or actions, such as material misconduct, a material reputational failure, material risk management failure, or a material operational failure, the consequences of which have not already been reflected in incentive payments and where recovery is warranted. Such power to recoup should be provided regardless of whether the employment of the executive officer was terminated with or without cause. In these circumstances, rationale should be provided if the company determines ultimately to refrain from recouping compensation as well as disclosure of alternative measures that are instead pursued, such as the exercise of negative discretion on future payments.

– Executive Ownership Guidelines – We have added a discussion to formally outline our approach to executive ownership guidelines. We believe that companies should facilitate an alignment between the interests of the executive leadership with those of long-term shareholders by adopting and enforcing minimum share ownership rules for their named executive officers. Companies should provide clear disclosure in the Compensation Discussion and Analysis section of the proxy statement of their executive share ownership requirements and how various outstanding equity awards are treated when determining an executive’s level of ownership.

In the process of determining an executive’s level of share ownership, counting unearned performance-based full value awards and/or unexercised stock options is inappropriate. Companies should provide a cogent rationale should they count these awards towards shares held by an executive.

– Proposals for Equity Awards for Shareholders – Regarding proposals seeking approval for individual equity awards, we have included new discussion of provisions that require a non-vote, or vote of abstention, from a shareholder if the shareholder is also the recipient of the proposed grant. Such provisions help to address potential conflict of interest issues and provide disinterested shareholders with more meaningful say over the proposal. The inclusion of such provisions will be viewed positively during our holistic analysis, especially when a vote from the recipient of the proposed grant would materially influence the passage of the proposal.

The updated guidelines also clarify the proxy advisor’s approach to these issues:

– Non-GAAP to GAAP Reconciliation Disclosure – We have expanded the discussion of our approach to the use of non-GAAP measures in incentive programs in order to emphasize the need for thorough and transparent disclosure in the proxy statement that will assist shareholders in reconciling the difference between non-GAAP results used for incentive payout determinations and reported GAAP results. Particularly in situations where significant adjustments were applied and materially impacts incentive pay outcomes, the lack of such disclosure will impact Glass Lewis’ assessment of the quality of executive pay disclosure and may be a factor in our recommendation for the say-on-pay.

– Pay-Versus-Performance Disclosure – We have revised our discussion of the pay-for-performance analysis to note that the pay-versus-performance disclosure mandated by the SEC may be used as part of our supplemental quantitative assessments supporting our primary pay-for-performance grade.

– Company Responsiveness for Say-on-Pay Opposition – For increased clarity, we amended our discussion of company responsiveness to significant levels of say-on-pay opposition to note that our calculation of opposition includes votes cast as either AGAINST and/or ABSTAIN, with opposition of 20% or higher treated as significant.

During last week’s webcast for members, our expert panelists noted that these guidelines set an expectation that companies will adopt clawback policies that go beyond what’s required by the listing standards adopted under the Dodd-Frank Act and SEC Rule 10D-1. That program is now available to members for on-demand listening, and the transcript will be available in a few weeks. (If you aren’t already a member, you can sign up online or email sales@ccrcorp.com.)

Also check out John’s blog on TheCorporateCounsel.net on Friday for info on other changes to Glass Lewis’s Voting Guidelines that you’ll need to know for proxy season. You may need to beef up your charters on board oversight of E&S issues….

– Liz Dunshee