This Spencer Stuart blog discusses the “often-delicate dynamics” that HR professionals need to navigate to succeed in their roles. I think folks on the legal side will agree that the recommendations in the blog’s “navigation checklist” are equally applicable to legal and compliance teams, especially General Counsels. Here are the top four skills that are critical to success, according to the blog:
Business partnership. Do you understand your business and its leaders at a deep strategic and personal level? Do you know the business goals, challenges, strengths and preferences to provide effective and tailored HR solutions?
Trust. Trust is your influence capital. You need to build and maintain trust with your stakeholders, both internally and externally. Trust is the foundation of your credibility, influence and impact as an HR business partner.
Relationships. Your peer relationships are every bit as important as your relationship with the CEO. Your ability to collaborate and coordinate with other HR business partners, specialists and leaders to ensure alignment and consistency of HR policies and practices across the organization is critical. When the going gets tough (and it will), the strength of your relationships is “money in the bank” that you can tap into when you need to deal with difficult or sensitive issues.
Aligning the strategic HR agenda. How well do you communicate and cascade the HR vision, strategy and priorities to your business units? Are you ensuring they are aligned with the organizational goals and values?
I can attest to the importance of these skills from my own experiences with clients. IMHO whether or not HR and in-house legal teams work collaboratively — recognizing the importance of these success factors — is what makes proxy season either (relatively) seamless and productive or a long, hard slog.
In 2022, Liz shared that we were starting to see the “Elon Effect” impact pay decisions at other companies. The WSJ recently reported that this impact has continued. The article says that more CEOs got “outsized” pay packages in recent years:
In the past five years, three dozen CEOs of S&P 500 companies have received pay packages valued at $50 million or more, up from nine in the five years before Musk’s, according to a Wall Street Journal analysis of data from MyLogIQ, a provider of public-company data and analysis. The total cost of those pay packages has also grown rapidly, quadrupling in the past five years from the earlier period, the Journal found. […]
Just one S&P 500 pay package topped $150 million in the five years leading up to Musk’s 2018 blockbuster arrangement. Nine have done so in the five years since.
Notably, these findings are based on data through 2024 proxy statements, so the related pay decisions pre-dated Tornetta.
Here’s a helpful reminder from Locke Lord’s Capital Markets blog that public companies that grant options or similar instruments to executive officers should now be considering whether to avoid windows that would trigger disclosure of the grant timing under new SEC rules:
For calendar year companies, the 2025 annual meeting proxy statement will require disclosure about any grants (of stock options, SARs or similar option-like instruments) to named executive officers that occur in a window beginning four business days before and ending one business day after the filing of the company’s annual report on Form 10-K, quarterly report on Form 10-Q or the filing or furnishing of material non-public information on Form 8-K (typically including each quarterly earnings release).
[T]he company is required to make specific tabular disclosures regarding such grants. That disclosure is required to include the percentage change in the company’s stock price from before disclosure to after.
Given the references in the rules to the 10-K or 10-Q filing (versus the earnings release), the blog says “companies may decide not to avoid the specified windows before 10-Q filings, for example, on the basis that all material information was disclosed in the related earnings release.” And keep in mind that the table may be required even for companies avoiding these periods if a material development occurs later on the grant date.
In a report analyzing equity compensation at software companies, Compensia discussed how investors now consider stock-based compensation (SBC) expense as a percentage of revenue as a critical data point (in addition to gross burn rate) to evaluate equity spend and measure the economic cost of equity compensation to the company’s shareholders — even though this contrasts with the common practice of adjusting earnings to exclude the impact of stock-based compensation.
But this new focus presents a difficulty for companies because “unlike burn rate, addressing high SBC/revenue ratios can take time given that a significant portion of stock-based compensation expense reflects that amortization of grants from prior years. Declining revenue growth also makes it difficult to manage SBC/revenue over a short-term time horizon.”
In light of this, Compensia encourages companies to evaluate their equity budgets taking into account gross burn rate and stock-based compensation expense. However, the report says this focus hasn’t carried forward to plan design.
Despite investors’ focus on managing equity usage, our research showed that the vast majority of executive compensation annual incentive plans do not use metrics that account for stock compensation expense.
Among public companies with full disclosure of annual incentive plan performance measurement, 98% do not account for stock-based compensation. They measure either profitability metrics adjusted to exclude stock compensation or measure only growth and/or cash flow.
Programming Note: Our blogs will be off on Monday for the holiday. We wish each of you an enjoyable Memorial Day weekend.
Yesterday, I shared some general statistics and trends from WTW’s recent report on perks practices at S&P 500 companies in 2023. The report also addresses the prevalence of various types of executive perks in this group.
Personal use of corporate aircraft is the most prevalent executive perk, with 46% of companies providing this benefit to CEOs in 2023 and 31% offering it to other NEOs (see Figure 2). Companies prioritize this benefit for security and efficiency purposes; however, it comes at a cost. Corporate aircraft use was the most expensive type of perk, with the median value for CEOs at approximately $132,000.
Nearly one-quarter (24%) of CEOs receive home and/or personal security services. This suite of security services also can extend to identity theft or cybersecurity protection. Of the companies that offer their CEOs security benefits, 9% (or 2% of the total data sample) include these digital protection services. The median value of security services for CEOs in 2023 approached $50,000.
In terms of governance over perks practices, the alert noted that these statistics don’t mean that companies are “necessarily writing a blank check for personal/private air travel.”
One-third (33%) of companies that provide personal use of corporate aircraft disclose the use of an annual limit on such travel, expressed as either a fixed-dollar amount or a total number of hours. The median annual limit, disclosed as a fixed-dollar amount for CEOs, was $190,000; for annual time-based limits, the median was 75 hours.
As I noted yesterday, this group’s median spend for executive perks for all NEOs was (to me) surprisingly low. If your total perks are far off this norm, that might be an indication that limits and other governance policies are in order to the extent you don’t have them already.
WTW recently reported on perks practices at S&P 500 companies in 2023. Here are some notable statistics:
– 83% of the S&P 500 disclosed at least one perk for their CEO
– 81% did so for other NEOs
– The median aggregate S&P 500 spend for executive perks was approximately $223,000 for all NEOs combined
7% of companies made adjustments to their perks program in 2023. Of those:
– 41% eliminated a benefit
– 32% established a new perk
– 27% updated an existing benefit
Eliminated perks were most likely to be allowance-based, indicating companies “opted for a more structured approach to granting executive perquisites.”
I have to believe many practitioners share Liz’s concerns about clawbacks. Internalizing the adage “if you fail to plan, you plan to fail” can only get you so far here — this is one area where things will inevitably come up that you couldn’t plan for. Judgment calls will be made under pressure. It seems the best thing you can do ahead of time is to understand the key risks and areas that will require judgment to avoid being blindsided by them in the moment.
That’s exactly what our panelists discussed during our recent webcast “Clawbacks: Navigating the Process After a Restatement,” and the transcript is now available! WTW’s Richard Luss and Steve Seelig, Gibson Dunn’s Ron Mueller, and Latham’s Maj Vaseghi discussed a myriad of issues companies will now need to deal with under the clawback listing rules if they determine they need to restate their financials, including:
– Coordinating with the Audit Committee
– Engaging the Right External Advisors & Internal Resources
– What is an Event Study? How Does it Work?
– Sources of Clawed Back Compensation & High-Level Tax Implications
– Managing Litigation Risk
– Communications with Impacted Executives
– Support & Documentation
Members of this site can access the transcript of this program for free. If you are not a member of CompensationStandards.com, email sales@ccrcorp.com to sign up today and get access to the full transcript – or sign up online.
This Morgan Lewis blog walks through the key decision points deal teams need to address when determining how to treat performance-vesting awards in connection with corporate transactions — after nailing down what is permitted under the terms of equity plans, award agreements and employment arrangements. To the extent awardees may be able to argue that the desired treatment of awards may not be permitted, the blog recommends the parties consider requiring consent from each participant.
It also has this good reminder to buyers to consider what constitutes “good reason” upfront for any awards with double-trigger vesting:
The awards may be subject to “double-trigger” vesting terms, pursuant to which vesting would accelerate upon a postclosing termination of the awardee’s services by the company without “cause” or by the awardee for “good reason.” If such double-trigger protection is to remain in effect postclosing, the buyer should assess whether the “good reason” concept is appropriately tailored and should revise any overbroad “good reason” definitions accordingly. For example, the buyer would not want an awardee to be able to resign for “good reason” and receive accelerated vesting solely as a result of the transaction and without any corresponding diminution in role or compensation.
Tune in at 2 pm Eastern tomorrow for the webcast – “The Top Compensation Consultants Speak” – to hear Blair Jones of Semler Brossy, Ira Kay of Pay Governance and Jan Koors of Pearl Meyer discuss what compensation committees should be learning about – and considering – today. They’ll be covering these topics:
– Year 2 of Pay vs. Performance – Incentive Plans – Setting Goals and Considering Adjustments
– Trends in Strategic and Operational Metrics
– Clawback Policies – What HR Teams and Compensation Committees Are Focusing on Now
– Human Capital Management – Recent Considerations and Disclosure Trends
– Director Compensation Today
Members of this site are able to attend this critical webcast at no charge. If you’re not yet a member, subscribe now. If you need assistance, send us an email at info@ccrcorp.com – or call us at 800.737.1271.
We will apply for CLE credit in all applicable states (with the exception of SC and NE, which require advance notice) for this 60-minute webcast. You must submit your state and license number prior to or during the program using this form. Attendees must participate in the live webcast and fully complete all the CLE credit survey links during the program. You will receive a CLE certificate from our CLE provider when your state issues approval, typically within 30 days of the webcast. All credits are pending state approval.
This recent blog from Zayla Partners discusses the “comprehensive reevaluation of executive compensation” that’s usually necessary in the IPO process to reflect the shift from a private to a public company. It addresses key steps in the process, including the following, all of which need to happen in tandem with the innumerable action items on the broader IPO timeline:
– Establishing your executive compensation philosophy
– Defining the new competitive market for talent
– Creating a go-forward total rewards program
– Considering special pre-IPO equity awards
– Implementing new performance metrics and developing a plan for annual equity spending
– Setting the new director compensation program
– Addressing compensation governance matters (like a clawback policy)
The shift to a public company equity award program can be a particularly bumpy part of this process, and the blog acknowledges some of the challenges companies face on this front:
– Varying ownership levels among executives and employees
– Converting pre-IPO equity interests into a form that is more standard for public companies
– The IPO is often a significant vesting event
– Ensuring special awards have the intended retentive effect
– Shifting to more performance-based program with regular, annual grants
– Uncertainty for executives and the need to manage expectations
The blog tackles each step in more detail. It’s a helpful overview for teams looking to better understand the compensation planning needed for IPO readiness.