The Advisors' Blog

I blogged earlier this week about share usage trends, which can be a useful data point if you’re submitting an equity plan proposal at your next meeting. As you craft your proposal, an important part of the process involves considering how your practices stack up against those of other companies. This LinkedIn post from Aon’s Laura Wanlass articulates why you might want to use that process, along with consideration of your future needs, to “look inward” – before thinking about proxy advisor policies and parameters:

Before jumping straight to the proxy advisory firm models, it is helpful to understand if you are an outlier regarding your equity usage profile (i.e., dilution and run rate across the numerous methodologies used externally in the market) and whether there are good reasons for why you might be one (i.e., lower total common shares outstanding due to share repurchases, a lot of underwater overhang, broader equity distribution throughout the organization, shares issued in lieu of earned annual cash, etc.). This context becomes incredibly important if you need to engage with shareholders. Also, have you assessed the market competitiveness of your equity granting practices, and determined what you really need to grant a competitive level of equity for the next one to three years?

Laura also points out that a negative proxy advisor recommendation isn’t necessarily the end of the line. If you can see it coming, you can take a few protective steps ahead of time:

However, if you find yourself failing one or more of these proxy advisory firm models, than you likely need to take proactive mitigating actions—such as enhancing the proxy proposal language and potentially engaging with investors. Furthermore, evaluate the policies of your top investors—do they use industry benchmarks, do they have certain dealbreaker thresholds? A holistic review can be crucial for share request proposals depending on which investors own your company.

As Laura notes, it’s helpful to start the process early, and of course consider prior investor feedback as well. Check out our treatise chapter on “Plan Disclosure When Seeking Shareholder Action” for more info about requirements and strategies when you’re submitting an equity plan proposal.

– Liz Dunshee