The Advisors' Blog

In the LinkedIn post I shared yesterday on share pool depletion issues, Aon’s Laura Wanlass referenced the inducement grant exception and suggested that companies should understand the benefits and drawbacks of this option. If you haven’t used this before — or advised companies that have used this before — Laura is referring to the exemption for new hire inducement awards made outside of a shareholder-approved plan in both NYSE and Nasdaq rules. This alternative involves additional complexities, but it is a welcome exception and not infrequently used approach.

Here are a few things to keep in mind if you are considering granting inducement awards:

− Inducement grants are not covered by the company’s existing registration statement on Form S-8. You may want to file a Form S-8 for the shares covered by inducement awards.

− You will need to make some modifications to your standard resolutions and award agreements (e.g. you will need to spell out provisions that are typically incorporated from the plan) – you may want to keep alternative forms available for this situation, if it happens with any frequency.

− You must notify the exchange that you are relying on the inducement grant exemption, and promptly disclose in a press release the material terms of the award, including the identify of the recipient and the number of shares involved.

− You’ll need to file a supplemental listing application with the exchange for the shares covered by the grant.

These tips are from our “Checklist: New Officers – Managing Arrivals,” so they’re focused on large, one-time grants to new exec hires. But for more widespread use, as Broc noted in 2018, companies often adopt an inducement plan. As far as other drawbacks, keep in mind that proxy advisors and investors closely scrutinize these types of awards, and exchanges encourage companies that anticipate using inducement grants for all new-hires to adopt a shareholder-approved plan for that purpose.

I’m really looking forward to the “Key Issues in LTI: Structure & Disclosure” panel at our October Proxy Disclosure & 22nd Annual Executive Compensation Conferences featuring Semler Brossy’s Blair Jones, Davis Polk’s Kyoko Takahashi Lin, Aon’s Stephen Popowski and Latham’s Maj Vaseghi. ISS’s latest investor survey gathered more investor (and non-investor) input on potential changes to its policy on performance-based equity. (More on that tomorrow.) For now, companies continue to navigate complex LTI programs and are struggling to set rigorous, achievable long-term performance goals in an uncertain environment. Our panel will discuss managing equity plan cost & burn rate, the latest on performance equity, plan design considerations and managing in-flight adjustments.

Our conferences are less than a month away! You can’t afford to miss out on the critical guidance our PDEC speakers — featured on every panel of the SEC’s June Executive Compensation Disclosure Roundtable — will share. What are you waiting for!? Register now! You can sign up online or reach out to our team to register by emailing info@ccrcorp.com or calling 1.800.737.1271.

– Meredith Ervine