September 6, 2022
Transcript: “Executive Compensation & Equity Trends in a Volatile Environment”
As a complement to our May-June issue of The Corporate Executive newsletter – and as a prelude to our upcoming “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – we’ve now posted the transcript from our recent webcast, “Executive Compensation & Equity Trends in a Volatile Environment.” This program featured Semler Brossy’s Greg Arnold, Compensia’s Mark Borges, MoFo’s Dave Lynn and Gibson Dunn’s Ron Mueller. Here’s a nugget that Mark shared about off-cycle retention awards, which we’ll be discussing more at our Conferences:
I’ve had clients that decided it was in their best interest from a competitive standpoint to provide an off-cycle retention award to one or more of their executives. They granted them a time-based vesting award and they got dinged for it by the proxy advisory firms. That’s something to keep in mind when you’re doing anything that’s off-cycle. Should this be a performance award, to some extent, in order to mollify the proxy advisory firms?
In the spring, I saw many “moonshot,” or front-loaded, awards. This is where a company will grant one or more executives, usually the CEO, an award that is several times larger than what an annual award would be. It’s entirely performance-based. The performance measures are generally stock price triggers or market capitalization goals. I don’t know if that’s going to stop with the market being in the condition that it’s in, but it’s something companies have faced.
Some companies go to shareholders to get approval of those awards. In that situation, it’s the safest way to ensure you’re not going to run into problems with it. The proxy advisory firms have started to take notice of these awards and indicated that they are going to give them extra scrutiny under their pay-for-performance analysis. They’re going to expect things in the awards, such as commitments not to grant additional awards for a certain number of years after the front-loaded award has been made. They’re also looking for a more detailed explanation of the rationale for the award. Why are you doing this? What’s the deliberative process that you went through to arrive at the terms of the award that you’ve granted?
A lot of these were granted without shareholder approval and, to an extent, went without any negative repercussions from the proxy advisory firms. The important thing to keep in mind here is the size of the award. The proxy advisory firms tend to issue negative recommendations on these awards when they think the size is just too much for the company and its circumstances. These awards may be halted temporarily, but they aren’t going away and they are something the proxy advisory firms are starting to focus their attention on.
Greg & Mark went on to discuss that market volatility may make the performance hurdles for these awards extra challenging – and companies & boards might be painted into a corner if they’ve agreed not to make any additional grants.
– Liz Dunshee