– Broc Romanek
Here’s the teaser for this Semler Brossy report about say-on-pay during 2017:
2,357 Russell 3000 companies held say-on-pay votes in 2017 and the average say-on-pay support in 2017 (91.7%) was the highest observed rate since voting began.
35 companies (1.5%) failed say-on-pay in 2017, resulting in the lowest failure rate since the first year of say-on-pay in 2011. The four new companies that have failed since our last report are Bofl Holding, Oracle, United Natural Foods, and Western Digital.
– Broc Romanek
We continue to post memos about ISS’ updated policy guidelines in our “ISS Policy Guidelines” Practice Area – including this new one from Compensia that covers a lot of ground, including ISS’ burn rates…
– Broc Romanek
It will be interesting to see if Equilar’s new ‘pay ratio’ survey proves accurate after the proxy season – the survey predicts that companies will disclose a ratio of 140:1 on average. Here’s the intro from the blog by Cooley’s Cydney Posner about the survey results (see this related WSJ article):
Equilar has just released the results of an anonymous survey of public companies, with 356 respondents, which asked these companies to indicate the CEO-employee pay ratios they anticipated reporting in their 2018 proxy statements. As you would expect, there was a lot of variation among companies based on industry, market cap, revenue, workforce size and geography. In addition, because the rule provided significant flexibility in how companies could identify the median employee and in how they calculate his or her total annual compensation, variations in company methodology likely had a significant impact on the results.
These variations in the data underscore the soundness of the SEC’s view, expressed at the time it adopted the pay-ratio rule, that the rule was “designed to allow shareholders to better understand and assess a particular [company’s] compensation practices and pay ratio disclosures rather than to facilitate a comparison of this information from one [company] to another”; “the primary benefit” of the pay-ratio disclosure, according to the SEC, was to provide shareholders with a “company-specific metric” that can be used to evaluate CEO compensation within the context of that company.
– Broc Romanek
The annual “Corporate Governance & Executive Compensation Survey” of the 100 largest companies from Shearman & Sterling is always a “hot ticket” item, perhaps because its one of the oldest. 15th annual…
– Broc Romanek
If you’re planning to submit an equity plan for shareholder approval in 2018, now’s the time to start the process. Liz blogged a while back about whether shareholders are more likely to approve a new omnibus plan over an amended one. This Morgan Lewis blog dives further into what you can do now and during proxy season to get approval.
Here’s a teaser – and check out Part 2 for the remaining steps about board approval, proxy drafting, etc.:
1. Review your shareholder base to determine the voting guidelines that key holders follow when reviewing equity plans.
2. Whether or not you subscribe to ISS’s proxy review services, sign up for the ISS Equity Plan Data Verification portal (no charge). If you sign up for this portal, ISS will send a confirmation of the data on which their recommendation will be based.
3. When considering share authorization, review share overhang (outstanding equity grants as compared to outstanding shares), burn rate (share usage) over the past several years (usually three years), the company’s projected need for shares over the next several years (usually three to four years), and, if applicable, ISS’s assessment of the allowable share authorization. In determining whether to include ISS’s favored plan terms, it is important to balance the need to maximize the share authorization against the importance to the company of retaining flexibility, especially with respect to vesting.
4. Compare your draft plan to ISS’s current methodology for reviewing equity plans, the Equity Plan Scorecard, which gives “points” based on plan cost (share authorization), plan features, and grant practices. For more detail, see our “White Paper.”
5. Update the plan to reflect current best practices and legal requirements, and, if applicable, ISS requirements.
– Broc Romanek
Here’s the intro from this blog by Cooley’s Cydney Posner:
In 2016, the AFL-CIO submitted several shareholder proposals designed to curb the impact of stock buybacks on executive compensation. (See this PubCo post.) The question at the time was whether we would see many more of these proposals. However, amid significant media and academic criticism, as well as relatively high stock valuations, the levels of stock buybacks declined, and the anticipated wave of proposals on buybacks did not materialize.
However, the new tax act is expected to trigger a new spike in the levels of stock buybacks. (See this MarketWatch article.) Perhaps with that in mind, one of the most prolific proponents of shareholder proposals has submitted a proposal to eliminate the impact of stock buybacks in determining executive compensation. Will these proposals now become a thing?
– Broc Romanek
Hats off to Cooley’s Amy Wood – who turned “Master Blogger” Mark Borges onto the first pay ratio disclosure of 2018. Here’s Mark’s blog about it…
– Broc Romanek
Here’s the news from this blog by Ning Chiu:
In a recent speech, Chairman Clayton discussed completing the rulemaking mandates under Dodd-Frank, in light of his mission to allocate the SEC’s resources to both fulfilling statutory requirements and meeting day-to-day needs. The complexity of the mandates coupled with “mission-critical demands” are key variables that influence the objective of finishing the rules.
In terms of how the SEC should proceed on the remaining Dodd-Frank rules, Clayton declared that the executive compensation rules were particularly challenging, in part because “we are writing on an already very colorful canvas and different constituencies see the rules as serving different, and sometimes inconsistent, goals.” He favors a “serial approach” and pointed out that the recent interpretative guidance on the pay ratio rules managed to comply with the statute, reduce compliance costs and remain practical. With those “themes” in mind, Clayton is actively trying to determine how to address the remaining executive compensation rules.
He indicated that market developments may, or should, play a role. For example, developments from shareholder engagement “have, at least in part, mitigated some of the concerns” that led to the statutory mandate in the first place. He cited to the clawback rule as an example, noting that several companies are already making their clawback policies public and some of them “go beyond what would be required” under Dodd-Frank. Some companies have actively clawed back compensation from their executives. Clayton believes that the SEC’s rulemaking priorities, as well as the rules, “should reflect these observable developments.” He also stated that the SEC intends to be flexible “in timing, in sequence, and in content” as they finalize the rules.
While that may suggest that the clawback rule, which is arguably the most complicated of the remaining three (the others being pay-for-performance and pledging disclosure), may not be an key agenda item at the SEC, Clayton pointedly concluded that “it is the SEC’s obligation to complete the rules mandated by Congress in Dodd-Frank, and I intend to do so.”
– Broc Romanek
In this memo, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies using data from 2017 filings – examining overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
– Broc Romanek
Here’s the intro from this blog by Cooley’s Cydney Posner:
In this recent academic study, “Social Responsibility Criteria in Executive Compensation: Effectiveness and Implications for Firm Outcomes,” the authors examined the impact of the integration of elements of corporate social responsibility, such as environmental and social performance, into executive compensation performance criteria. In the decision-making process, executives tend to gravitate toward the achievement of short-term goals and to respond more readily to more prominent direct stakeholders, such as customers and shareholders.
But CSR metrics typically have a long-term pay-off and involve less direct stakeholders, such as the environment and the local community. The question is: is the inclusion of CSR performance metrics in executive comp programs effective to motivate executives to achieve those longer-term CSR goals, engage with CSR stakeholders and enhance long-term value creation?