For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in tomorrow – 2 pm eastern (audio archive goes up when the program ends; transcript available in a week or so) – for the third in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Truly Really) Need to Do Now.” There will be a heavy emphasis on “what now” given the SEC’s new guidance.
– Mark Borges, Principal, Compensia
– Ron Mueller, Partner, Gibson Dunn
– Dave Thomas, Partner, Wilson Sonsini
– Amy Wood, Partner, Cooley
Register Now: This is the only comprehensive conference devoted to pay ratio – and it’s only three weeks away!Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
Meanwhile, I’ve asked my HQ to ascertain what is “capacity” for attending our upcoming comprehensive “Pay Ratio & Proxy Disclosure Conference” in DC since there’s been a mad rush. If you want to attend “in person” in DC – rather than by video webcast – you should register soon since it may reach capacity. The two-day event is less than three weeks away…
This webcast has taken on even higher importance given all of the SEC’s new pay ratio guidance that I blogged about last night (Mark blogged it too). Between this webcast – and the 20-plus panels of our two-day “Pay Ratio & Proxy Disclosure Conference” coming up in three weeks, you simply can’t afford to miss this year’s event (either in-person in DC or by video webcast; video archive available too).
– Mark Borges, Principal, Compensia
– Ron Mueller, Partner, Gibson Dunn
– Dave Thomas, Partner, Wilson Sonsini
– Amy Wood, Partner, Cooley
Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
The first webcast was on July 20th; the second webcast was August 15th (transcript & audio archive available for both).
This guidance is huge. For example, I am reading the interpretive guidance on sampling – and it appears to be far more expansive than what I’ve heard consultants have been recommending. In fact, I immediately lengthened the time allotted for the “sampling” panel during our upcoming comprehensive “Pay Ratio & Proxy Disclosure Conference” given that the standard for using sampling is now basically “not unreasonable & not in bad faith.”
I think a lot more folks are going to be using sampling than before. And you will want to hear how to do it. Our “Pay Ratio” conference is just three weeks away!
So the interpretive release lays out the SEC’s views on the use of reasonable estimates, assumptions and methodologies – as well as the statistical sampling permitted by the rule. It also clarifies that companies may use appropriate existing internal records in determining whether to include non-US employees & in identifying the median employee – and provides guidance as to when widely-recognized tests may be used to determine whether workers are employees.
Corp Fin’s guidance on calculating pay ratios supplements the interpretive release. Topics addressed include:
– Ability of companies to combine the use of reasonable estimates with statistical sampling or other reasonable methodologies
– Examples of various sampling methods & the permissibility of using a combination of sampling methods
– Examples of situations where registrants may use reasonable estimates
– Examples of other reasonable methodologies & the permissibility of using a combination of reasonable methodologies
– Hypothetical examples of the use of reasonable estimates, statistical sampling & other reasonable methods
Finally, Corp Fin also updated the Reg S-K CDIs addressing pay ratio to reflect changes wrought by the new interpretive release:
– Revised CDI 128C.01 was updated to add a reference to the new interpretive release – which clarifies that CACMs can be formulated with internal records that reasonably reflect annual compensation, even if the records don’t include every pay element, such as widely distributed equity
– New CDI 128C.06 addressing the permissibility of referring to a pay ratio as an “estimate” was added
– Withdrawn CDI 128C.05, which addressed classification of a worker as an independent contractor v. an employee was withdrawn
Next Wednesday’s Webcast: “Pay Ratio Workshop – What You (Truly Really) Need to Do Now”
– Mark Borges, Principal, Compensia
– Ron Mueller, Partner, Gibson Dunn
– Dave Thomas, Partner, Wilson Sonsini
– Amy Wood, Partner, Cooley
Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
In 2013, New York adopted some interesting regulations – capping executive pay at “covered providers” (hospitals, health insurers & other entities that provide public benefits in exchange for state funds). The rules were – of course – challenged, and a NY appellate court recently issued its opinion in LeadingAge New York v. Shah.
The court found the pay cap was okay to the extent that the costs are paid for by state funds – but that it’s unconstitutional to restrict executive pay that’s funded by non-state dollars. Since another court previously upheld the full pay cap, this opinion creates a split in the NY Appellate Division.
The 2013 regulations established a “hard cap” prohibiting Covered Providers from using state funds to provide compensation greater than $199,000 to any Covered Executive, as well as a “soft cap,” which prohibits the Covered Executive from receiving more than $199,000 — regardless of the source of the funds — unless, the compensation: (1) is no greater than the 75th percentile of compensation provided to comparable executives affiliated with comparable providers, consistent with the findings in a compensation survey recognized by the Division of Budget; and (2) has been approved by the Covered Provider’s board of directors or other governing body, including at least two independent directors or members.
In partially upholding the cap, the court found that the Department of Health has broad statutory authority to regulate the use of public funds, enter into contracts, and “ensure the provision of ‘high-quality medical care,” particularly in the Medicaid program. Justice Peters acknowledged, however, that “none of the . . . statutes expressly authorize[] the creation of the administrative cost and executive compensation limits.” But authority exists simply because they “are not inconsistent with the . . . statutory provisions or their underlying purpose of obtaining high-quality services with limited available funds.”
However, “by attempting to regulate executive compensation from all sources, DOH was acting on its own ideas of sound public policy; venture[d] outside [its] legislative mandate to manage the efficient and effective use of taxpayer money for health care and related services; [and] has no special expertise in administering regulations governing overall executive compensation or competence in regulating corporate governance as much.” Thus, this portion of the pay cap violates the separation of powers doctrine and is invalid.
The JOBS Act turned five in April – which means many EGCs are due to exit their scaled disclosure regime. This Aon/Radford memo suggests that exit planning should begin at least 6-12 months before filing the first post-EGC 10-K. It includes a handy chart comparing EGC and non-EGC disclosure requirements – and lots of tips. Here’s a teaser:
Planning early for post-EGC disclosure and voting requirements is critical in the present environment. Additional disclosures in combination with the requirement to hold Say-on-Pay votes expose former EGC companies to dramatically more scrutiny from investors and proxy advisory firms.
We recommend educating your board on potential governance changes and starting the investor outreach process well in advance of the first full filings in order to anticipate potential investor discontent and reduce the likelihood of unfavorable votes. A critical first step is cataloguing each of the practices that will be disclosed for the first time in your CD&A to compare against the proxy voting policies of the company’s significant shareholders.
Questions to ask include:
– Do the company’s equity practices qualify as sufficiently “performance-based” to withstand scrutiny from shareholders and proxy advisory firms, in the event that the firm’s pay-for-performance policies are triggered?
– Has the company adopted (or should it consider) stock ownership guidelines, clawback policies, and other “risk mitigating” policies that garner more favorable treatment in Say-on-Pay voting?
– Is the company benchmarking pay against a peer group that shareholders and proxy advisory firms would find objectionable?
For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” we have just posted this invaluable set of course materials: The “Pay Ratio Employee Considerations” Guide. For many companies, the biggest issue related to the new pay ratio rule is how to message employees who might be angry about how their pay relates to the pay ratio median – not to mention the CEO’s pay package.
We decided to release these course materials early since so many are grappling now with the type of issues addressed in this “How to” manual. This topic will be addressed numerous times during the two days of the upcoming “Pay Ratio & Proxy Disclosure Conference” in mid-October – and it will also be addressed in our third pre-conference webcast coming up next week (on Wednesday, September 27th).
We decided to release these course materials early since so many are grappling now with the type of issues addressed in this “How to” manual. Just like the upcoming “Pay Ratio & Proxy Disclosure Conference” in October will comprehensively address these – and many more – issues. This comprehensive pay ratio event is one that you can’t afford to miss. Also remember that our third pre-conference webcast is September 27th.
Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
It’s big news – although not surprising if you’ve been paying attention. On Friday, at the ABA Annual Meeting, Corp Fin Director Bill Hinman said that the SEC won’t be delaying the implementation of pay ratio (as always, speaking for himself & not the Commission). Bill also mentioned that Corp Fin would be issuing guidance on the pay ratio rules at some point in the near future. It’s still possible that Congress could delay – or repeal – the pay ratio rule. But I wouldn’t make that bet…
We decided to release these course materials early since so many are grappling now with the type of issues addressed in this “How to” manual. Just like the upcoming “Pay Ratio & Proxy Disclosure Conference” in October will comprehensively address these – and many more – issues. This comprehensive pay ratio event is one that you can’t afford to miss. Also remember that our third pre-conference webcast is September 27th.
Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
We know that executives are making a lot more than the average & median worker – and upcoming pay ratio disclosures will really bring that disparity into focus. This new research from the Kellogg School might get us closer to knowing why. Here’s a teaser:
Technological innovation is a significant factor in pay disparity, explaining about half of all fluctuations in the ratio of executive pay to worker pay. Their model implies that periods of rapid technological change will be accompanied by increases in differences in pay, both between executives and workers, as well as among different top executives.
In the model, game-changing technologies appear randomly and can increase the firm’s returns on certain capital-intensive projects. (Think Toyota choosing to develop the Prius just as electric batteries became more efficient and cheaper to produce.) Those returns then increase the executive’s paycheck—if the executive had the good sense to invest in a venture that took advantage of the technology, that is. Overall, finding new investment opportunities accounted for 63% of the average executive’s pay, with normal work duties accounting for the remainder.
To help optionees limit their alternative minimum tax, some companies grant options that can be exercised early. This Dorsey & Whitney memo explores the mechanics & tax risks pertaining to optionees for early-exercise ISOs vs. non-qualified stock options. Here’s a teaser:
In 2004, final ISO regulations clarified that Section 83(b) elections filed on restricted stock acquired via early exercise ISOs are only effective for AMT purposes and not for ordinary compensation tax purposes.
In the best case where both ISO holding periods are met (the shares acquired via ISO are held at least two years from the date of grant and at least one year from the date of exercise, prior to sale), the entire spread between the sale price and the exercise price paid will be taxed as long-term capital gain. However, if either holding period is not met, a “disqualifying disposition” occurs.
As compared to an ISO, the exercise of a non-qualified stock option is not a preference item for AMT purposes. If an optionee early exercises a NSO, an 83(b) election will be respected for compensation purposes and the optionee will only recognize compensation income equal to the fair market value of the shares on the date of exercise less the option’s exercise price.