1. For our employee determination date, we’re using:
– October 31st (or equivalent for non-calendar year companies) – 26%
– November 30th (or equivalent for non-calendar year companies) – 7%
– Fiscal year end – 36%
– Some other date – 31%
2. When it comes to “CACM,” we’re using:
– Base salary – 24%
– Total cash compensation – 15%
– Total gross compensation – 21%
– Taxable wages – 25%
– Some other measure – 15%
– No CACM, using annual total compensation instead – 0%
3. When it comes to using the de minimis exemption, we’re:
– Yes, we’re using the exemption – 14%
– No, we’re not using the exemption – 51%
– Don’t know yet – 35%
4. When it comes to excluding employees of acquired entities, we’re:
– Yes, we’re excluding – 4%
– No, we’re not excluding – 28%
– We don’t have acquired entities – 48%
– Don’t know yet – 20%
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.
Many companies held a “say-on-frequency” vote in 2017. If you fall in that category and haven’t already disclosed your frequency decision – now’s the time! Here’s an excerpt from this Davis Polk memo:
If the company does not report its decision in the initial Form 8-K, the due date for the Form 8-K/A is the earlier of 150 days after the annual meeting and 60 days before the next Rule 14a-8 shareholder proposal deadline, as disclosed by the company in its proxy statement. This deadline is rapidly approaching for many companies that held annual meetings in May 2017.
Failure to comply with these Form 8-K deadlines results in a loss of Form S-3 shelf eligibility. In 2011, many companies overlooked the requirement to disclose their decision on the frequency of say-on-pay votes, assuming that since the shareholder advisory vote matched the board’s recommendation, no further disclosure was necessary. Because the SEC staff recognized that many companies simply hadn’t understood this disclosure requirement, the staff routinely granted waivers of the shelf eligibility defect. It is not yet clear how the staff will handle similar waiver requests this year.
Verifying calculations for incentive payouts always made my skin crawl. Usually because I’d learn of payday adjustments for things “everyone’s always agreed on” a day before printing the proxy. So that would lead to a mad scramble to ensure that the proxy disclosure, minutes & actual payouts aligned. Spoiler alert: you usually have to fix them all. And since pay is a sensitive topic, probing questions and further adjustments aren’t warmly received.
But this SEC complaint from “Change to Win” Investment Group shows there’s at least one reason to keep fighting the good fight: activists are also tying out the numbers – and might alert the SEC to discrepancies. CtW’s press release explains its allegations:
T-Mobile’s executives were paid $4 million more in 2016 than they would have been if T-Mobile had followed the methods described in its own proxy statement for calculating executive pay, according to a complaint the CtW Investment Group filed today with the SEC.
The complaint documents T-Mobile’s explanation of how it calculates executive pay – in particular its annual bonuses – and then shows that it is not possible to replicate the bonuses awarded to T-Mobile executives by following these methods: T-Mobile awarded bonuses to executives as if they had exceeded targets on four performance measures by an average of 187%, when in fact they exceeded the board’s targets by only 128%.
Moreover, the Investment Group’s complaint highlights T-Mobile’s inadequate disclosure surrounding the calculation of non-GAAP metrics T-Mobile relies on to measure performance in its executive pay plans. For instance, T-Mobile claims to include gains or losses from the disposal of spectrum licenses in its Adjusted EBITDA measure, but fails to take into account an $835 million loss on spectrum license disposals reported on its financial statements for FY 2016. Another non-GAAP measure T-Mobile relies on – Operating Free Cash Flow – is impossible to calculate based on the vague description T-Mobile provides.
ISS announced yesterday that it’s changing hands – for the 5th time in the past 15 years or so. Genstar Capital, a San Francisco-based private equity firm, is buying the company from the previous PE owner – Vestar Capital Partners.
The ISS press release gives a few details on expected timing & transition plans:
The transaction is expected to close by early fourth quarter, subject to customary closing conditions.
ISS will continue to operate independently once the transaction is completed and the current ISS executive leadership team will remain in place.
Based on the press release, Genstar has some experience in backing service providers in the financial services sector – and plans to continue ISS’s strategic infrastructure & ESG initiatives. The press release doesn’t spell out whether “ESG” captures ISS’s involvement in pay-related policies & services, but there’s no indication right now that those activities will change.
Last month, I blogged about research showing that say-on-pay might be curbing excessive CEO compensation. This “Harvard Law” blog takes a closer look at say-on-pay studies, since findings vary. Here’s a teaser:
– Say-on-pay votes have little effect on reducing CEO compensation levels
– Say-on-pay votes do affect pay-performance sensitivity; CEOs of firms with negative votes face a greater penalty for poor performance than other CEOs
– Increased disclosure and shareholder engagement are two key non-quantifiable benefits of say-on-pay
– Unintended consequences of say-on-pay include movement to “one size fits all” executive compensation programs and a disregard for the creation of economic value
The author concludes there’s no clear consensus on what problem say-on-pay was trying to solve or the desired outcome of the requirements. Nobody knows whether executive pay would’ve been higher without it or if there would’ve been some other limiting factor that came into play.
Sounds like we’ll just need to keep working with what we have…
Following up on my blog from a few days ago about UK Prime Minister’s efforts against excessive pay, the United Kingdom has now proposed specific reforms as reflected in this 68-page response to its “Green Paper.” The reforms proposed relate to three specific areas: Executive pay, strengthening the employee, customer and supplier voice and corporate governance in large privately held businesses.
The proposal waters down some of the more controversial aspects of the Green Paper (eg. binding say-on-pay votes) – but the remaining proposals are quite astounding. Here’s the ones relating to executive pay:
1. Require listed companies to report pay-ratio information annually (the ratio of CEO pay to the average pay of the company’s UK workforce), including a narrative explaining changes to the ratio from year to year and “setting the ratio in the context of pay and conditions across the wider workforce.”
2. Provide a “clearer explanation in remuneration policies of a range of potential outcomes from complex, share-based incentive schemes.”
3. Provide specific steps listed companies should take when there is significant shareholder opposition to executive pay policies and awards (which might include, for example, provisions for companies to respond publicly to dissent within a certain time period, or to verify that dissent has been sufficiently addressed by putting the company’s existing or revised remuneration policy to a shareholder vote at the next annual meeting).
4. Increase the responsibility of comp committees for oversight of pay and incentives across the company and require these committees “to engage with the wider workforce to explain how executive remuneration aligns with wider company pay policy (using pay ratios to help explain the approach where appropriate).”
5. Extend the recommended vesting & post-vesting holding periods for executive equity awards from three to five years to encourage a longer term focus.
6. Invite the Investment Association to maintain a public register of listed companies that receive shareholder opposition of 20% or more on say on pay, along with “a record of what these companies say they are doing to address shareholder concerns.”
Here’s the intro from this article by Semler Brossy’s Seymour Burchman & Jason Brooks:
Performance-based long-term incentives (LTIs) have become the most dominant form of LTI. In most of these plans, performance goals are set to be attained in a fixed period of time, typically three years. But does it have to be this way, especially in the case of major, one-time initiatives?
There are certain situations where companies should consider replacing traditional, time-based vesting with vesting based on the attainment of key milestones, such as the successful completion of a business startup, entry into a new category, completion of a major re-organization or a specific transaction.
The UK government has signalled that it will taking a shareholder and stakeholder market-based approach to governance reform rather than introducing more rules on executive pay. According to early briefings reported in the Financial Times and Daily Telegraph, the government’s response to the consultation on its corporate governance paper green paper, will published next week.
While proposals for more stringent binding votes would not be put in place George Parker, the FT’s political editor, reported that the government said there would be measures to improve pay transparency. Parker also quoted a government official stating that the corporate governance reforms would make large companies more transparent and accountable to both staff and shareholders.
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.