The Advisors' Blog

– Broc Romanek

Recently, ISS posted 11 new & updated FAQs about its US proxy voting policies. There’s now a total of 88 FAQs. None of them directly relate to executive pay – but you still might care. Some new & interesting ones about director attendance disclosures…

– Broc Romanek

Here’s the intro to this Reuters article:

Volkswagen is shaking up its executive pay with a cap on earnings, it said on Friday, as it looks to quell widespread anger over bonuses paid even as the carmaker suffered record losses in the aftermath of the emissions scandal in 2015. Under new rules approved by the supervisory board on Friday, Volkswagen (VW) will cap total pay for its chief executive at 10 million euros ($10.6 million) and other top managers at 5.5 million euros.

VW became the target of fierce criticism from the German public and shareholders after its managers only reluctantly accepted a cut to bonus payments of about 30 percent. Bonuses were based partly on VW’s performance over the previous two years.

– Broc Romanek

Tune in tomorrow for the webcast – “Pay Ratio: The Top Compensation Consultants Speak” – to hear Mike Kesner of Deloitte Consulting, Blair Jones of Semler Brossy and Ira Kay of Pay Governance “tell it like it is. . . and like it should be” about the upcoming implementation of the pay ratio rules…

– Broc Romanek

Here’s the teaser for this memo by Pay Governance’s John England:

To qualify for the performance-based compensation exception under Section 162(m), payment of the compensation must meet several requirements, including that performance goals must be set by the corporation’s “compensation committee.” The Code defines “compensation committee” as the committee of independent directors that has the authority to establish and administer the applicable performance goals, and certify that the performance goals are met.

Since the name for the subset of the independent members of the board with responsibility for executive compensation doesn’t matter for deductibility, we wondered whether the compensation committee name implies anything about duties and responsibilities, and whether there are any corporate governance implications regarding the board’s oversight of broader human resources issues beyond executive compensation?

– Broc Romanek

Over on my video website – “CorporateAffairs.tv” – I occasionally post videos relating to executive pay. Here’s a few examples:

– Trends in Clawbacks & Director Compensation

– Short-Termism: Is Compensation Design to Blame?

– Audit Committees: Auditor Appointment, Compensation & Oversight

– Compensation Alignment for Long-Term Growth

– Broc Romanek

Check out this memo about “Assessing Risk in Incentive Compensation Plans” from Deloitte…

– Broc Romanek

Here’s the intro from this blog by Exequity’s Ed Hauder:

As companies begin to get their equity plan proposals ready for the 2017 proxy season, it is an appropriate time to review those equity plan proposals to see if they contain or permit the transfer of equity awards to third parties for value, e.g., the ability of participants to sell stock options to an unrelated investor, such as was done at Microsoft in 2003. If companies review ISS’s Equity Plan Scorecard Policy, there is not a specific mention of any concern over transferable stock awards. Instead, companies need to review the ISS policy on Transferable Stock Option (TSO) Programs. Under that policy, ISS indicates that it will recommend against equity plan proposals if the details of an ongoing TSO program are not provided to shareholders.

This is significant because the specific criteria that ISS expects companies to detail are not those ordinarily include in a typical equity plan proposal seeking shareholder approval of a new or amended equity plan, and include, but are not limited to, the following:

– Eligibility
– Vesting
– Bid-price
– Term of options
– Cost of the program and impact of the TSOs on a company’s total option expense, and
– Option repricing policy.

If a company’s equity plan provides for the transferability of equity awards to third parties, and the above TSO disclosure are not made (which ISS will then evaluate on a case-by-case basis), then the company can expect a negative ISS vote recommendation on their equity plan proposal even if they have run the ISS Equity Plan Scorecard model and believe the plan will pass muster.

Also check out this memo from Ed about the new FAQs from ISS…

– Broc Romanek

Both Mike Melbinger & Mark Poerio have analyzed the latest court decision that supports the enforceability of electronically delivered equity award agreements:

– Another Federal Court Affirms the Enforceability of Restrictive Covenants in Electronically Delivered Equity Award Agreements

– Stock Award Web Process Works: Non-Compete Enforced

– Broc Romanek

We have posted the transcript for the recent webcast: “The Art of Working With Proxy Advisors.”

– John Jenkins

This Orrick memo discusses the new edition of the IRS’s Golden Parachute Audit Techniques Guide – a reference tool for its auditors to use in their review of compliance with the golden parachute rules. A couple of the “new additions” to the document caught my eye:

The 2017 ATG expands and updates the list of documents for IRS examiners to review in connection with a golden parachute examination. The additional documents include:

– Information Statements (Schedules 14A and 14C). The schedules disclose information regarding golden parachute payments in connection with the solicitation for shareholders’ approval. Additionally, any parachute payments actually made upon a change in control must be reported.

– Registration Statements (Forms S-4 and F-4). The Forms are used to provide information to investors when registering securities, and provide information related to mergers, acquisitions, or when securities are exchanged between companies.

Seriously? You mean IRS auditors weren’t already being told to look at these? There’s a vast amount of information about change-in-control payments in merger proxies & S-4 registration statements. It’s kind of astonishing that the IRS doesn’t seem to have told its auditors to look at any of that stuff before now.

In fairness, this guide hasn’t been updated since 2005 – before the SEC adopted its current golden parachute disclosure requirements – so maybe the IRS is just catching its guidance documentation up with actual practice. I wonder though. . .

For more details on this new Golden Parachute Audit Techniques Guide, check out Mike Melbinger’s blog.

– John Jenkins