Tune in tomorrow for the webcast – “How to Get Your Equity Plan Approved By Shareholders” – to hear Towers Watson’s Jim Kroll and Brian Myers, Fenwick & West’s Shawn Lampron and Alliance Advisors’ Reid Pearson explain how to navigate the NYSE & Nasdaq rules – as well as the proxy advisor and institutional investor policies – to obtain shareholder approval for your equity compensation plans.
Normally, I don’t blog about rulemaking petitions because they don’t go anywhere (the SEC is not required to act on them; see my blog about how a lawsuit was recently dismissed that sought to force the SEC to act on a political contribution disclosure petition). But I thought I would note this new petition from PAX Ellevate Management that seeks to require companies to disclose gender pay ratios on an annual basis, or in the alternative, to provide guidance to companies regarding voluntary reporting on gender pay equity to investors…
Here’s a blog by Stinson Leonard Street’s Steve Quinlivan: The Delaware Court of Chancery has issued an opinion on a Section 220 demand made against Yahoo! No complaint has yet been filed, and although Vice Chancellor Laster speculates on some inferences that can be drawn, no one has proven anyone has done anything wrong.
The allegations in the case have eerie parallels to the Disney compensation litigation. The Vice Chancellor notes:
Mark Twain is often credited (perhaps erroneously) with observing that history may not repeat itself, but it often rhymes. The credible basis for concern about wrongdoing at Yahoo evokes the Disney case, with the details updated for a twenty-first century, New Economy company. Like the current scenario, Disney involved a CEO hiring a number-two executive for munificent compensation, poor performance by the number-two executive, and a no-fault termination after approximately a year on the job that conferred dynastic wealth on the executive under circumstances where a for-cause termination could have been justified. Certainly there are factual distinctions, but the assonance is there.
While noting the decision does not hold the Yahoo directors breached their fiduciary duties, the Vice Chancellor observed:
Based on the current record, the Yahoo directors were more involved in the hiring than the Disney directors were, but the facts still bear a close resemblance to the allegations in Disney III. The directors‘ involvement appears to have been tangential and episodic, and they seem to have accepted Mayer‘s statements uncritically. A board cannot mindlessly swallow information, particularly in the area of executive compensation: ―While there may be instances in which a board may act with deference to corporate officers‘ judgments, executive compensation is not one of those instances. The board must exercise its own business judgment in approving an executive compensation transaction.‖ Haywood v. Ambase Corp., 2005 WL 2130614, at *6 (Del. Ch. Aug. 22, 2005). Directors who choose not to ask questions take the risk that they may have to provide explanations later, or at least produce explanatory books and records as part of a Section 220 investigation.
The authors believe that CEO reward practice has reached a ‘crisis point’ and the data they present shows that CEO pay is more influenced by FTSE rankings and size than financial performance. The report recommends a new approach to CEO pay suggesting that its analysis ‘shows that current executive reward practice is based on misplaced assumptions about the motivating force of money. CEO reward practice also, therefore, fails to address some of the root causes of why current rewards might not have the desired effects. Organisations need to become more diverse, more embracing of shared and accountable leadership, more transparent in their reporting and more concerned with stakeholder rather than simply shareholder value’.
Here’s a teaser from this article by Semler Brossy’s John Borneman:
We recently attended a Nasdaq compensation committee forum attended by board members, top HR executives and representatives from a number of institutional investors where the major topic of discussion was about the growing prevalence of TSR and relative TSR (rTSR) metrics in executive compensation. There was broad and general agreement that linking compensation to TSR does not make a very good “incentive” plan. Executives cannot control TSR directly, and it generally makes more sense to link pay to the strategic priorities of the business that executives can control, like revenue growth, innovation, margin management and returns on investments. This idea of strategic alignment has been the core principle for designing effective incentive plans for more than 30 years, and it continues to be relevant today.
Here is Equilar’s new 10-page report, which examines the popularity and value of plane, car and professional services perks for both CEOs and NEOs in the S&P 500. The report includes commentary from Kristine Bhalla of ClearBridge Compensation Group LLC and Jim Kroll of Willis Towers Watson, also takes a deeper dive on eligibility for a wider variety of perks in the Fortune 100 for the current year including tax gross-ups, security and club dues.
Here’s the final tally of say-on-pay votes from this Semler Brossy report. The report notes that a majority of companies continued to pass say-on-pay with substantial shareholder support: approximately 92% passed with over 70% shareholder approval. 61 companies (2.8%) failed in 2015.
Officials of Facebook Inc., owner of the world’s largest social network, settled a shareholder lawsuit by agreeing to revise pay schedules and keep a closer watch on how company officials are compensated. Investor Ernesto Espinoza sued Facebook and controlling shareholder Mark Zuckerberg saying a 2012 pay plan improperly allowed directors to set their own pay and that Zuckerberg exceeded allowable compensation for some senior officials. Facebook’s board in 2013 paid non-employee directors an average of $461,000 in stock, exceeding industry peers by as much as 43 percent, Espinoza said in the Delaware Chancery Court lawsuit.
In a settlement agreement filed Monday, the company agreed to conduct annual compensation assessments, hire an independent compensation consultant, have the board monitor compensation changes and consider stockholder approval of the compensation program at this year’s annual meeting. “We believe that resolving this matter is in the best interests of the company and its shareholders so we can continue to focus on our mission and business,” Vanessa Chan, a spokeswoman for Facebook, said in an e-mailed statement.
Espinoza’s lawyers agreed in part to avoid “the significant risk, expense and length of continued proceedings,” they said in court papers. “Counsel also are mindful of the inherent problems of proof and possible defenses to the claims alleged in such actions,” they wrote. Kathaleen McCormick, an attorney for Espinoza, didn’t immediately respond to a request for comment on the settlement. The accord will be considered by a judge at a fairness hearing. The case is Espinoza v. Zuckerberg, CA9745, Delaware Chancery Court (Wilmington).
Here’s the key findings excerpted from this blog by Willis Towers Watson about a recent change-in-control survey:
The survey responses suggest that enhancing severance for terminations in conjunction with a CIC is widespread. The vast majority (93%) of respondents indicated they do so for some portion of employees below the NEO level, with two-thirds (67%) of those companies offering enhanced cash compensation (salary and/or bonus) and accelerated vesting of equity and about a quarter (26%) offering only accelerated vesting of equity (see Figure 1).
Other key findings include the following:
– Many (40%) of those companies that provide enhanced cash compensation include employees below the senior vice president (SVP) level. And about half of companies that provide enhanced cash compensation do so for all employees at a given level, while half provide it selectively.
– The percentage of companies offering a flat severance amount irrespective of tenure versus those offering a tenure-based benefit is significantly higher for CIC severance than for other types of severance. For example, 61% of companies provide executive vice presidents (EVPs)/SVPs a flat severance benefit in the absence of a CIC, while 96% offer a flat benefit following a CIC. Employees below the EVP/SVP level see an increase in the percentage receiving a flat amount of severance, but neither the magnitude of increase nor the percentage receiving a flat amount are as high as for EVPs/SVPs.
– Those that switch from tenure-based to a flat amount in a CIC provide more severance as a result of the switch at most tenure levels.
– Of those that maintain tenure-based severance in a CIC, median minimum benefits are higher in a CIC situation than in a normal severance situation at all levels to guarantee a certain level of benefit for more recently hired employees. Of those that provide flat severance with or without a CIC, median benefits are one-third to one-half higher following a CIC at all levels.
– Treatment of bonuses for the year of termination is enhanced following a CIC in about half the respondents for EVP/SVPs and in a quarter to a third of the companies for employees at lower levels. The most common treatment is to pay at least full target bonus regardless of performance or portion of the year worked. The most common treatment of bonuses in normal severance situations is to pay a bonus prorated for the part of the year worked.
– The most prevalent treatment of both time-based and performance-based equity awards is accelerated vesting for those who are terminated following a CIC (i.e., double-trigger vesting).