The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Equilar has had a blog for a while now – and here’s an entry about “The Role of TSR Modifiers in Long-Term Incentive Plans“…

– Broc Romanek, CompensationStandards.com

This Semler Brossy report notes that – so far this year – 129 Russell 3000 companies have had say-on-pay votes and 93% have passed with above 70% support. Two companies (1.6%) have failed say-on-pay: Nuance Communications and Tetra Tech. Proxy advisory firm ISS has recommended ‘against’ say-on-pay proposals at 9% of companies it has assessed thus far in 2016. The report also examines proxy access vote results in the Russell 3000.

– Broc Romanek, CompensationStandards.com

Here’s the highlights from Equilar’s latest “Executive Stock Ownership Guidelines” report for the Fortune 100:

– 88% disclose ownership guidelines or holding requirements and 61% disclose both
– Most companies with ownership guidelines established accumulation periods, with 5 years being the most common
– 84% base ownership requirements on a multiple of base salary that varies by position, with 5x or 6x being the most common for CEOs
– Holding requirements most often require retention of company stock acquired through exercise of stock-based awards only until stock ownership guidelines are satisfied

– Broc Romanek, CompensationStandards.com

Yesterday, Corp Fin issued this CDI 301.01 about how a proxy card should “clearly identify and describe the specific action on which shareholders will be asked to vote” for both management & shareholder proposals. The CDI provides six examples of what not to do. This is one of those examples that doesn’t satisfy Rule 14a-4(a)(3): “A shareholder proposal on executive compensation.” The CDI doesn’t clarify whether it applies to VIFs – but it likely does. Here’s an excerpt from this Gibson Dunn blog:

The CD&I does not indicate that a shareholder proponent’s title or description of its own proposal is necessarily determinative of how that proposal should be identified on the company’s proxy card. For example, if a shareholder captions her proposal as “Proposal on Special Meetings,” that description presumably still may not satisfy Rule 14a-4(a)(3). Thus, a company remains ultimately responsible for determining how a shareholder proposal is described on the company’s proxy card.

Because the Staff’s interpretation was based on Rule 14a-4, it applies only to how proposals are addressed on a company’s proxy card. Nevertheless, we would expect the Staff to hold similar views in interpreting the requirement under Rule 14a-16(d)(6) that a company’s Notice of Internet Availability contain a “clear and impartial identification of each separate matter intended to be acted on.” Similarly, to the extent that companies are involved in reviewing and commenting on the form of voting instruction card that is distributed to street name shareholders, best practice is to conform the descriptions of proposals on the voting instruction card to the descriptions on the company’s proxy card. Companies also are subject to the general standard of avoiding misleading statements when identifying or describing proposals within the body of the proxy statement.

Notably, the SEC does not have a rule on the form and content of the state law notice that appears at the front of companies’ proxy statements. Thus, if a company has determined that a generic description of shareholder proposals is sufficient for the notice page of the proxy statement under state law, such as stating that the shareholder meeting agenda includes a “shareholder proposal, if properly presented,” the C&DI does not prevent that practice. As a result, the description (if any) of those proposals on the notice page may differ from how each proposal is identified on the proxy card.

Coincidentally, this follows my blog on TheCorporateCounsel.net last week about this topic…

– Broc Romanek, CompensationStandards.com

This study – “Controlled Companies in the Standard & Poor’s 1500: A Follow-up Review of Performance & Risk” – was commissioned by the IRRCi and performed by ISS. It finds that controlled companies generally underperformed non-controlled firms over all periods reviewed in terms of total shareholder returns, revenue growth, and return on equity, according to a new study. The study also finds that average CEO pay is significantly higher at controlled companies with multi-class stock structures: three times higher than that at single-class stock controlled firms and more than 40 percent higher than average CEO pay at non-controlled firms. In addition, director tenure typically runs longer, board refreshment is generally slower, and boardrooms are less diverse at controlled companies.

– Broc Romanek, CompensationStandards.com

As I blogged before, the Nasdaq proposed a change to its listing rules that, if adopted, would require listed companies to publicly disclose “golden leash” arrangements. For technical reasons, the SEC rejected the original rule proposal – but the Nasdaq filed a revised proposal last week (see this Dorsey memo and Cooley blog). The newly-proposed rule is substantively similar to the previously-proposed rule – and if the newly-proposed rule is approved by the SEC, it will become effective on June 30, 2016. Page 18 of the new proposal indicates that the SEC will establish the due date for comments.

Here’s an excerpt from Cooley’s blog:

Interestingly, footnote 9 (previously footnote 5), remains largely intact. That footnote indicates that Nasdaq is considering whether to propose additional requirements regarding third-party payments to directors and candidates, including whether these directors should be prohibited from being considered independent under Nasdaq rules or prohibited from serving on the board altogether. The resubmission adds that a proposal on this topic, if any, would be made in a separate rule filing. The resubmission also notes that, under the subjective prong of the definition of independent director, any “individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director” is not considered to be independent. Implicit in this addition to the footnote is the view that, even if Nasdaq elects not to seek to enhance the definition of independence in this regard, directors may already be obligated to consider this type of third-party payment when assessing director independence.

– Broc Romanek, CompensationStandards.com

This memo by Davis Polk entitled “Down-Round Financings of Private Companies: Considerations for Outstanding Equity Compensation Awards” is worth reading…

– Broc Romanek, CompensationStandards.com

It’s St. Patty’s Day – so doing a jig seems appropriate. In this 30-second video, Cap’n Cashbags hears bad news from the Corporate Secretary about shareholder views on his pay package – and does a jig:

– Broc Romanek, CompensationStandards.com

This Willis Towers Watson memo examines the trends for perquisites in the S&P 500…

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this ISS Shareholder Services press release (also see this Cooley blog):

The average annual compensation for chief executive officers of large U.S. corporations varies significantly depending on board leadership structure, according to a report released today by Institutional Shareholder Services. An ISS analysis of S&P500 companies finds compensation over a three year period was 42 percent higher on average for CEOs that had an insider chairman (excluding those in a combined role), than for CEOs of companies chaired by an independent outsider.

CEOs who also held the post of board chair were the next highest group, receiving 29 percent more in average annual compensation compared to CEOs of companies chaired by an independent outsider. Average CEO pay was also sensitive to company revenue, but regressions showed no significant association with other potential explanatory factors, such as indexed shareholder return performance or CEO tenure.

While the number of U.S. companies that combine the top two titles has declined in recent years, the dual role is still the most prevalent leadership structure among S&P 500 companies, according to ISS QuickScore data. For 2015, approximately 51 percent of S&P 500 companies combined the chair and CEO roles, down from approximately 54 percent in 2014.

The fact that, on average, a CEO’s pay is generally higher when that post is held in conjunction with the board chair role or when there is an insider chairman provides some support of views that insiders are not the best monitors of shareholder interests in the board room, at least as measured by CEO pay.