With the comment letter deadline for the SEC’s recent release of additional economic analysis looming – this Monday, July 6th – the SEC’s Division of Economic and Risk Analysis posted another memo on Tuesday about the potential effects on the accuracy of the proposed pay ratio rule calculation of excluding different percentages of certain categories of employees.
It sure looks like the rumor of August 5th being an adoption date might come true as the SEC seems to be getting its ducks in a row to minimize the risk of losing a court battle if rules do indeed become final…
Today, the SEC voted to approve – by the now-norm 3-2 vote – this 198-page proposing release to direct the stock exchanges to adopt clawback listing standards, as required by Section 954 of Dodd-Frank. Comments are due 60 days from publication in the Federal Register – so the beginning of September. We’re posting memos in our “Clawbacks” Practice Area. All five SEC Commissioners issued a written statement.
Given that the rumor that the SEC would propose these clawback rules on July 1st held true – the rumor of the SEC adopting pay ratio rules on August 5th might also prove worthy…
The SEC’s new clawback, pay-for-performance & hedging proposals – not to mention the coming pay ratio rules – are causing a stir – and you should prepare now. These rules will be among many topics that Corp Fin Director Keith Higgins & other experts will be talking about at our popular Conferences — “Tackling Your 2016 Compensation Disclosures” — to be held October 27-28th in San Diego and via Live Nationwide Video Webcast on TheCorporateCounsel.net. Act by August 7th for the phased-in rate to get 10% off.
The full agendas for the Conferences are posted — and include the following panels:
– Keith Higgins Speaks: The Latest from the SEC
– The SEC’s Pay-for-Performance Proposal: What to Do Now
– Creating Effective Clawbacks (& Disclosures)
– Pledging & Hedging Disclosures
– Pay Ratio: What Now
– Proxy Access: Tackling the Challenges
– Disclosure Effectiveness: What Investors Really Want to See
– Peer Group Disclosures: The In-House Perspective
– The Executive Summary
– The Art of Communication
– Dave & Marty: Smashmouth
– Dealing with the Complexities of Perks
– The Big Kahuna: Your Burning Questions Answered
– The SEC All-Stars: The Bleeding Edge
– The Investors Speak
– Navigating ISS & Glass Lewis
– Hot Topics: 50 Practical Nuggets in 75 Minutes
The archived video webcast from the CFA Institute about performance metrics, executive incentives and CEO succession that drivers shareholder value may be of interest. The panelists included:
– Michelle Edkins, BlackRock
– Tim Koeller, McKinsey
– Meredith Miller, UAW Medical Trust
– Glen Welling, Engaged Capital
– Mark Van Clieaf, Organizational Capital Partners
Today, the SEC will be proposing its clawback rules finally. For those in law firms, get ready to rumble with your memo writing skills…
Last week, Delaware enacted amendments to its corporation law – effective August 1st – that will permit grants of restricted stock to be made by a corporate officer who has been delegated that authority by the board (within parameters). Prior to this change, the granting of options could be delegated to officers pursuant to DGCL Section 157(c), but not so for stock. Under the old law, some companies worked around this limitation by creating a board committee of one person (typically, the CEO-director). The law change presents the opportunity for delegation without using a “committee of one,” allowing the CEO (in a non-director capacity) or other delegated officers to make grants of stock. Of course, accurate and timely records must be kept and plans also would need to permit such administration.
The 2015 legislation amends Section 152 of the DGCL to clarify that the board of directors may authorize stock to be issued in one or more transactions in such numbers and at such times as is determined by a person or body other than the board of directors or a committee of the board, so long as the resolution of the board or committee, as applicable, authorizing the issuance fixes the maximum number of shares that may be issued as well as the time frame during which such shares may be issued and establishes a minimum amount of consideration for which such shares may be issued.
The minimum amount of consideration cannot be less than the consideration required pursuant to Section 153 of the DGCL, which, as a general matter, means that shares with par value may not be issued for consideration having a value less than the par value of the shares. The legislation clarifies that a formula by which the consideration for stock is determined may include reference to or be made dependent upon the operation of extrinsic facts, thereby confirming that the consideration may be based on, among other things, market prices on one or more dates or averages of market prices on one or more dates.
Among other things, the legislation clarifies that the board (or duly empowered committee) may authorize stock to be issued pursuant to “at the market” programs without separately authorizing each individual stock issuance pursuant to the program. In addition, the legislation allows the board to delegate to officers the ability to issue restricted stock on the same basis that the board may delegate to officers the ability to issue rights or options under Section 157(c) of the DGCL.
We’ve had false start rumors before about when the SEC will adopt pay ratio rules – but this time it feels different given the heightened political attacks against the SEC. The latest is this Bloomberg article indicating the rules will be adopted by August 5th, which the article notes was not confirmed by the SEC. It’s according to “two people familiar with the matter who asked not to be named.”
That’s right before our August 7th deadline for our last discounted rate for our big “Executive Pay Conference” in San Diego and by video webcast. Act now!
Many are talking about this New Yorker piece by James Surowiecki (for example, see this Cooley blog). Here’s an excerpt:
At root, the unstoppable rise of C.E.O. pay involves an ideological shift. Just about everyone involved now assumes that talent is rarer than ever, and that only outsize rewards can lure suitable candidates and insure stellar performance. Yet the evidence for these propositions is sketchy at best, as Michael Dorff, a professor of corporate law at Southwestern Law School, shows in his new book, “Indispensable and Other Myths.” Dorff told me that, with large, established companies, “it’s very hard to show that picking one well-qualified C.E.O. over another has a major impact on corporate performance.” Indeed, a major study by the economists Xavier Gabaix and Augustin Landier, who happen to believe that current compensation levels are economically efficient, found that if the company with the two-hundred-and-fiftieth-most-talented C.E.O. suddenly managed to hire the most talented C.E.O. its value would increase by a mere 0.016 per cent.
This study by Towers Watson shows a trend of steadily declining levels of run rate, overhang and long-term-incentive (LTI) fair value as a percentage of market capitalization in equity compensation programs at Fortune 500 companies. While the decline in share-use metrics appeared to have plateaued in fiscal 2012, the latest study indicates that the pause was only temporary. Companies continued to reduce share usage over the most recently completed reporting year, driven by the growing emphasis on granting full-value share awards (e.g., time- and performance-based shares/units) over appreciation awards (e.g., stock options) across the universe of companies in their sample.
This Newsweek article is the latest in a number that note that some companies are using pay-for-sustainability metrics as part of their pay program. Here’s the article:
Back in 2005, when GE chief executive Jeff Immelt launched Ecomagination, an initiative to pedal plant-friendly technologies to the market, he famously quipped “green is green.” But despite Mr. Immelt’s pitch, the conventional wisdom has stubbornly remained that what’s good for the planet is going to hurt in the pocketbook.
Things might finally be shifting. From the data crunched for this year’s Newsweek Green Rankings, we found an interesting trend within executive compensation packages that challenges this assumption. For instance, for the first time since we have been tracking executive pay-links to green, the majority of the 500 largest listed companies — both in the U.S. and globally — linked at least part of their executive bonus payout to green factors like energy use and greenhouse gas emissions. In the U.S., 53 percent of companies tie executive bonuses to green performance targets; globally, the number is 69 percent. A decade ago, less than 10 percent of companies linked pay to environmental factors.
Today, companies across the board, including oil companies, industrial powerhouses, and major consumer brand-name companies make doing well on your bonus a function of doing good for the environment.
Below are a few of hundreds of examples.
Nestle links the monetary bonus of its executive board to direct (referred to as scope 1) and indirect (referred to as scope 2) greenhouse gas (GHG) emissions reductions, as well as the expansion of the use of natural refrigerants in their industrial refrigeration systems and the use of natural refrigerants in all new ice cream chest freezers in Europe.
Unilever chief executive Paul Polman has part of his bonus tied to achieving GHG emissions reductions targets both within Unilever and throughout its supply chain.
At Statoil, the executive vice-president (EVP) of Drilling and Production Norway earns a bonus linked to achieving an “absolute reduction of emitted carbon dioxide (CO2) emissions compared to business as usual;” the EVP of Drilling and Production International has his bonus tied to achieving improvements on “CO2 intensity;” and the EVP Marketing, Processing and Renewable Energy is paid a bonus linked to a “three-staged key performance indicator consisting of energy efficiency, emissions to air (CO2, NOx,SOx) and emissions to water.”
BASF, meanwhile, pays its corporate executive team a bonus for reaching the “BASF Group global goals on specific GHG emission reduction and energy efficiency.”
So at least for top executives, it looks like it is getting easier — or at least more profitable — to be green.