A few days ago, ISS released the following three new FAQs to its “Equity Plan Scorecard FAQs” (so there were 20 FAQs before; now there are 23):
FAQ #11: Are there additional factors that could result in a recommendation on an equity plan proposal that differs from the EPSC “score” recommendation, including proposals with “bundled” amendments?
Yes. Plans that seek approval solely to qualify awards as tax deductible compensation under Internal Revenue Code Section 162(m), for example, will generally receive a positive recommendation as long as all members of the plan’s administrating committee are determined to be independent directors, per ISS’ standards. In addition, plans being amended without a request for additional shares or another modification deemed to increase potential cost (e.g., extension of the plan term) may receive a recommendation based on the overall impact of the amendments regardless of the EPSC score – i.e., whether they are deemed, on balance, to be beneficial or detrimental to shareholders’ interests.
FAQ #22: How will ISS assess a plan’s minimum vesting requirement for EPSC purposes?
In order to receive EPSC points for a minimum vesting requirement, the plan should mandate a vesting period of at least one year which should apply to no less than 95 percent of the shares authorized for grant.
FAQ #23: How does the treatment of performance-based awards affect determination of whether a plan provides for automatic single-trigger accelerated vesting upon a change in control?
ISS will deem performance-based awards as being subject to automatic accelerated vesting upon a CIC, unless (1) the amount considered payable/vested is linked to the degree of performance attainment as of the CIC date, and/or (2) the amount to be paid/vested is pro-rated based on the time elapsed in the performance period as of the CIC date.
Here’s news from this Davis Polk blog by Ning Chiu & Betty Moy Huber:
BlackRock has revised its U.S. proxy voting guidelines, following their annual review of governance and proxy voting trends. The guidelines are not expected to result in significant differences from how BlackRock has voted in the past.
As expected, board composition is very much an issue of investor focus. BlackRock encourages boards to disclose their views on the director skill sets they view as necessary to effectively oversee management; the process for identifying candidates and whether sources outside of the incumbent directors’ networks have been engaged; the board evaluation process and its significant outcomes, if appropriate and without divulging sensitive information; considerations of diversity in terms of gender, race, age, experience and skills; and any other factors considered in the nomination process. BlackRock is not opposed in principle to long-tenured directors, while also supporting regular board refreshment.
In making decisions on director elections, BlackRock will take into account director tenure, diversity, board evaluation and the relevance of directors’ experience. The independent chair or lead director, members of the nominating committee and/or the longest tenured directors may be held accountable when there are concerns about board composition. The guidelines also specify the expectation for the roles of a lead director as an alternative to an independent chair, including the ability to have formal input into board meeting agendas; call meetings of the independent directors; and preside at meetings of independent directors.
With respect to say on pay, BlackRock encourages direct discussion with issuers, in particular with members of the compensation committee. If engagement is not expected to resolve their concerns about executive compensation, they may hold directors accountable. As a result, the guidelines note that “our Say on Pay vote is likely to correspond with our vote on the directors who are compensation committee members responsible for making compensation decisions.”
BlackRock may also vote against directors if there are concerns that a company is not dealing with social, ethical and environmental issues appropriately, and may support shareholder proposals in these areas if there seems to be a “significant potential threat or realized harm to shareholders’ interests caused by poor management” on these matters.
In its quarterly report dated December 2014, the firm provides several examples of issuer engagement and summarized discussions with companies (without names) for illustrative purposes. Companies that intend to discuss issues with BlackRock may find it useful to understand the wide range of topics that may be on the agenda, including those pertaining to areas of independent directors, tenure and board refreshment, responses to activism and risk mitigation.
Early Bird Rates – Act by April 24th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 24th to take advantage of the 33% discount.
Today, he acknowledges making mistakes. He was too invested in the game: In just his last four years at Tyco, he made more than $300 million, according to regulatory filings. “I’d go to Harvard Business School and get a standing ovation when I was introduced as the highest-paid C.E.O. in the country,” he recalled.
Over the years, Chesapeake Energy has been in the news over its CEO pay practices for its outlandish CEO Aubrey McClendon (for example, see this blog). Now, according to this Reuters article, McClendon has left – but the company has sued the former CEO for stealing ‘trade secrets’ to start a new firm…
This new 38-page report from Equilar & RR Donnelley entitled “2015 Innovations in CD&A Design” may help those putting the finishing touches on their proxy statement…
Last month, the Financial Accounting Standards Board adopted a change in its rules regarding company financial statement presentation that will require companies to review their grants of performance-based compensation.
The FASB change to Generally Accepted Accounting Principles would simplify the income statement presentation requirements in Subtopic 225-20 (“Income Statement — Extraordinary and Unusual Items”) by eliminating the concept of extraordinary items and replacing it with a new standard. Before this change, extraordinary items were defined as events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Once the change is effective, companies would instead disclose items that are either of an unusual nature or of a type that indicates infrequency of occurrence as a separate component of income from continuing operations.
While this change might seem esoteric and of interest only to accountants, some housekeeping may be in order for compensation plans or grants that would exclude the effect of extraordinary items under the existing standard. In the short term, companies making multi-year performance grants in early 2015 should take the time to understand the impact of this change because it can relate both to how performance is measured and tax deductibility under Code Section 162(m). The FASB amendment is effective for fiscal years beginning after December 15, 2015, although companies may apply the amendments retrospectively to prior periods. Performance periods straddling this effective date would be affected.
An analysis of ISS Governance QuickScore data finds: 54.3% of Russell 3000 companies have a policy prohibiting hedging of company shares by employees, while 84% of large capital S&P500 companies have such a policy. Executive or director pledging of company shares was prevalent at just 14.2% of Russell 3000 companies, and, notably, 15.8% of S&P500 companies.
In reaction to the SEC’s hedging & pledging policy disclosure proposal last week, I received this nifty chart on possible approaches from one in-house member – as well as this note below:
From where I sit, companies would do a disservice to themselves – and their stockholders – by adopting a blanket “one-size-fits-all” rule with regard to hedging of company securities. Instead, I believe we should consider different policy decisions on how we view hedging with regard to (i) outstanding equity awards v. shares owned outright and (ii) rank-and-file employees v. directors and officers. Also, even though the proposed rules are focused on hedging activity, I believe that companies should re-visit their pledging policies because they raise similar issues. See my attached snapshot summary.
Check out this new free app for iPhone and iPad – Stock Compensation Glossary – from myStockOptions.com. It’s available from The App Store and iTunes. It’s a glossary in the form of a searchable reference guide that defines almost 1000 terms in the areas of equity compensation and executive compensation, along with the related taxation, corporate accounting, and securities law. An Android version is available to be downloaded from Google Playstore too…