The Advisors' Blog

– Broc Romanek, CompensationStandards.com

We have posted the transcript for the recent webcast: “Executive Pay Basics: The In-House Perspective.” This was a tremendous program – perfect for anyone who needs some comfort if they are relatively new to being in-house or isn’t very well steeped in a wide scope of pay issues…

– Broc Romanek, CompensationStandards.com

Perhaps as a reaction to the SEC’s SLB 20 – or Commissioner Gallagher’s continuing war of words against the current state of proxy advisors – yesterday, ISS announced the upcoming launch of a new “data verification portal” for equity-based compensation plans up for shareholder approval. ISS also released a set of 19 FAQs to help explain this new portal (pet peeve: if you create a set of FAQs, please number them).

Here are 10 things to know:

1. Portal officially launches September 8th
2. Data verification only for equity comp plan approval (in other words, this is different than what S&P 500 companies now enjoy for their entire ballot; see FAQ #14)
3. All US companies can participate
4. Companies have to register for the portal before they can use it (do so soon since it takes 5-7 business days for ISS to process and you might forget if you procrastinate)
5. Only companies can use the portal; not their advisors
6. Can’t verify data until after proxy statement is filed with the SEC
7. After proxy filed, ISS will send an alert saying the data verification window is open (alert will come roughly within 12 business days after the proxy filing)
8. Once alert is sent, companies only have 2 business days to verify the data and request changes. Repeat: just two business days!
9. ISS will send responses to request for changes within 5 business days of the request
10. Review list of 27 questions in Appendix A of the FAQs to comprehend what ISS is looking for in equity comp plans

– Broc Romanek, CompensationStandards.com

Last week, CII sent this letter to Corp Fin Director Keith Higgins providing recommendations on the implementation of Section 953(a) of Dodd Frank. The letter provides these recommendations:

– Do not make changes to the existing Summary Compensation Table.
– Provide a graphic representation of pay for performance for the CEO individually and the named executive officers in the aggregate.
– Provide, at a minimum, a five-year comparison of executive compensation to performance.
– The required disclosure, at a minimum, should compare executive compensation to total shareholder return.
– Disclosure about executive compensation actually paid should not exclude any components of pay.

Also see the new comment letter from the AFL-CIO on this topic. It was the first comment letter posted regarding the 3 rulemakings the executive pay area that have not yet been proposed in 10 months. Here’s all of those comment letters…

– Broc Romanek, CompensationStandards.com

As always happens this time of year, our Conference Hotel – the Las Vegas Mandalay Bay Hotel – is nearly sold out. Our block of rooms is indeed sold out – but there are still rooms outside our block available at essentially the same rate. Reserve a room now by calling 877.632.9001 (so no need to mention our conference at this time). If you have any difficulty securing a room, please contact us at 925.685.9271.

And if you haven’t registered for the conference, register now. If you really want to go, but you’re having budget issues – drop me a line…

– Broc Romanek, CompensationStandards.com

As noted in this blog by Manifest, “the Shareholder Spring has clearly had an effect on remuneration committee thinking. This has been galvanized by regulatory intervention to reinforce investors actions. However, the single figure “accounting for pay” approach has created more uncertainty for shareholders.” This is among the information provided in the blog:

– Shareholder Spring effect has reduced CEO pay awards by 7%, following a 5% reduction in the previous year.
– Regulatory intervention has had a galvanizing effect. Vince Cable’s efforts and threats of further legislation have helped in the reduction in CEO pay.
– The accounting-based ‘Single Figure’ of total remuneration is not a true and fair view of pay. It dramatically understates the real amounts of remuneration that will be earned and should be revised.

The latest survey hows that top pay awards have reduced for two consecutive years: by -7% in 2013 and -5% in 2012. The findings are from research and analysis of the latest annual reports of FTSE100 companies.

– Broc Romanek, CompensationStandards.com

As noted in this Gibson Dunn blog and this Towers Watson blog, ISS has opened its annual survey ahead of updating its policies. The survey closes on August 29th – and then the results are released a few weeks later. Then there’s an open 30-day comment period in October – with the final policy updates arriving sometime in November typically. The entire policy process is described on ISS’ website..

– Broc Romanek, CompensationStandards.com

Here’s a blog from Allen Matkins’ Keith Bishop:

Since 1969, there has no question that directors of a Delaware corporation have the authority to set their own compensation. 8 DGCL § 141(h). Having authority to do something, however, doesn’t mean that the use of that authority won’t be challenged, as was illustrated by newly appointed Chancellor Andre G. Bouchard’s ruling last month in Cambridge Ret. Sys. v. Bosnjak, 2014 Del. Ch. LEXIS 107 (Del. Ch. June 26, 2014). Some plaintiffs’ firms may view these challenges as tempting because the Delaware Supreme Court has held:

Like any other interested transaction, directoral self-compensation decisions lie outside the business judgment rule’s presumptive protection, so that, where properly challenged, the receipt of self-determined benefits is subject to an affirmative showing that the compensation arrangements are fair to the corporation.

Telxon Corp. v. Meyerson, 802 A.2d 257, 265 (Del. 2002) (citing Hall v. John S. Isaacs & Sons Farms, Inc., 37 Del. Ch. 530, 146 A.2d 602, 610-11 (Del. Ch. 1958), aff’d in part, 39 Del. Ch. 244, 163 A.2d 288 (Del. 1960); Meiselman v. Eberstadt, 39 Del. Ch. 563, 170 A.2d 720 (Del. Ch. 1961); Wilderman v. Wilderman, 315 A.2d 610 (Del. Ch. 1974)). In fact, Chancellor Bouchard cited this holding to find in Cambridge Ret. Sys. that it would be the “defendants’ burden to demonstrate the fairness of the cash compensation paid to the outside directors.”

This jurisprudence contrasts with Nevada’s statute which actually presumes fairness and places the burden on person challenging the fairness:

Unless otherwise provided in the articles of incorporation or the bylaws, the board of directors, without regard to personal interest, may establish the compensation of directors for services in any capacity. If the board of directors establishes the compensation of directors pursuant to this subsection, such compensation is presumed to be fair to the corporation unless proven unfair by a preponderance of the evidence.

While somewhat obscure, the phrase “without regard to personal interest” was added to the statute in 1997. The legislative history indicates that the change “allows even interested directors to vote on their compensation.” Minutes of the Senate Committee on Judiciary, April 22, 1997.

– Broc Romanek, CompensationStandards.com

As the 2014 proxy season comes to a close, ISS Voting Analytics has taken an in-depth look into key statistics for shareholder voting. Some of the most interesting stats include (these stats came from a report you have to pay for):

– Say-on-pay proposals at a record high of 2,229, a 14.4% jump in the volume of advisory pay votes from 1,948 in 2013
– Average support level for the 2014 say-on-pay proposals at a record 91.7% of votes cast, up slightly from 91.5% in 2013
– Only 51 of the 2,229 proposals failed to win majority backing. The majority of the 51 that failed did so for the first time. However, 14 failed at least once in the past, with 11 of those failing in 2013. One company failed for a third year in a row, while 2 others failed four years in a row.

The global average for shareholder support on say-on-pay is on par with that of the US, standing at 91.7% for the 2014 proxy season. The highest levels of 2014 support for say-on-pay support by country, as tracked by ISS Voting Analytics, are:

– Norway, 96.3%
– Italy, 95.6%
– Ireland, 95.0%

The lowest are:
– Bermuda, 82.3%
– Switzerland, 87.6%
– Belgium, 88.6%

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from the latest by Semler Brossy:

We have collected Say on Pay vote results for 84 additional Russell 3000 companies, bringing our total to 2,207. The average vote result for all companies in 2014 is 91%. Five additional companies failed since last week’s report; 53 companies (2.4%) have failed so far this year. Of companies with four years of Say on Pay votes, 1,511 (92.0%) have passed all four years, 109 (6.6%) have passed in three years and failed in one year, 17 companies (1.0%) have passed in two years and failed in two years, three companies (0.2%) have passed in one year and failed in three years, and two companies (0.1%) have failed all four years. Proxy advisory firm ISS is recommending ‘against’ Say on Pay proposals at 13% of companies in 2014.

– Broc Romanek, CompensationStandards.com

Here’s a summary of this Arnold & Porter memo:

Under Delaware’s corporate benefit doctrine, a stockholder who presents a meritorious claim to a board of directors may be entitled to attorneys’ fees if the stockholder’s efforts result in the conferring of a corporate benefit. On June 20, 2014, the Delaware Chancery Court considered in Raul v. Astoria Financial Corporation whether attorneys’ fees are warranted under this doctrine when a stockholder identifies potential deficiencies in executive compensation disclosures required by the SEC pursuant to the Dodd-Frank Act “say on pay“ provisions. The court held that the alleged omissions at issue failed to demonstrate any breach of the Board of Directors’ fiduciary duties under Delaware law and accordingly the Plaintiff did not present a meritorious demand to the Board. This decision makes clear that the courts will not shift fees to a stockholder (and the stockholder’s law firm) who “has simply done the company a good turn by bringing to the attention of the board an action that it ultimately decides to take.”