The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s a 2-minute video about the 19 great ways that Freeport-McMoRan enhances the usability of its 2014 proxy statement:

– Broc Romanek, CompensationStandards.com

As a follow-up to yesterday’s blog, Mercer’s Mark Lindemann and Judi Olstein note that there have been 24 companies that have failed to garner a majority vote this year. That’s roughly the same pace of failures as last year. Here is the list of the 24:

Biglari Holdings
BroadSoft, Inc.
CBL & Associates Properties
Cogent Communications
CSP Inc.
Chipotle Mexican Grill, Inc.
Cynosure, Inc.
CYS Investments, Inc.
Expeditors Int’l of Washington
Everest Re Group, Ltd.
FirstMerit Corporation
Forest Oil Corporation
Genpact Limited
Hologic, Inc.
Mack-Cali Realty Corporation
PacWest Bancorp
Patriot Scientific
Rovi Tecgnologies
Sensient Technologies
TCF Financial
VCA Antech
Whiting Petroleum Corporation
Titan International, Inc.
TRW Automotive Holdings

– Broc Romanek, CompensationStandards.com

I’ve slipped a little in keeping up with the say-on-pay failures this year. Here is the latest news, courtesy of Semler Brossy (this info will be posted soon on their Say-on-Pay page):

– 1154 companies have held their annual meetings so far (today is “peak” day as I blogged about)
– 7 additional companies have failed this week, Chipotle Mexican Grill, Cynosure, CYS Investments, Everest Re Group, Mack-Cali Realty, Titan International, and TRW Automotive; 21 companies (1.8%) have failed so far in 2014
– Average vote result for all companies in 2014 is 92%
– ISS has recommended against 12% of companies it has evaluated in 2014
– So far in 2014, 30 companies have filed a response to proxy advisors in a letter filed as additional soliciting material

– Broc Romanek, CompensationStandards.com

This piece from “The Economic Times” written by the Chair and CEO of PepsiCo India is worth reading…

– Broc Romanek, CompensationStandards.com

Here’s news from this blog by McGuireWoods’ William Tysse:

Some companies think a high TSR is a panacea against negative say-on-pay votes, but the Chipotle 2014 say-on-pay vote proves otherwise. Despite 1, 3 and 5-year TSRs in the 83rd, 77th and 95th percentiles as compared to peers, over 75% of Chipotle’s shareholders voted against the say-on-pay proposal.

Although shareholder unrest appears to have existed quite apart from ISS, it’s interesting to think about how ISS arrived at its “no” vote recommendation, given Chipotle’s high TSR. Of the 3 quantitative “gating” factors used by ISS to screen company say-on-pay proposals, the only one that doesn’t take TSR into account is the multiple of CEO pay as compared to peer median. From ISS’s public statements, it appears that Chipotle’s multiple of 3.4 was indeed considered too high by ISS and a main factor in ISS’s “no” vote recommendation for Chipotle. Other, qualitative factors–such as top executives cashing out of their option positions shortly after exercising–are also cited by ISS, but of course ISS is only supposed to consider qualitative factors if one of the quantitative “gating” factors demonstrates a pay misalignment. Behind the scenes, the near 20% drop in Chipotle’s share price in the months leading up to the annual shareholder meeting may have contributed as well.

– Broc Romanek, CompensationStandards.com

As noted in this blog by Pearl Meyer & Partners, WomenCorporateDirectors recently issued this report – “Going Beyond Best Practices: The Role of the Board in Effectively Motivating and Rewarding Executives” – which is intended to move the discussion beyond the theoretical and provide practical, actionable recommendations for directors. The blog includes this 4-minute video about the report:

– Broc Romanek, CompensationStandards.com

Here’s a blog by Davis Polk’s Ning Chiu:

The most common trigger for clawback of compensation is the occurrence of a restatement of financial results, according to a PwC study of 100 large public companies’ proxy disclosure from 2009 to 2012. Evidence that the employee was directly involved in conduct that led to the restatement was required under 73% of those policies, and in many cases, the restatement needed to be material or the amount recouped was limited to the excess of the amount paid due to the restatement.

Personal misconduct, including violation of a company’s ethics policy or code of conduct, may also lead to clawbacks at 84% of companies. Other disclosed triggers include committing fraud, misrepresenting performance results, negligence or lack of oversight over subordinates and violations of non-compete or non-solicitation agreements. Financial firms were most likely to adopt recoupment policies that also focused on excessive risk-taking.

The vast majority (86%) applied possible recovery efforts to both cash and stock awards, while 7% covered only cash and the remaining 7% included only equity awards. 90% of companies disregarded whether or not awards had vested, and 42% discussed look-back periods of one to three years, while 17% expressly indicated no limitation on the length of the look-back.

74% of policies retain the discretion to apply the policies on a case-by-case basis only after a triggering event, rather than permitting boards and compensation committees the flexibility to determine whether such an event occurred in the first instance. 14% appear to be mandatory and the remainder permitted both depending on the basis for the recoupment. The study warned that the accounting impact of providing for discretion is complex, since an ability to exercise any discretion on whether a clawback has been triggered and the amount recouped may result in an assessment that the agreement’s key terms and conditions have not been established, causing an award to be marked-to-market, a result to be avoided.

In addition, while fairly standard clawback features do not impact the accounting of equity awards, as accounting recognition would only be needed at the time of recoupment, new types of clawbacks, for example those that add performance metrics affecting vesting or retention, may inadvertently cause those features to represent performance conditions instead of being considered clawbacks. This would significantly affect the accounting of awards.

– Broc Romanek, CompensationStandards.com

For the 4th year in a row, ExxonMobil has put together a 12-page “executive compensation overview” that supplements its proxy statement, as noted in this 80-second video:

– Broc Romanek, CompensationStandards.com

In his blog, McGuireWoods’ Steven Kittrell reports that the IRS announced last week that it has selected 50 companies to get a special 409A audit (also see this Groom memo). The lucky winners have already won the audit lottery by being selected for an employment tax audit. In the 409A component, the IRS auditors will be looking at:

– initial deferral elections;
-subsequent deferral elections; and
– payments, including the six-month delay for specified employees.

The inclusion of the six-month delay indicates that all of the recipients of this IRS 409A review will be public companies. The focus will be on the top 10 highest compensated employees.

– Broc Romanek, CompensationStandards.com

Here’s a note from Cleary Gottlieb:

Companies with securities listed on NASDAQ must file a one-time certification of compliance in regard to the amended compensation committee listing rules as provided in Rule 5605(d) and IM-5605-6 within 30 calendar days following the earlier of the issuer’s first annual meeting occurring after January 15, 2014, or October 31, 2014. We note that, while the certification form contemplates that all companies are required to file, according to the frequently asked questions posted by, and informal conversations with, NASDAQ Listing Qualifications Staff, the following issuers are not required to submit the certification: asset-backed issuers and other passive-issuers, cooperatives, limited partnerships, management investment companies and controlled companies. (Such issuers may wish to confirm this point with their own listing analysts.)

However, all other companies, including foreign private issuers, must submit the certification electronically through the NASDAQ OMX Listing Center by the applicable deadline. In order to help gather the information necessary to complete the form, NASDAQ has posted the certification form in preview mode on its website. Calendar year companies take note, the deadline is (or will soon be) looming!