Mark Poerio of Paul Hastings reports: Last week, the application of Delaware law principles has led courts in Colorado (Janus Capital), North Carolina (Dex One), and California (Hewlett-Packard) to dismiss shareholder challenges based on alleged disconnects between pay and performance, failed say-on-pay votes, and alleged waste through payment of $53 million of severance. In each case, the underlying complaints failed to excuse a pre-suit demand because none of the allegations created a reasonable doubt that the questioned transaction was entitled to protection under the business judgment rule.
Here’s news from Kyoko Takahashi Lin and Ning Chiu in this Davis Polk blog:
The NYSE has published an updated rule filing submitted to the SEC on the recent proposed listing standards related to compensation committees. The rule filing notes that “Amendment No. 1 corrects a single error in the rule text in Exhibit 5 as originally filed. The error was in Section 303A.00 under the heading ‘Transition Periods for Compensation Committee Requirements.'”
To be clear, listed companies will have until the earlier of their first annual meeting after January 15, 2014, or October 31, 2014, to comply with the new director independence standards with respect to compensation committees. Other proposed changes, including those related to compensation committee advisers, will become operative on July 1, 2013.
For the many of you that have registered for our Conferences coming up in less than one week, we have posted the Course Materials (attendees received a special ID/PW yesterday via email that will enable you to access them; but copies will be available in New Orleans). The Course Materials are better than ever before – with over 40 sets of talking points comprising 160 pages of practical guidance. We don’t serve typical conference fare (ie. voluminous memos and rule releases); our conference materials consist of practical bullets and examples. Our expert speakers certainly have gone the extra mile this year!
For those seeking CLE credit, here’s a list of states in which credit is available for watching the Conferences live in New Orleans and by video webcast. And for those attending by watching video online, you can test your access now.
Act Now: As happens so often, there is now a mad rush for folks to register for these Conferences that begin next Monday, October 8th. With an aggregate of over 50 panels (including the “20th Annual NASPP Conference”), if these Conferences don’t help get you prepared for the upcoming proxy season, nothing will. You can either register for the three days of the “20th Annual NASPP Conference” (in New Orleans) – or the two days of the “7th Annual Proxy Disclosure Conference” & “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” (in New Orleans or by video webcast, or a combination of both). Register Now.
– Daniel Smith and Michael Chandler, ISS’ Australia & New Zealand Research
The 2012 proxy season marks the second year under Australia’s controversial “two strikes” law. As investors, boards, executives, and the broader public gear up for an intense debate over the appropriateness of executive pay practices in the market, now is a good time to review the legislation and implications of a second strike. The two strikes regime, introduced through the Corporations Amendment (Improving Accountability and Executive Remuneration) Act 2011, went into effect on July 1, 2011. Shareholders should note the following mechanics of the law:
– A company will incur a first “strike” if it records at least 25 percent “against” votes on the resolution to approve the remuneration report at the annual general meeting (AGM).
– If the company receives at least 25 percent “against” votes on the remuneration report at the subsequent AGM, the company will incur a second “strike.”
– If the company records a second “strike,” shareholders must also vote on a “spill resolution” to determine whether a general meeting should be called to consider the election of certain directors on the board (“spill meeting”).
– If 50 percent of votes cast on the “spill resolution” are in favor, then the company must call a spill meeting to be held within 90 days of the second AGM.
– In this case, all directors, aside from the managing director, who were directors at the time “when the resolution to make the directors’ report [which contains the remuneration report] considered at the second AGM was passed” will cease to hold office before the end of the spill meeting, unless the director is reelected at the spill meeting.
– In order to prevent a complete board spill in the event no directors are reelected at the spill meeting, at least three directors will remain on the board after the spill meeting: the managing director, and the two directors who received the highest percentage of “for” votes on their reelection.
Companies that have already recorded a first strike in 2011 are required to detail in the notice of meeting for their 2012 AGM the implications that will arise from losing most board directors. These companies are also required to highlight the degree of uncertainty that results from a spill meeting, irrespective of whether those directors are to be replaced. There are currently 23 companies within the S&P/ASX 300 index that are facing a potential second strike and subsequent board spill meeting in 2012.
With the two strikes law raising the stakes, many shareholders are prepared to put more pressure on boards. According to an August 2012 study jointly conducted by the Melbourne Institute and Global Proxy Solicitation, just over half of respondents indicated that they would be more likely to vote against remuneration proposals if their company had already received a first strike at the 2011 AGM.
Earlier this year, as heat of summer gave way to the cooler air of autumn, a flurry of equity raisings at blue chip companies left a number of Australian investors feeling like they were left blowing in the wind. The tone was set with QBE Insurance’s (QBE) A$450 million placement, completed in February 2012, and reinforced with Bank of Queensland’s (BOQ) A$150 million placement, announced in March 2012. In neither placement were existing shareholders able to participate to avoid dilution to their equity position, and both placements raised shares at a discount to the then-current market price: QBE’s was at 4.9 percent, and BOQ’s was at 17.1 percent.
At the same time, both institutions combined these placements with raisings in which existing shareholders could participate. QBE raised an additional A$150 million through a share purchase plan; BOQ also brought in A$150 million, through a pro-rata entitlement offer. This apparently was not enough to assuage some investors, who believed there was plenty of demand by shareholders already on the company register to meet these institutions’ capital needs.
What You Need to Do Now: These soon-to-be-adopted new rules will be a hot topic during our “7th Annual Proxy Disclosure Conference”” (and the combined “Say-on-Pay Workshop”) coming up in just over a week – October 8-9th in New Orleans and via Live Nationwide Video Webcast. If you haven’t been to our Conferences before, give it a try – particularly this year when New Orleans needs the tourism dollars. Here are the agendas for the combined conferences. Register Now.
Late yesterday, the NYSE proposal – 58 pages – implementing the Rule 10C-1 requirements for compensation committees was posted. Then Nasdaq’s proposal – 97 pages – was posted this morning. We’ll be posting the inevitable slew of memos in CompensationStandards.com’s “Compensation Committees” Practice Area (Mark Borges already has blogged about it).
What You Need to Do Now: These soon-to-be-adopted new rules will be a hot topic during our “7th Annual Proxy Disclosure Conference”” (and the combined “Say-on-Pay Workshop”) coming up in just over a week – October 8-9th in New Orleans and via Live Nationwide Video Webcast. If you haven’t been to our Conferences before, give it a try – particularly this year when New Orleans needs the tourism dollars. Here are the agendas for the combined conferences. Register Now.
The facts alleged in this press release – and complaint – from the SEC against a former executive and director of Systemax is staggering. Greed, greed, greed. And a disclosure violation based on bribes. Here is more from Steven Kittrell’s “Just Compensation” blog:
In the most unusual executive compensation disclosure development of the year, the SEC settled with an executive for a violation of the proxy disclosure rules for his hiding the receipt of bribes. The SEC asserted that the executive’s failure to ensure that the bribes (and his thefts of company property) were disclosed as “all other compensation” in the proxy statement was a violation of the proxy rules. It should be noted that this was only one of seven counts for securities laws violations, including 10b-5 allegations. The executive settled, including agreeing to a fine and a permanent bar from employment as an officer of a public company.
We can all hope never to have to use the knowledge that bribes and stolen property received by a fired executive should be disclosed on the summary compensation table.
And here’s a blog about this case from David Smyth’s “Cady Bar the Door”…
A new study – entitled “Executive Superstars, Peer Groups and Over-Compensation – Cause, Effect and Solution” – examines flawed peer group methodology, finding that CEO pay has become untethered from both broader organizational wage structure and from economic fundamentals due to the use of peer benchmarking. Funded by the IRRC Institute, Professors Charles Elson and Craig Ferrere of the University of Delaware wrote the study. Here’s a NY Times article about the study from yesterday – and here’s the IRRC press release.
This new study makes it clear that peer grouping with minimal board discretion is a seriously flawed methodology even when the peer groups are fairly constructed. The authors note their study is the first to document that peer group benchmarking has accidentally become the de facto standard even though it never was designed to determine CEO compensation.
The fact that most CEOs aren’t transferable is something that we have been saying for a long time (eg. this blog). And we also have been warning compensation committees that if they rely heavily on peer groups – and don’t use alternative benchmarking techniques like internal pay equity instead – they can be in trouble in court since so many have warned that pay has skyrocketed over the past two decades due to peer group benchmarking. In other words, it arguably isn’t reasonable to rely on peer group surveys any more (here’s my latest rant on this topic). Will boards and their advisors finally wake up on this issue? They should before the lawsuits come – because then it will be too late…
I’ve added one more company to our failed say-on-pay list for 2012 as RBC Bearings failed during the past week with less than 30% support. We are now at 58 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
We just wrapped up the Lynn, Borges & Romanek’s “2013 Executive Compensation Disclosure Treatise & Reporting Guide.” For those that want to access it online, it’s now posted on CompensationStandards.com. For those that like a hard copy, it will be finished being printed in a few weeks.
How to Order a Hard-Copy: Remember that a hard copy of the 2013 Treatise is not part of a CompensationStandards.com membership so it must be purchased separately – however, CompensationStandards.com members can obtain a 40% discount by trying a no-risk trial now. This will ensure delivery of this 1200-plus page comprehensive Treatise as soon as it’s done being printed.
And note there an additional 40% off when you purchase this Treatise in combination with the just finished Romanek’s “Proxy Season Disclosure Treatise & Reporting Guide.”