July 5, 2012
– Broc Romanek, CompensationStandards.com
Recently, I blogged about the UK’s march towards binding say-on-pay. Now, as described in this Davis Polk blog, the UK has published a consultation paper focusing on the content of remuneration reports of UK-incorporated quoted companies that would disclose the compensation of directors, including executive directors. Read the blog for more…
June 28, 2012
– Broc Romanek, CompensationStandards.com
Just in time to be discussed during today’s webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures ” – the SEC’s new compensation committee/advisor release was published yesterday in the Federal Register. This starts the clock ticking as the stock exchanges now have 90 days to propose their own rules (and then a year to finalize the standards with approval from the SEC). I expect the exchange’s proposals will come sooner than the maximum 90 days.
As has been touched on in some firm memos – and as will be discussed during today’s webcast – there are some open interpretive issues in the wake of the SEC’s rulemaking, particularly when dealing with compensation advisors. For example, what it means to “receive counsel” or a possible expansive interpretation of what it means to “select” other advisers. This was an aspect that was not clear in the SEC’s proposal. In the ABA’s comment letter, this point was specifically raised as follows:
“To implement the statutory language, we believe that the final rules should clarify that Proposed Rule 10C-1(b)(4) is intended to apply only to legal counsel and other advisers “selected,” that is, separately and specifically retained by the compensation committee. We believe the statutory language does not support a more expansive approach to this provision, and that the Commission should not seek to expand the scope of the provision in a manner that would interfere with a compensation committee’s routine operation by requiring a committee to consider the specified independence-related factors before consulting with or obtaining advice from in-house counsel or outside counsel retained by the management…. For different reasons, we also believe that the requirement for an independence assessment should not apply to compensation consultants who are retained by management even if that consultant’s advice is presented to and considered by the compensation committee. Performing an independence assessment where compensation consultants, legal counsel or other advisors do not purport to be and are not held out as independent would be a time-consuming and unnecessary exercise.”
Another ambiguous aspect of the rulemaking is that it’s not on its face limited to advisers that deal with executive and director compensation, but to any advisor that the committee has. More to come…
June 27, 2012
– Broc Romanek, CompensationStandards.com
Tune in tomorrow for the webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures ” – to hear Mark Borges of Compensia, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn analyze what was (and what was not) disclosed this proxy season – as well as how the SEC’s new compensation committee and compensation advisor rules impact you.
June 26, 2012
– Broc Romanek, CompensationStandards.com
Recently, I blogged about the UK moving closer to a binding say-on-pay framework – and I have posted memos on this development in our “International” Practice Area. Also note this Reuters article entitled “Long “shareholder spring” seen harming UK firms.”
In response, I got queries from members confused about how the UK framework works now – and in our countries that have say-on-pay. Cristina Ungureanu helps us by noting that this confusion may be caused by two aspects:
– Particularities of the corporate governance / board models in various EU jurisdictions (one-tier, two-tier, mixed models).
– Differentiating between vote on the remuneration report and vote on the remuneration policy
Here are the existing frameworks in other countries:
– United Kingdom: The vote is on the entirety of the remuneration report, covering both retrospective payments and policy, as well as future remuneration policy. The remuneration voted on is therefore applicable to the entire board, which includes executive and non-executive directors (in the UK, the board has a one-tier structure).
– Nordic Countries: The Nordic corporate governance structure lies between the Anglo-Saxon one-tier and the continental European two-tier model. Further, a separation between the board and executive management is required. The same person cannot be CEO and chairman of the board. Hence, the great majority of the Nordic listed companies have entirely or predominantly non-executive boards. The AGM must decide on the fees and other remuneration for each director of the board. The nomination/remuneration committee makes the remuneration recommendations, which are then presented in the notice of the AGM. As to the executive committee members, the Board must present proposed guidelines for their remuneration to the AGM for its approval; therefore the vote on executive pay is on the future remuneration policy.
And here is news about governance developments in Asia, courtesy of Towers Watson.
June 25, 2012
– Broc Romanek, CompensationStandards.com
I’ve added 5 more companies to our failed say-on-pay list for 2012. We are now at 54 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
For this year’s pre-season poll predicting how many say-on-pay failures there would be, the results were as follows: Less than 10 failures – 5%; 11-20 failures – 13%; 21-30 failures – 24%; 31-40 failures – 20%; 41-50 failures – 17%; 50-99 failures – 24% and more than 100 failures – 24%. So once again, perhaps I predicted too few failures myself in designing the poll. But a hardy 24% predicted correctly…
June 22, 2012
– Broc Romanek, CompensationStandards.com
Two days ago, the UK took another step closer to mandating binding say-on-pay when Business Secretary Vince Cable presented a bill to Parliament mandating binding say-on-pay for consideration. Here is a page with information on the “Enterprise and Regulatory Reform Bill.”
As I understand it, it looks very likely that the bill will pass and perhaps be law by October of 2013. There would actually be three types of say-on-pay votes:
– Review of past compensation – non-binding and annual
– Prospective review on compensation policy – binding and would happen every three years so long as the company’s pay policy hadn’t changed; if it had changed, would happen annually
– Share plans – binding
The biggest debate is over the annual advisory vote – which is backward looking – and supermajority vote thresholds. This Manifest blog captures some of the debate. I’ll be blogging more on this as I figure it out.
What will happen now is that amendments to the Enterprise Bill are introduced in the House of Commons for debate. It then goes to committee and then to the upper chamber, the House of Lords, which then has their debate and committee and then if all is well, it is passed into law (unlike Congress, no riders or changes can be snuck in – only the bill that has been debated can pass). The Financial Reporting Council – which is a separate body and which looks after the UK Governance Code – will then do its own consultation regarding amendments to the UK Governance Code to ensure that the Law, as it applies to UK incorporated companies, will apply to listed companies. Thanks to Sarah Wilson of Manifest for helping to explain the UK process!
June 21, 2012
– Broc Romanek, CompensationStandards.com
Yesterday, the SEC finally adopted rules that direct the stock exchanges to adopt listing standards for compensation committees and compensation advisers under Section 952 of Dodd-Frank (Section 952 added Section 10C to the ’34 Act). The Commission adopted the rules by seriatim.
The stock exchanges have 90 days from when the SEC’s rules are published in the Federal Register to propose listing standards (and they have one year to finalize them). As noted in Mark Borges’ blog, if the exchanges and the SEC move quickly, it’s possible that the listing standards could be in place in time for the 2013 proxy season. In any event, there will be at least one new disclosure requirement in place for the 2013 proxy season – the adopting release provides that companies must comply with the disclosure changes in Item 407 of Regulation S-K in any proxy statement for a regular annual meeting occurring on or after January 1, 2013. This Item 407 change requires disclosure of an assessment of whether any work performed by a compensation consultant raises any conflict of interest (and if so to disclose the nature of the conflict and how it was addressed).
As Mike Melbinger’s blog notes, the SEC’s rules confirm that Section 10C does not require compensation committees to retain – or obtain advice – only from independent advisers. A listed issuer’s compensation committee may receive advice from non-independent counsel, such as in-house counsel or outside counsel retained by management, or from a non-independent compensation consultant or other adviser, including those engaged by management.
Here is the adopting release – and the press release. We will be posting memos in our “Compensation Committee” Practice Area. There are none out yet, but yet all three of our CompensationStandards.com blogs have spoken on this development…
Tune in next Thursday, June 28th, for the webcast – “Proxy Season Post-Mortem: The Latest Compensation Disclosures” – to hear Mark Borges, Dave Lynn and Ron Mueller analyze what was (and what was not) disclosed this proxy season as well as discuss these new rules.
June 20, 2012
– Broc Romanek, CompensationStandards.com
On Monday, Monolithic Power Systems announced the dismissal of its say-on-pay lawsuit. We haven’t heard much about this year’s crop of say-on-pay lawsuits, probably because it’s a little early and the plaintiffs haven’t fared too well so far in last year’s suits. Mark Poerio of Paul Hastings has maintained this chart of suits (and we have our own list) – here is something that Mark blogged about a Texas lawsuit:
Copycat “Failed” Say on Pay Class Action – Helix Energy Hit
Will Texas provide a friendlier forum than Delaware for the latest complaint that second-guesses executive compensation decisions by reference to a later say on pay vote? The complaint against Helix Energy begins with the usual refrain: “This is a ‘failed’ say on pay shareholder derivative action, arising from the Board’s unwarranted and excessive spending … on executive compensation.” Within the same paragraph, the complaint contorts applicable corporate law by intimating that the business judgment rule is violated where a majority of shareholders disagree with a board decision (see complaint ¶3: “A majority of the Company’s stockholders agree; they rejected the Board’s business judgement by voting …”).
June 19, 2012
– Broc Romanek, CompensationStandards.com
We have posted our Spring 2012 issue of Compensation Standards – thanks to Mark Borges! – that is a 62-page recap of how proxy disclosure went this past proxy season. Tune in next Thursday, June 28th to catch our webcast featuring Mark, Dave Lynn and Ron Mueller entitled: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”
June 18, 2012
– Stephen O’Byrne, Shareholder Value Advisors
I’ve done a revision of my paper on the ISS pay for performance model. Here is one aspect of it that you might find very interesting: I argue that ISS should give examples of pay programs that provide perfect pay for performance and then I show that a simple pay program with annual grants of performance stock will provide perfect pay for performance over a multi-year period if it has two critical features: (1) the target opportunity (or grant date stock value) is based on market pay adjusted for relative performance since the start of the multi-year period and (2) the stock vesting multiple is tied inversely to peer group performance since the date of grant. By modifying this perfect pay for performance program, companies can quantify the impact of program features that reduce pay for performance, e.g., paying market without regard to prior performance, having non-performance pay, using other vesting measures, etc.