Here is another set of Section 162(m) lawsuits, as noted in the Bloomberg article below (and here’s the latest from Davis Polk on say-on-pay lawsuits):
Caterpillar Inc. (CAT), the world’s largest maker of construction and mining machines, was sued by investors who allege directors wasted corporate assets by not ensuring that executive-incentive plans were tax-deductible. Board members also wrongly enriched themselves by taking compensation that couldn’t be deducted, and the company made insufficient disclosures to stockholders, lawyers for a Philadelphia asbestos workers’ pension fund and the Lansing, Michigan, Police and Fire Retirement System said in two lawsuits filed yesterday in federal court in Wilmington, Delaware.
“There is no reason not to implement compliant compensation plans” that save the Peoria, Illinois-based company tax money, the investors contend in court papers. The investors ask for a jury trial and an order that recipients return wrongly obtained compensation to the company.
Caterpillar, with $60.1 billion in sales last year, said last week it opened a new diesel-excavator factory in Victoria, Texas, and will sell the machinery in the U.S., Mexico and South America. The pension funds also challenged in the lawsuit the cash value, including stock options, senior officials could potentially receive — as much as $87.2 million each under a long-term incentive plan. “This astronomical number, if it is a true maximum, shocks the conscience as to the amount of corporate waste the board may commit,” plaintiffs’ lawyers said in court documents.
“Our normal practice is to not discuss pending litigation,” Jim Dugan, a Caterpillar spokesman who hadn’t seen the complaints, said in an e-mailed message.
The cases are City of Lansing Police and Fire Retirement System v. Caterpillar, 12cv1076, and Asbestos Workers Philadelphia Pension Fund v. Caterpillar, 12cv1077, U.S. District Court, District of Delaware (Wilmington).
Learn about Corp Fin’s new approach to reporting equity awards in the Summary Compensation Table and the Director Compensation Table when it comes to complex equity award structures in the Summer issue of our Compensation Standards newsletter.
And learn more about this – and many more topics over 13 panels – during our upcoming “7th Annual Proxy Disclosure Conference,” which is only five weeks away. We are happy to report that the New Orleans conference hotel made it through Hurricane Issac just fine. But the city needs your support since tourism is the lifeblood of the city. If you can’t make it, you can always catch the conference by video. Register Now!
Last week, a big deal was made of Deutsche Bank being the first global bank to implement clawbacks for bankers that enable it to take back unvested shares that newly hired senior staff received in exchange for stock earned at another job. Here’s some articles:
As Jim Hamilton recently noted in his blog, “a growing consensus among federal courts that, under Delaware law, a negative shareholder say-on-pay vote does not rebut the business judgment rule presumption normally accorded to a company’s board of directors.”
On July 13th, a federal judge in the Northern District of Illinois, ruled as such on the basis of Delaware law (Gordon v. Goodyear, ND Ill., No. 12 C 369, July 13, 2012). In the derivative suit, involving Navigant, the judge noted that the plain language of Dodd-Frank, which requires the shareholder vote on pay, “makes clear that the shareholders vote is non-binding on the corporation and that it does not create or imply any change in the board members’ fiduciary duties.”
I’ve added two more companies to our failed say-on-pay list for 2012 as Applied Micro Circuits and Iconix Brand Group have failed during the past week or so. We are now at 57 companies in ’12 that have failed to garner major support. Hat tip to Karla Bos of ING Funds for keeping me updated.
Ahead of our panel – “How to Work with the Proxy Advisors: Navigating the Say-on-Pay Minefield” – during our “Say-on-Pay Workshop: 9th Annual Executive Compensation Conference” on October 9th, Pearl Meyer & Ptrs is conducting this brief survey about your experience with proxy advisors during the past year. Please participate.
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As noted in these memos posted in our “Airplane Use” Practice Area, the IRS has finally issued final regs concerning the deductibility of expenses associated with personal use of corporate aircraft – which may have implications for executive compensation disclosures, as well as for those who must apply the rules to prepare federal income tax returns.
At some point in the near future, we predict that executive medical benefits will be the next perk destined for the dust bin. Under the healthcare reform law (PPACA), the IRS is to issue rules implementing nondiscrimination requirements for insured medical plans. The IRS is virtually certain to apply those new rules to self-insured plans too. While there is much debate about the exact scope that the nondiscrimination rules will take, it is hard to see how health insurance that covers only senior executive will be a viable option from an economic standpoint. There will either be a penalty on the company (insured plans) or a significant tax hit on the executive (self-insured plans).
The final blow may be the proxy disclosure consequences of the penalty. If a company incurs a penalty to provide special health insurance to named executive officers, that penalty would be part of the company’s aggregate incremental cost for the perk. That could lead to footnote disclosure of the amount of the penalty as part of the methodology for computing the aggregate incremental cost of the executive health insurance. Disclosing both the cost of executive medical insurance and a penalty for a discriminatory plan may be too much for many companies to swallow.
This recent article from “The Telegraph” spells out potential reforms by Barclays for its bonus arrangements. Here is an excerpt: “Barclays is planning radical bonus reforms that could see staff having to wait until they retire to collect their awards, as the bank tries to overhaul its culture.”