As was recently written in The Corporate Library Blog, the spread of clawback policies is progressing at a snail’s pace, according to our new report. While the number of companies with such policies has increased slightly over the past two years, the overall level of adoption remains low for all the indices studied.
For example, the incidence of clawback provisions in the S&P 500 rose by just over three percentage points. Forty-four companies had clawback policies in 2008, compared to 66 in 2009.
We’ve been collecting data for our annual ownership guidelines report and we found a number of interesting trends. One such trend was the significant jump in the number of hardship provisions disclosed. Recently, we released a short article in our Executive Compensation Trends newsletter titled “Decline in Equity Values have more Companies Disclosing Hardship Provisions” and found:
– 82.1% of Fortune 250 companies disclosed that they have ownership guidelines.
– 32 companies stated that they had executives that did not achieve the required ownership level, which is the same amount of companies as the previous year.
– Since ownership guidelines are typically tied to a requirement to hold a certain value in shares, many executives had equity values that were pinched in the declining market. Rather than having to comply immediately with the ownership guidelines, many companies triggered hardship provisions. In fact, there was a significant jump of nearly 75% year-over-year in companies disclosing hardship provisions. These provisions typically allow for more time or amended ownership requirements in order to meet those guidelines.
I recently posted the latest annual update of Alan Kailer’s chapter regarding preparation of the executive compensation tables.
Renew Today: Since all memberships are on a calendar-year basis and expired at the end of December, if you don’t renew today, you will be unable to access this webcast. Renew now for ’10! [Here is our “Renewal Center” to better enable you to renew all your expired memberships and subscriptions.]
Don’t forget yesterday’s TheCorporateCounsel.net webcast – “How to Implement the SEC’s New Rules for This Proxy Season” – during which Marty Dunn, Amy Goodman, Ning Chiu, Howard Dicker and Dave Lynn provided practical guidance on how to handle the new SEC rules that don’t deal with compensation issues. The audio archive is already up.
In response to the SEC’s new proxy disclosure requirements, Dave Lynn and Mark Borges have just finished sample model questions for your D&O questionnaire (and much more analysis) as part of the Winter 2010 issue of “Proxy Disclosure Updates.” Here is a blurred copy of that 20-page issue to give you a sense of it.
You will receive a full copy of this issue, which is posted on CompensationDisclosure.com, immediately upon taking advantage of a no-risk trial to Lynn, Borges & Romanek’s “Executive Compensation Service” for 2010 (which includes the just-mailed 2010 version of Lynn, Borges & Romanek’s “Executive Compensation Disclosure Treatise and Reporting Guide”).
Compensation consultant Frederic W. Cook & Co. just published a study of recent changes in change in control agreements. The study focuses on the practices of the 125 largest public companies. Frederic Cook found that, of the companies that use change in control agreements, 57% made changes in the past three years, including a number of changes that make the agreements less “executive-friendly”. The changes included the following:
– Many of the companies modified their excise tax gross-ups – the commitment to reimburse the executive for excise taxes payable as a result of excessive change in control payments. Eleven percent of the companies eliminated the gross-ups entirely. Another eight percent modified their gross-ups, moving to a modified gross-up formula instead of a full gross-up.
– Nine percent moved from single-trigger vesting of equity awards upon a change in control to double-trigger vesting.
– Nine percent modified their severance multiples. In many cases, the multiples for top officers were changed from 3X to 2X.
The Cook study also describes numerous other changes:
– It points out that the first two provisions described above (tax gross-ups and single-trigger vesting) are considered “poor pay practices” under the standards of RiskMetrics Group. If these provisions are contained in new or materially amended agreements, RiskMetrics may recommend to shareholders that they vote against compensation committee members at the next annual meeting. This factor may have resulted in pressure on compensation committees to change these provisions in their change in control agreements.
– It points out that some of the legislation being considered in Congress would not only require “say on pay” but would also require “say on severance” – an annual non-binding shareholder vote to approve golden parachutes. The study predicts continuing changes in change in control agreements.
As we emerge from the holiday period, I thought it might be worth pointing out this new study from Professor Wells – entitled “No Man Can Be Worth $1,000,000 A Year:The Fight Over Executive Compensation in 1930s America” – that claims that the furor over CEO comp has actually been going on since the 1930s.
The furor may have been going on since then, but the circumstances have dramatically changed. For example, on page 23 of Well’s study, he states that large compensation was not the norm; they were the outliers back then. I would argue that’s not the case for the past 10-15 yrs,at least for large companies. Still,the study makes interesting reading…
Some overseas news below, based on this new memo from Sullivan & Cromwell:
In the UK Pre-Budget Report delivered on in early December, the United Kingdom’s Chancellor of the Exchequer unveiled the heavily-trailed Bank Payroll Tax, a 50% tax on bonuses in excess of £25,000 paid to employees by certain financial institutions operating in the UK: see our client memo of 10 December. France has now indicated that it will enact a similar tax (see our client memorandum). The BPT is imposed upon the employer not the employee. It continues to prove highly controversial. In certain quarters, the BPT (along with other recent UK tax and regulatory changes) has raised questions about the continued competitiveness of the UK as a location for international financial services business.
Nonetheless, the Conservative Opposition has said that it will not oppose this measure. In principle, the BPT is a “one-off” levy which applies to awards of performance-related remuneration (i.e., “bonuses”) in excess of £25,000, between 9 December 2009 and 5 April 2010. However, the Government has indicated that it may be extended until such time as new UK regulatory legislation comes into force requiring financial institutions to maintain higher levels of regulatory capital. Draft legislation imposing the BPT has been published and is expected to be enacted in UK Finance Act 2010.
Since our original client memorandum, there have been ongoing submissions by interested parties to the UK tax authorities (“HMRC”) about the scope of the BPT. HMRC have in recent days made statements regarding the scope of the tax. This memorandum sets out the updated picture regarding the BPT.
Yesterday, Corp Fin issued five new Compliance and Disclosure Interpretations to deal with some of the transitional issues posed by the February 28th effective date of the new executive compensation and proxy disclosure enhancement rules adopted last week, thereby tackling the “big question” that I blogged about last week. Learn more in Mark Borges’ “Proxy Disclosure Blog.”
Our Practical Guidance to Help Implement the New Rules
As all memberships expire in a week, you need to renew for this site (and our other publications) now to obtain practical guidance on how to comply with the SEC’s new rules. We have two companion webcasts lined up for just after the new year begins – we pushed up our CompensationStandards.com webcast to January 7th – “The Latest Developments: Your Upcoming Compensation Disclosures – What You Need to Do Now!” – featuring Mark Borges, Alan Dye, Dave Lynn and Ron Mueller.
And to handle the other new SEC rules that don’t deal with compensation issues, we have a webcast on TheCorporateCounsel.net – “How to Implement the SEC’s New Rules for This Proxy Season” – featuring Marty Dunn, Amy Goodman, Ning Chiu, Howard Dicker and Dave Lynn to be held on January 6th. Renew for both sites now (or try a no-risk trial if you are not a member).
Sample D&O Questionnaire Items
In response to the SEC’s new rules, Dave Lynn and Mark Borges are drafting up the new items you will need now in your D&O questionnaire as part of the Winter issue of “Proxy Disclosure Updates,” which will be delivered just after the new year begins. This issue will not just rehash the new rules – it will provide practical implementation guidance.
Remember that “Proxy Disclosure Updates” is a quarterly publication that is part of Lynn, Borges & Romanek’s “Executive Compensation Service (which includes the just-completed 2010 Executive Compensation Disclosure Treatise in both hard-copy and online on CompensationDisclosure.com). Try a no-risk trial now to obtain this important issue hot off the press when it’s done…
We just mailed the November-December Issue of The Corporate Executive, which includes a comprehensive recap of important things said at our recent “6th Annual Executive Compensation Conference,” among other things:
– Treasury Speaks about Executive Pay
– Consultant Independence and Accountability
– Fixing Benchmarks and Internal Pay Equity
– Say-on-Pay and Plan Design
– Risk Assessment & Pay
– What Compensation Committees (and Consultants and Counsel) Should Now Be Doing
– Hold-Through-Retirement and Clawbacks
– How to Implement Say-on-Pay Successfully
– SEC Staff: No More “Free Passes” on Material Noncompliant Disclosure
– One Final Reprieve on Section 6039 Returns–And Our Guidance
– Trap for the Unwary: Grant Date Under Section 423
– Section 162(m): The Buck Stops Here
Act Now: As all subscriptions expire in two weeks, please renew now for 2010 – or try a no-risk trial if you are not yet a subscriber.
2. This one snuck by us (and most others since this McGuireWood’s memo is the first and only one I’ve seen on the topic) – on December 4th, Treasury released a set of correcting amendments to the TARP Regulations that address ambiguities in the original regulations.