The Advisors' Blog

I previously noted that the SEC’s Investor Advisory Committee would meet September 21st to consider recommendations on human capital management disclosure. Here’s an excerpt from the recommendations that the IAC approved at the meeting:

First, the IAC recommends that the Commission strengthen current Item 101(c) under Regulation S-K pertaining to human resources disclosures by requiring disclosure of the following:

1. The number of people employed by the issuer, broken down by whether those people are full-time, part-time, or contingent workers;

2. Turnover or comparable workforce stability metrics;

3. The total cost of the issuer’s workforce, broken down into major components of compensation; and

4. Workforce demographic data sufficient to allow investors to understand the company’s efforts to access and develop new sources of talent, and to evaluate the effectiveness of these efforts.

Second, the IAC recommends that the Commission consider narrative disclosure, in the Management Discussion & Analysis, of how the firm’s labor practices, compensation incentives, and staffing fit within the broader firm strategy. Such a discussion would address what portion of labor costs management views as an investment and why, including how labor is allocated across areas designed to promote firm growth (e.g., R&D) and those necessary to maintain current operations rather than increase sales revenue (e.g., compliance). Our recommendation here is consistent with the recommendation put forward in a June 2022 rulemaking petition submitted by former SEC commissioners and senior officials as well as professors of accounting and securities law.

The IAC is an Advisory Committee – this recommendation doesn’t obligate the SEC to take action one way or another – so I can’t speculate on whether the rules that the Commission is expected to propose will track with these recommendations. But the SEC likely will consider these recommendations as a data point in its calculus of the type of data that is needed for investor protection (with “needed” being a controversial word here).

This Cooley blog shares questions from Commissioner Hester Peirce and other details from last week’s meeeting – along with context on how these recommendations fit with FASB work and other developments over the past few years. At our “Proxy Disclosure & 20th Annual Executive Compensation Conferences,” our panelists discussed these recommendations and the compensation committee’s evolving role in human capital oversight. They also talked about HCM complexities and disclosure controls for HCM-related data. Visit our “Human Capital Management” Practice Area for checklists and other resources, and remember that you can still register for access to our Conference archives (and get on-demand CLE credit) if you weren’t able to attend.

– Liz Dunshee

I blogged a couple weeks ago on TheCorporateCounsel.net that Corp Fin posted a “Dear Issuer” letter to flag common XBRL deficiencies that the Staff is noticing. One of the reasons the Staff issued the comment letter at this time is because of the new pay versus performance tagging requirements and its impression that investors will be using this data. Here are the two sample comments that highlight where required XBRL tags are being missed:

– Pay versus Performance: Disclosure under Regulation S-K Item 402(v) must be in Inline XBRL, in accordance with Item 405 of Regulation S-T and the EDGAR Filer Manual. Please ensure that you have provided the appropriate Inline XBRL tagging for all the required Item 402(v) data points.

– Pay versus Performance: Refer to the [relationship disclosures] graph. Although it is permissible to combine one or more sets of relationship disclosures under Regulation S-K Item 402(v)(5) into one graph, table, or other format, note that you must still provide separate XBRL tags for each required item. Please ensure that you have provided the appropriate Inline XBRL tagging for all the required Item 402(v) data points.

At our 20th Annual Executive Compensation Conference on Friday, our “SEC All-Stars” discussed the complexities of XBRL tagging requirements creeping into proxy statement disclosures – and the consequences of missing them. The SEC’s “Semi-Annual Report to Congress on Machine Readable Data for Corporate Disclosures” points out that both Corp Fin and the Enforcement Division are using machine readable data. The Appendix to the Report shows that Schedule 14A/14C now require tags for these items:

• Disclosure required by Item 402(v) of Regulation S-K (pay versus performance) must be tagged in Inline XBRL.

• Disclosure required by Item 402(w) of Regulation S-K (registrant’s action to recover erroneously awarded compensation) must be tagged in Inline XBRL.

• Disclosure required by Item 402(x) of Regulation S-K (registrant’s policies and practices related to the grant of certain equity awards close in time to the release of material non-public information) must be tagged in Inline XBRL.

• Disclosure required by Item 408(b)(1) of Regulation S-K (registrant’s insider trading arrangements and policies) must be tagged in Inline XBRL.

• Filing fee exhibits must be tagged in Inline XBRL.

– Liz Dunshee

Today is the second day of our “2023 Proxy Disclosure Conference” – tomorrow is our “20th Annual Executive Compensation Conference.” Here’s more info:

– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform, then follow the “Proxy Disclosure/Exec Comp” tab to see the agenda for today, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda.

If you are experiencing a technical issue on our conference platform and need assistance, please use the Help Desk tab on the left side of the conference platform for support or email our Operations Manager, Victoria Newton at VNewton@CCRcorp.com. If you have any other questions about accessing the conference, please email our Operations Manager, Victoria Newton (vnewton@ccrcorp.com).

– How to Watch Archives & Access Transcripts: If you registered to attend the Conference through CCRcorp, you will be able to access the conference archives on the conference platform next week, and unedited transcripts will be available beginning about 1-2 weeks after the event. If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP. Archives and transcripts will be available on-demand until September 20, 2024, so they’ll be available for you to reference as you navigate challenging proxy season issues well after the live Conferences have concluded.

– How to Earn CLE for Live Sessions: We are applying for up to 16 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these CLE FAQs carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts approximately every 20-30 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.

– New this Year! On-Demand CLE: We will be offering on-demand CLE credit for the session replays, in states where that is available. There are some nuances to receiving that credit, so make sure to check out the on-demand CLE FAQs that follow the general CLE FAQs in order to be able to take advantage of that.

– Thanks To Our Sponsors! Thank you to our gold sponsors, Fredrikson and Morrison & Foerster, our silver sponsor, Kirkland & Ellis, and our media partner, Newsfile!  Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Please visit their pages!

It is not too late to register for our Conferences today! You can sign up for today’s “2023 Proxy Disclosure Conference” and tomorrow’s “20th Annual Executive Compensation Disclosure Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271. If you miss these conferences or our “2023 Practical ESG Conference,” you can still purchase access to the archives (and, for the “2023 Proxy Disclosure & 20th Annual Executive Compensation Conferences,” may be able to earn CLE credit for watching on-demand sessions as well). Just email sales@ccrcorp.com – and we’ll also have a link available soon on this page to do that.

– Meredith Ervine 

Our “2023 Proxy Disclosure Conference” is happening today and tomorrow!  Friday is our “20th Annual Executive Compensation Conference.” Here are the agendas: 19 substantive panels over 3 days – including an interview with Erik Gerding, the Director of the SEC’s Division of Corporation Finance. Here’s more info:

– How to Attend: We have emailed a direct access link for the Conferences to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform, then follow the “Proxy Disclosure/Exec Comp” tab to see the agenda for today, enter sessions, and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone. Here’s today’s agenda.

If you are experiencing a technical issue on our conference platform and need assistance, please use the Help Desk tab on the left side of the conference platform for support or email our Operations Manager, Victoria Newton at VNewton@CCRcorp.com. You can also email Victoria if you have any other questions about accessing the conference.

– How to Watch Archives & Access Transcripts: If you registered to attend the Conference through CCRcorp, you will be able to access the conference archives on the conference platform next week, and unedited transcripts will be available beginning about 1-2 weeks after the event. If you registered for the conferences through NASPP, you will receive access to the video archives from NASPP. Archives and transcripts will be available on-demand until September 20, 2024, so they’ll be available for you to reference as you navigate challenging proxy season issues well after the live Conferences have concluded.

– How to Earn CLE for Live Sessions: We are applying for up to 16 hours of CLE credit for the Proxy Disclosure & Executive Compensation Conferences in applicable states – approvals of actual credit vary based on each state. Please read these CLE FAQs carefully to confirm that your jurisdiction allows CLE credit for online programs. You will need to respond to periodic prompts approximately every 20-30 minutes during the conference to attest that you are present. After the conference, you will receive an email with a link. Please complete the link with your state license information. Our CLE provider will process CLE credits to your state bar and also send a CLE certificate to your attention within 30 days of the conference.

– New this Year! On-Demand CLE: We will be offering on-demand CLE credit for the session replays, in states where that is available. There are some nuances to receiving that credit, so make sure to check out the on-demand CLE FAQs that follow the general CLE FAQs in order to be able to take advantage of that.

– Thanks To Our Sponsors! Thank you to our gold sponsors, Fredrikson and Morrison & Foerster, our silver sponsor, Kirkland & Ellis, and our media partner, Newsfile!  Our sponsors have helped make this event possible, and we are proud and grateful to have their support. Please visit their pages!

It is not too late to register for our Conferences today! You can sign up for today’s “2023 Proxy Disclosure Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271. If you miss these conferences or our “2023 Practical ESG Conference,” you can purchase access to the archives (and, for the “2023 Proxy Disclosure & 20th Annual Executive Compensation Conferences,” may be able to earn CLE credit for watching on-demand sessions as well). Just email sales@ccrcorp.com – and we’ll also have a link available soon on this page to do that.

– Meredith Ervine

Thanks to everyone who has registered for our annual fall conferences, which kick off today with our “2023 Practical ESG Conference.” That’s followed by our “2023 Proxy Disclosure Conference” on Wednesday & Thursday, and we cap off the week on Friday with our “20th Annual Executive Compensation Conference.”  Here’s the agenda for today’s conference – which includes 8 substantive panels & a keynote address from Tufts University Professor Ken Pucker. Here’s more info:

– How to Attend: We have emailed a direct access link for the Conference to all registered attendees, from info@ccrcorp.com. Use that link to go to the Conference platform. Once you log in to the Conference Platform, follow the “Practical ESG Agenda” tab to enter sessions and add them to your calendar. All sessions are shown in Eastern Time – so you will need to adjust accordingly if you’re in a different time zone.

If you are experiencing a technical issue on our conference platform and need assistance, please use the Help Desk tab on the left side of the Conference Platform for support or email our Operations Manager, Victoria Newton at VNewton@CCRcorp.com. If you have any other questions about accessing the conference, please email our Operations Manager, Victoria Newton (vnewton@ccrcorp.com).

– How to View Archives & Transcripts: Conference attendees will be able to access the archives of the “2023 Practical ESG Conference” on the conference platform next week. Unedited transcripts also will be available there, beginning about 1-2 weeks after the event.

– Thanks To Our Sponsors! Our sponsor, Morrison Foerster, helped make our “2023 Practical ESG Conference” possible, and we are proud and grateful to have their support. Please visit their page!

It’s not too late to register for our Conferences today. You can sign up for today’s “2023 Practical ESG Conference” by emailing sales@ccrcorp.com or by calling 1-800-737-1271. You can still sign up online for our “2023 Proxy Disclosure Conference” & “20th Annual Executive Compensation Disclosure Conference” – or you can register via email or phone. Remember, you can also still bundle the conferences together to get a discounted rate!

– Meredith Ervine 

As Liz highlighted this spring, investors seem to be evaluating equity plan proposals more critically, and, more recently, I blogged that, per Glass Lewis, repricings may have been partly to blame. This recent Semler Brossy alert gives another reason for the low support (and high failure rates) among the Russell 3000 in 2023:

Importantly, the bar for passing ISS’ EPSC has meaningfully increased over the last decade, with a recent increase in 2023. S&P 500 companies needed a score of 53 in 2015, but now require a 59 in 2023. The threshold score for non-S&P 500 companies in the Russell 3000 is slightly lower than for S&P 500 companies, but the required threshold score has similarly increased over the last few years.

Negative returns in the 2022 equity markets and increasing interest rates have also likely increased shareholders’ attention around a company’s burn rate. For companies with a depressed share price, more equity is needed to fulfill the dollar amount of equity promised to their employees. And, with higher interest rates, the cost of equity has risen for companies. These two external factors occurring simultaneously—alongside tightening EPSC guidelines—made 2023 a challenging year for equity plan requests.

What does this mean for companies that may need to seek approval of a new plan or a plan amendment next year?

The good news is that passing ISS’ EPSC means there is very little risk of failing an equity plan vote. There are always benefits to conducting shareholder outreach, but this process will not be a “make or break” action if a share request is sized within EPSC guidelines. The downside to sizing a request within EPSC guidelines is that the next equity plan request could come sooner than wanted.

The alert goes on to suggest some steps to take if the share request is above EPSC guidelines, including: understanding how the requested size compares to your significant shareholder guidelines as well as whether you fall below investor burn rate/dilution “caps;” having talking points and hard data showing responsible share usage, appropriate governance provisions and benchmarking of equity grants; using outreach meetings to get feedback and show responsiveness; and clearly telling your story in the proxy proposal with historical and expected future burn rate and any other important context.

– Meredith Ervine

It’s hard to believe that our conferences are happening next week — starting with our “2nd Annual Practical ESG Conference” on Tuesday and continuing with our “Proxy Disclosure & 20th Annual Executive Compensation Conferences” bundled together as one virtual event on Wednesday, Thursday and Friday.

On September 19, at our “2nd Annual Practical ESG Conference” — which you can attend virtually as a standalone event or bundle with our PDEC Conferences and save — our very own Dave Lynn and Lawrence Heim and an amazing group of ESG practitioners from diverse backgrounds will deliver usable, practical guidance on the hottest ESG topics, in a candid and conversational format.

On September 20-21, we’ll help you prepare for the upcoming proxy season with the “2023 Proxy Disclosure Conference.” This conference is timed to give you the very latest action items that you’ll need to prepare for the flurry of year-end and proxy season activity.

On September 22, we’ll discuss all things executive compensation at the “20th Annual Executive Compensation Conference.” A wide range of panelists will address hot topics in executive compensation today — from clawback policies, to Year 2 of pay versus performance disclosures, to how to move forward with ESG metrics in light of current complexities. I am delighted to be returning to host this day of the Conference!

Here’s the full agenda – and all of our experienced speakers. It is not too late to register! You can sign up online, by emailing sales@ccrcorp.com, or by calling 1-800-737-1271. You can still bundle the Conferences together to get a discounted rate.

– Liz Dunshee

If you have already signed up to attend our Conferences next week, please be on the lookout for an email from info@ccrcorp.com with instructions for logging on to the Conference platform.

Next week, you will receive additional attendee communications with your unique direct link to access the Conferences for which you have registered. We will be sending the direct access link the day before the applicable event. So, for the “2nd Annual Practical ESG Conference,” attendees will receive their direct access link on Monday, September 18th, and attendees will receive the direct access link for the “Proxy Disclosure & 20th Annual Executive Compensation Conferences” on Tuesday, September 19th.

– Liz Dunshee

I blogged last week on TheCorporateCounsel.net about ISS’s Annual Global Benchmark Policy Survey, which is open until next Thursday, September 21st at 5 p.m. Eastern. The survey’s lead question relates to non-GAAP adjustments to executive incentives. Here’s the intro:

U.S. companies routinely use non-GAAP metrics in their incentive pay programs, and the performance results (and consequently the payouts) can be significantly affected by the non-GAAP adjustments approved by the board. However, many companies do not disclose in the proxy statement a line-item reconciliation of non-GAAP to GAAP for incentive program metrics. Recent events resulting in increased investor scrutiny of non-GAAP adjustments include direct and indirect COVID-19-related impacts, adjustments related to the Russia-Ukraine conflict, and costs arising from litigation. A growing number of investors believe that disclosure of line-item reconciliation is needed to make an informed assessment of executives’ incentive pay.

The survey asks investors and others to weigh in on whether companies should always provide a line-item reconciliation whenever non-GAAP metrics are used, provide a reconciliation when the adjustments significantly affect payouts or significantly differ from GAAP, or provide a reconciliation only in unique circumstances.

ISS’s current focus on this issue aligns with a letter that the Council for Institutional Investors recently submitted to the SEC, which resurrects a 2019 petition that asked the Commission to adopt rules that would require more transparency about non-GAAP adjustments in executive compensation disclosures (see pg. 7). The SEC, including Former Corp Fin Director Bill Hinman, put the kibosh on that notion at the time, but CII has persisted via its comments on the SEC’s pay versus performance proposal, and this new letter. Now, based on ISS’s commentary, it’s possible that adjustments and related disclosures may become more of a factor in say-on-pay votes, regardless of SEC rulemaking. Companies may also want to think about whether they would be vulnerable to shareholder proposals on this topic.

All that said, it’s important to note that the policy survey is not a definitive sign that ISS will adopt a new approach on this matter. In addition to feedback from the annual survey, as ISS develops its 2024 voting policies, it will also gather input from investors, company directors, and others by hosting various regionally-based, topic-specific roundtable discussions and other engagements. ISS will then publish for public comment the key proposed changes to its voting policies for next year, before adopting and publishing the final policies that will apply to 2024 meetings.

When it comes to getting the votes you want during proxy season, if you want to look especially smart to your boss and save your company (and yourself) from time-consuming back & forth, the best thing you can do is sign up for our “Proxy Disclosure & 20th Annual Executive Compensation Conferences.” Our panel on “Navigating ISS & Glass Lewis” features a conversation with Rachel Hedrick – who is VP of US Executive Compensation Research at ISS – and Krishna Shah – who is Director of North America Executive Compensation at Glass Lewis – moderated by Davis Polk’s Ning Chiu. This is going to be a very practical session on the types of disclosures & practices that will (or won’t) help your cause on say-on-pay, compensation committee elections, and equity incentive plan approvals. Rachel & Krishna will bust some myths and share a few predictions for 2024.

The “Proxy Disclosure & 20th Annual Executive Compensation Conferences” are bundled together as one virtual event that runs September 20-22nd. That is next week!! Register now. You can sign up online, by emailing sales@ccrcorp.com, or by calling 1-800-737-1271. Here’s the full agenda – and all of our awesome speakers.

– Liz Dunshee