Just a quick reminder that this Thursday (March 14, 2019) we are hosting our monthly webinar program and the discussion topic is “Golden Parachutes & 280G: Design Pointers on How to Win.” Our discussion will include: (i) an explanation of 280G and how the calculations are applied, (ii) how 280G issues are typically addressed in compensatory documents (discussed from both an employer and employee perspective), and (iii) a description of various mitigation techniques that an employer could implement to eliminate or greatly reduce the negative ramifications of 280G (i.e., eliminate or reduce the 20% excise tax to the employee and the disallowed deduction to the employer). And as always, FREE continuing education credits may apply.
The purpose of this post is to highlight compensatory action items that publicly-traded issuers should consider this proxy season. Such considerations include:
- Chase the Say-on-Pay Vote. The most common reason for a negative recommendation from ISS is a perceived pay-for-performance disconnect within the compensation structure. Robust disclosure on this point can help, especially disclosure that clarifies why certain performance criteria were used and explains the degree of difficulty associated with achieving target performance.
- Consider an Annual Equity Grant Policy. Some issuers grant equity awards to executive officers based upon an initial dollar amount that is then converted into shares. If such an issuer has a depressed stock price due to market volatility, then the conversion formula will result in the award having more shares (compared to the situation where the issuer’s stock price had not fallen). Is the issuer ripe for an allegation that the executives are timing the market because equity was granted at a low stock price for the sole purpose of receiving a larger number of shares? To help defend against such a question, issuers should consider having a documented annual equity grant policy. The policy could be formal or informal (with the latter being clearly presented in the CD&A of the issuer’s proxy statement). Continue Reading Compensatory Action Items to Consider this Proxy Season
Employment agreements between publicly-traded issuers and their executive officers often contain severance pay provisions that are heavily negotiated at the time of entering into the agreements. The purpose of this post is to consider whether the amount of contractually-provided severance pay could, over the employment term, be reduced proportionate to the increase in the executive’s wealth accumulation over the same time period (i.e., an inversely proportional relationship between the amount of severance pay and the amount of wealth accumulation by the executive over the employment term). Continue Reading Should Contractually-Provided Severance Pay Decrease as Wealth Accumulation Increases?
As we head into a new proxy season, we would like to invite you to attend our annual FREE webinar entitled “Upcoming Proxy Season: Compensatory Thoughts from ISS,” which will be held on Thursday, January 17, 2019 from 10:00 am to 11:00 am Central. As always, continuation education credits are available.
For your convenience, our remaining 2019 monthly webinar program is as follows: Continue Reading Upcoming Proxy Season: Compensatory Thoughts from ISS
The recent settlement by James Dolan, CEO of Madison Square Garden Co. (MSG) serves as a reminder that the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”) can apply to compensatory equity awards. To avoid violations, a publicly-traded issuer should monitor (at least annually) equity grants and outstanding equity awards for ongoing HSR Act compliance. To learn more, please see our Client Alert entitled “Not Just a Merger Issue – Compensatory Equity Awards Can Trigger HSR Filing Requirements.”
If you interested in learning (or refreshing your skills on) how to negotiate executive employment contracts, then please tune in to our FREE 1-hour webinar on December 13, 2018, from 10:00 a.m. to 11:00 a.m. Central. This webinar is entitled “How to Negotiate Executive Employment Agreements” and you can sign up here. Continue Reading How to Negotiate Executive Employment Contracts
Did you exercise (or are planning to exercise) an incentive stock option (“ISO”) during calendar year 2018? Do you intend to sell the underlying stock within the 12-month period from the date you exercised the ISO? If you answered yes to both of the foregoing questions, then as part of your tax planning, consider whether the underlying stock should be sold during calendar year 2018 in order to minimize your alternative minimum tax (“AMT”) exposure. Continue Reading ISOs: No Item of Adjustment for AMT Purposes if Exercise and Sell within Same Calendar Year
Keeping with this evening’s Halloween spirit, members of Board of Directors and Compensation Committees should be aware of an allegation that is currently floating within the ominous fog – that some executives of publicly-traded issuers are trick-or-treating with “ghost revenue.” Kidding aside, the allegation (or potential allegation) is that some executive officers are using ghost revenue (i.e., deferred revenue) in order to satisfy otherwise unattainable non-GAAP performance metrics. A grossly-oversimplified explanation of this issue is addressed in the below portions of this post. Continue Reading Compensation Governance: Is Ghost Revenue Real?
It is difficult for publicly-traded issuers to solve the problems associated with outstanding stock options that are “underwater” (i.e., underwater because the exercise price of the stock option is greater than the fair market value of the underlying shares). None of the typical solutions are attractive to publicly-traded issuers. As a result, the underwater stock options continue to exist for 10 years from the date they were granted, and continue to decrease the life expectancy of the equity plan’s share reserve. But what if a compensatory design existed that, if implemented on the front end, could negate the possible future existence of outstanding stock options that are substantially underwater? Would such a design be attractive to an issuer so long as the design did not destroy the retention value otherwise inherent in the stock option? Could a stock-price forfeiture provision be a solution to the foregoing problem? Discussing a stock-price forfeiture provision as a possible solution to negate substantially underwater stock options is this “Tip of the Week.” Continue Reading Tip of the Week: Could a Stock-Price Forfeiture Provision Eliminate the Existence of Substantially Underwater Stock Options
Just a quick note that late last week ISS made available for public comment nine discreet voting policies for potential application in 2019. Only one of the draft voting policies addresses compensation, and it addresses the Financial Performance Assessment Methodology under the Pay-for-Performance Model. Continue Reading ISS Issues Draft 2019 Voting Policy Updates