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).