Today’s economic environment has resulted in substantial loss of value to many shareholders and executives of publicly traded companies (i.e., the latter losing substantial value in their stock holdings, and too, losing prospective realizable pay as a result of unattainable performance goals within their outstanding performance-based awards).  In most situations, the shareholders and the executives are aligned in such loss.  But a problem is that substantial loss at the executive level could increase undesired poaching and turnover of key executives at a time when executives should be focused on navigating the company through a reopening of the United States economy.  To overcome this problem, compensation committees of publicly traded companies (“Compensation Committees“) will likely need to consider adjustments to the company’s compensation framework in order to continue to incent and retain executives.  To that end, this Part 1 (of a 7-part series) provides thoughts that the Compensation Committee should consider with respect to upcoming equity grants.
Continue Reading Current Compensation Issues (Part 1 of 7): Considerations with Respect to Upcoming Equity Grants

Many publicly-traded issuers in today’s environment have outstanding equity awards with performance goals that are unlikely to be achieved.  In response, Compensation Committees of such issuers will need to strike a balance between incentivizing/retaining executives and dealing with the stark reality that shareholders have lost substantial value.  To that end, Compensation Committees are likely to

The purpose of this post is to discuss whether incentive stock option (“ISO”) awards should be designed to destroy ISO treatment with respect to terminated employees, thereby preserving the compensatory deduction to the corporation and increasing shareholder value.

Continue Reading Game of Inches: An Idea to Increase Shareholder Value by Destroying ISO Status for Terminated Employees

As a follow-on to last month’s webinar, please join us this Thursday (July 11, 2019) for our FREE webinar entitled Multi-Disciplinary Facets to Net Withholding: It Ain’t Boring.   The purpose of this presentation is to discuss administrative and design considerations when effectuating net withholding with respect to equity awards, including whether to

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?

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

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

All publicly-traded issuers have (or should have) a blackout policy that prohibits a designated individual from engaging in open-market transactions whenever such individual possesses material non-public information.  But what if the issuer is always (or near always) in a blackout period?  How does the issuer satisfy its income tax withholding obligation if the individual cannot finance the obligation through other means (e.g., family money, borrowings, etc.) and the individual is prohibited from financing the obligation by selling shares in the open market?  Answers to these questions are discussed in this Tip of the Week (presented in NO particular order, and not intended as an exhaustive list).
Continue Reading Tip of the Week: 4 Ideas to Ease Tax Obligations When Equity Awards Vest During a Blackout Period

Most publicly-traded issuers are interested in ideas that could help increase the life expectancy of the share reserve under its stockholder-approved equity incentive plan.  The purpose of this “Tip of the Week” is to discuss the use of “inducement grants” as one of the many ideas to consider.

Background

If you look at an equity incentive plan’s annual life cycle on a per-key employee basis, it is likely that the largest share grant occurred at the time the key employee was hired.  That conclusion makes sense because more shares are generally granted at the time of the key employee’s hire in order to induce him or her to become employed with the issuer (compared to the number of shares it takes on an annual basis thereafter to retain that same key employee).  With this point in mind, issuers could increase the life expectancy of its equity incentive plan’s share reserve if new hires received equity grants that were “outside” of the stockholder-approved equity incentive plan.
Continue Reading Tip of the Week: Use Inducement Grants to Protect an Equity Plan’s Share Reserve