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
The purpose of this post is to quickly highlight that we have published our Executive Compensation Webinar Schedule for all of 2019. As background, I have been providing this monthly webinar series since 2010 (it is a constant that I look forward to every month). Our programs are intended to provide FREE educational training (i.e., we take a compensation topic, make it narrow, and then try to teach it A-Z), which is why we are able to publish the list a year in advance. Free continuation education credits apply! Sign up here. Our topics, dates and times for the remainder of 2018 and all of calendar year 2019 are as follows:
Remainder of 2018
- Taxation of Equity Awards: The 101 Training Course (11/8/2018)
- How to Negotiate Executive Employment Contracts (12/13/2018)
- Upcoming Proxy Season: Compensatory Thoughts from ISS (an Annual Program) (1/17/2019)
- Equity Awards: Design Tips for Navigating Blackout Periods (2/14/2019)
- Golden Parachutes & 280G: Design Pointers on How to be a Winner (3/14/2019)
- Best Practices for Conducting the Compensation Committee Meeting (4/11/2019)
- Anatomy of ISS (5/9/2019)
- Tips to Increase the Longevity of the Equity Plan’s Share Reserve (6/13/2019)
- Multi-Disciplinary Facets to Net Withholding: It Ain’t Boring (7/11/2019)
- Everything Perquisites: The 101 Training Course (8/8/2019)
- Preparing for Proxy Season: Start Now (an Annual Program) (9/12/2019)
- Stock Ownership Policies & Clawback Policies: Design Pointers (10/10/2019)
- Employee Stock Purchase Plans: The Introductory Course (11/14/2019)
- How to Design Restrictive Covenants & Economic Forfeitures (12/12/2019)
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.
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
Publicly-traded issuers losing (or about to lose) Emerging Growth Company (“EGC”) status will have to include a CD&A within their proxy statement. Since CD&A disclosure significantly drives compensation design, issuers losing EGC status will need to consider various business points that will likely change their compensatory programs. Such business points include: (i) memorializing a compensation philosophy, (ii) establishing performance incentives that “disclose” well, (iii) discussing compensation governance mechanisms, and (iv) deciding whether to appease the thoughts from institutional shareholder advisory services such as ISS. Sound easy enough? Yes, but only if the Compensation Committee is adequately informed and has time to consider and implement any compensatory changes.
On October 11, 2018 (10:00 am Central), we are hosting a webinar entitled “Compensation Changes Due to Loss of EGC Status (Phase II of II).” The purpose of this webinar is to discuss business points that an issuer losing EGC status will need to consider with respect to its compensatory programs. Click here to register: “Compensation Changes Due to Loss of EGC Status (Phase II of II).” And as always, our monthly webinar series is FREE. Continue Reading Compensation Changes Due to Loss of EGC Status
If an employer grants one of its employees a restricted stock award, should that employee make an 83(b) election at the time the restricted stock award is granted? What is the upside to the employee if he or she makes an 83(b) election? What are the risks to the employee? The answers to those questions are this “Tip of the Week.” Continue Reading Tip of the Week: Pros and Cons of Making an 83(b) Election
On September 13, 2018, the SEC withdrew two no-action letters issued in 2004 to two proxy advisory firms. Some folks (like me!) are hopeful that the withdrawal of these no-action letters is a first step (albeit a small step) towards proxy advisory firm reform. If you would like to learn more about this topic, please see our Firm’s client alert entitled “Proxy Advisory Firm Guidance Withdrawn by the SEC,” which our Firm published this morning. Continue Reading Possible Small Step Towards Proxy Advisory Firm Reform?
Tomorrow I am speaking on “Trends in Designing Performance-Based Equity Awards” at the HC&B Total Rewards Summit in Houston, Texas. Discussion points include: (i) applicable forms of equity incentives conducive to performance-based awards, (ii) the more common performance metrics used to drive behavior, (iii) typical payout levels and performance periods, (iv) total shareholder return formulas, (v) administrative issues associated with accelerated vesting provisions upon retirement, (vi) maximizing capital gains with 83(b) elections, and (vii) recent revisions to Section 162(m) and the likely impact upon performance-based designs. Hope to see you there! Continue Reading HC&B Total Rewards Summit