Compensation Governance

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.”

Continue Reading Reminder that Compensatory Equity Awards can Trigger HSR 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

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

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

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