Today I have a grab bag of short topics for you, each worth mentioning but none are really long enough for their own blog.
The Most Ridiculous Section 162(m) Lawsuit Ever Last year, a Delaware federal court ruled in favor of a company that was the subject of lawsuit alleging that their incentive plan had not been properly approved by shareholders for Section 162(m) purposes. The plaintiff argued that because Section 162(m) requires the plan to be approved by the company’s shareholders, all shareholders–even those holding non-voting shares–should have been allowed to vote on it. Shareholder votes are governed by state law but the plaintiff attorney argued that the tax code preempted state law on this matter. Luckily the judge did not agree.
The plaintiff also argued that the company’s board violated their fiduciary duties because they used discretion to reduce the payments made pursuant to awards allowed under the plan. The plaintiff stipulated that this violates the Section 162(m) requirement that payments be based solely on objective factors. In a suit like this, the plaintiff attorney represents a shareholder of the company; it seems surprising that a shareholder would be upset about award payments being reduced–go figure. In any event, it’s fairly well established that negative discretion is permissible under Section 162(m) and the judge dismissed this claim.
Glass Lewis Policy Update Glass Lewis has posted their updated policy for 2014. For US companies, the policy was updated to discuss hedging by execs (spoiler alert: Glass Lewis doesn’t like it) and pledging (they could go either way on this). With respect to pledging, Glass Lewis identifies 12–count ’em, that’s 12–different factors they will consider when evaluating pledging by execs.
The policy was also updated to discuss the SEC’s new rules related to director independence and how the new rules impact Glass Lewis’s analysis in this area. Although we now have three perfectly good standards for director independence (Section 16, Section 162(m), and the NYSE/NASDAQ listing standards), Glass Lewis has developed their own standards and they’re sticking to ’em. I’m sure I’ve asked this before, but really, how many different standards for independence do we need? I’m not sure director independence is the problem here.
Should Your Plan Limit Awards to Directors? As you are getting this year’s stock plan proposal ready for a shareholder vote, one thing to consider is whether to include a limit on awards to directors. In 2012, a court refused to dismiss one of the plaintiff’s claims in Seinfeld v. Slager because the plan did not place sufficient limits on the grants directors could make to themselves and, thus, were not disinterested in administration of the plan, at least with respect to their own grants.
Here’s what’s happening at your local NASPP chapter this week:
Denver: Michelle Shepston and Jonathan Marks of Davis Graham & Stubbs present “2014 Proxy Season and Executive Compensation Update.” (Tuesday, January 14, 12:00 noon)
Chicago: Brian Wydajewski and Aimee Soodan of Baker & McKenzie present “Key Legal, Regulatory and Market Considerations in Preparing for 2014 International Annual Equity Grants.” (Wednesday, January 15, 7:30 AM)
Happy New Year! We’re barely a week into the new year, so I figure I can still get away with squeezing some celebration into today’s blog. It turns out that we at the NASPP have a fair amount of congratulating to do!
Lucky on LinkedIn
Congrats to Jessica Laddon, CEP, for being the 600th person to follow the NASPP on LinkedIn. The NASPP is very social – follow us this year on LinkedIn, Facebook and Twitter.
Question of the Week WINNER!
Many of our celebratory thoughts go to the winner and runners up of our Question of the Week contest. For those of you who are asking “What’s the Question of the Week Contest?“, it’s a weekly quiz challenge designed for stock plan professionals to test their know-how in a variety of areas, while competing against their peers. There’s a new question each week, and a correct answer earns points.
And the Winners Are…
A big congrats to screen name alias mamandmore for coming out on top of our 2013 contest, with a score of 515. The screen names of the top 5 scorers are:
In reviewing the scores from last year’s challenge, I couldn’t help but observe the originality of some of the screen names users are deploying in our contest. It seems nothing was off limits, from the range of “equity” and “stock” possibilities (Dividend Dame, Shera Queen of Equity, StockNerd, 2013 Scrambled Regs) to the patriotic (Starspangled) to impersonators (Paul Bunyan, Peter Pan, Scooby and Jane Austen, to name a few). Of course our sports fans were abundant as well (RedsFan, Patriots Fan), in addition to a few that would probably require a happy hour and some time to explain (Duke City Dude, No name game player, The Colorful Finch).
Work Hard, Play Hard
We’ve just reset scores and this week’s challenge starts a whole new contest, so this is the perfect time for NASPP members to sign up, create your screen alias and jump into the Question of the Week Contest. We leave all of January’s questions active for the entire month, so you have plenty of time to complete the first quizzes of the new game.
Equity Expert Podcast
We’d love for you to join us in celebrating our very first NASPP podcast series: Equity Expert. That’s right, you can download short episodes right to your computer, smartphone or other device and listen to them at your leisure. This series focuses on short interviews with some of the industry’s best and brightest. The first few episodes will offer general advice for establishing yourself as an expert in this industry. Later episodes will capture short bits of “how to” advice on very specific topics. Our inaugural episode features the NASPP’s Executive Director, Barbara Baksa. Next week’s episode will be an interview with John Hammond of Plan Management Corporation. It’s free: subscribe now!
Broc Romanek Encounters a Real Wolf of Wall Street Back when he worked for the SEC, Broc Romanek, editor of CompensationStandards.com, was pitched to by a broker in a boiler room operation. Check it out; it’s pretty amusing.
NASPP To Do List Here is your last NASPP to do list of 2013:
Sign up for the NASPP’s acclaimed online Stock Plan Fundamentals course which will be offered next spring. This course is a great introduction to stock plan administration; register by February 14, 2014 for the early-bird rate.
Save the date for the 22nd Annual NASPP Conference: September 29-October 2, 2014 at the Mandalay Bay in Las Vegas.
Order the audio from the 21st Annual NASPP Conference. Just $65 per session for NASPP members–less per session if you purchase a multi-session package.
ISS has published its burn rate tables for the 2014 proxy season and the news isn’t good. For most industries, the ISS burn rate caps have decreased for 2014. For today’s entry, I have a few fun facts about the new burn rate tables.
For Russell 3000 companies:
Burn rate caps decreased for 14 of the 22 industries in the Russell 3000 that ISS publishes caps for.
Caps increased for seven of the 22 industries (automobiles & components, banks, consumer services, insurance, retailing, semiconductor equipment, and transportation) and the cap stayed the same for the utilities industry.
The largest decrease was for the media industry, which dropped from 5.6% last year to 4.43% for this year (1.17 points). ISS did not decrease the caps for any other industries by more than 1 point.
The largest increase was for the automobiles & components industry, which increased from 3.28% last year to 3.81% this year (.53 points).
For non-Russell 3000 companies:
Burn rate caps decreased for 15 of the 22 non-Russell 3000 industries.
Just as for the Russell 3000 companies, ISS increased the caps for seven industries, but not the same seven. For non-Russell 3000 companies, the industries where the caps were increased are banks, capital goods, commercial & professional services, consumer durables & apparel, insurance, retailing, and technology hardware & equipment.
ISS did not leave the cap the same for any non-Russell 3000 companies.
The largest decrease was 2 points, which is the maximum change (either increase or decrease) ISS allows from one year to the next (yes, ISS puts a cap on the change in the cap).
There were two industries for which burn rates dropped by 2 pts: energy and diversified financials. For energy, the maximum burn rate dropped from 9.46% to 7.46%, but would have dropped to 6.26% without ISS’s cap on changes in maximum burn rates. For diversified financials, the maximum burn rate dropped from 9.56% to 7.56%, but would have dropped to 7.17% without the cap.
For just under half of the industries where the maximum burn rate decreased, the decrease was greater than 1 point. In addition to energy and diversified financials, these industries included automobiles & components, pharmaceuticals & biotechnology, telecommunication services, transportation, and utilities.
The largest increase was in capital goods, which went from 6.69 in 2013 to 8.16 in 2014 (1.47 points).
It’s Like We’ve Got a Good Set of Tarot Cards
For anyone that listened to the NASPP’s November webcast highlighting the results of our 2013 Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting), this isn’t a surprise. The survey results foreshadowed this trend. Only 24% of respondents to the survey reported a three-year average burn rate of 2.5% or more (down from 31% in 2010) and, in the past year, almost one-fifth (19%) of respondents took action to reduce their burn rate. The ISS caps are extrapolated directly from actual burn rates (for each industry, the cap is generally the industry’s three-year average burn rate plus one standard deviation); ISS policy in this area simply reflects what is happening in practice.
The DC/VA/MD chapter wins the award for holding the first chapter meeting of the year. The chapter hosts Amy Lynn Flood of PwC and Don D’Anna of The Carlyle Group for a presentation on “Corporate Tax and Recharge Agreements,” this Thursday, January 9, at 4:30 PM.