Here’s what’s happening at your local NASPP chapter this week:
Salt Lake City: Nathan O’Connor and Daniel Hunninghake of Equity Methods present “Current Trends in Stock Compensation: What to Expect in 2017.” (Wednesday, August 17, 12:00 p.m.)
Silicon Valley: Mike Andresino of Posternak Blankstein & Lund, Christine Cognetti McCasland of Morgan Stanley and Melanie Vinson of Workday present “10b5-1 Trading Plans: Recent Survey Results.” (Wednesday, August 17, 12:00 p.m.)
Carolinas: Mark Rosen and Matt Depp of Pearl Meyer present “Trends in Executive Compensation and Long-term Incentive Plan Design.” (Thursday, August 18, 11:30 a.m.)
Denver: Morgan Stanley presents the results of the 2015 Morgan Stanley /Shearman & Sterling 10b5-1 Practices Survey. (Thursday, August 18, 12:00 p.m.)
Kansas/Missouri: WEBINAR ALERT! Please join PwC for the latest global developments affecting us in the equity compensation space, including Brexit. (Thursday, August 18, 9:00 a.m. CT)
New York/New Jersey: WEBINAR ALERT! Please join PwC for the latest global developments affecting us in the equity compensation space, including Brexit. (Thursday, August 18, 10:00 a.m. ET)
San Francisco: Lunch and two presentations! First, Andrea Kagan of Solium Global Compliance Team will break down the black box of regulatory compliance to four key areas—securities law, exchange control regulations, data protection and employment law. Then, John Wolff of GuideSpark will hold an interactive discussion about communication strategies to better educate your employees about equity compensation. (Thursday, August 18 11:30 a.m.)
Every year, ISS conducts a survey in advance of updating its corporate governance policy. The survey is open not only to ISS clients and institutional investors but also to entities that are often the subject of ISS recommendations, including both companies and corporate directors, as well as other market participants, such as those that advise companies. There are a couple of questions in this year’s survey that caught my eye.
Frequency of Say-on-Pay Votes
Although most companies currently hold Say-on-Pay votes every year, the SEC’s final regulations allow these votes to be held every one, two, or three years, at the election of shareholders. The “Say-on-Pay frequency vote” must be held at least once every six years. In 2017, for the first time since Say-on-Pay went into effect, most companies will once again give shareholders an opportunity to vote on how often their Say-on-Pay vote should be held.
In anticipation of this, ISS has included a couple of questions on the frequency of Say-on-Pay votes in this year’s survey. Currently, ISS’s policy recommends an annual Say-on-Pay vote. The survey contemplates a different recommendation, possibly one that is dependent on company circumstances, such as company size, performance, problematic pay practices, and/or past Say-on-Pay vote results.
P4P Analysis
As part of its evaluation of CEO pay, ISS performs a “Pay-for-Performance Evaluation.” This consists of a quantitative analysis in which the company’s TSR performance is compared to the CEO’s pay and both metrics are ranked against the company’s peers. If the company performs poorly in the quantitative analysis, the next step is a qualitative analysis, in which ISS looks at the company’s specific pay practices.
The survey focuses on the quantitative analysis, asking if this analysis should be based on other metrics, in addition to TSR, and, if yes, what other metrics should be included.
In the past decade, we’ve seen a significant increase in the use of TSR targets in performance awards. In the NASPP/Deloitte Consulting 2013 Domestic Stock Plan Design Survey, use of TSR had increased to 43% of respondents, up 48% from the 2010 survey. I expect usage will be even higher in this year’s survey—possibly nearing or exceeding 50% of respondents. No other metric comes close, in terms of prevalence.
But, TSR is not without its critics. For example, see the article we just posted by Brett Herand of Pearl Meyer, “Re-Evaluating Total Shareholder Return as an Incentive.” It is interesting to see that the TSR backlash has reached enough of crescendo that ISS is considering changing its policy.
Survey Closes August 30
If you want to participate in ISS’s survey, you don’t have much time. The survey closes on August 30.
Conference Hotel Is Filling Up
Don’t wait any longer to register for the 24th Annual NASPP Conference—the Conference hotel is quickly filling up. Register today while rooms are still available.
Equity Expert Podcast: Balancing Expense with Perceived Value
Check out our latest Equity Expert Podcast featuring Dan Kapinos of Aon Hewitt and Mike Palermo of Fidelity on making your equity awards as efficient as possible when it comes to plan cost and incenting employees. A few of their suggestions:
Using a more nuanced version of the Black-Scholes model
Not paying dividends on unvested awards
Post-vesting holding periods
Payout caps on performance awards
Listen to the podcast to learn more about these suggestions and hear Dan and Mike’s other ideas.
Re-Evaluating TSR
The article “Re-Evaluating Total Shareholder Return as an Incentive,” by Brett Herand of Pearl Meyer (originally published in workspan) takes another look at the use of relative TSR as a performance metric for equity awards. Herand discusses recent research demonstrating weaknesses in the effectiveness of TSR as an incentive. He notes:
By shifting from an rTSR plan to a plan based on financial and/or operational performance, telling employees that they will be given additional control over their own compensation destiny, as opposed to being overly exposed to market vagaries, can be powerful.
NASPP To Do List
Here’s your NASPP To Do List for the week:
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 24th Annual NASPP Conference, is great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.
NASPP: What is the most critical thing NASPP Conference attendees need to know about your topic?
Alan: Corporate events, such as a merger with or acquisition of another company, occur frequently. Whether a company is on the buy or sell side, there are a number of issues affecting equity compensation plans that must be addressed. Most of these issues require decisions and actions that must be made prior to the occurrence of the transaction. Similar events, such as a spin-off or intial public offering, also impact equity compensation and require timely action.
NASPP:What is one best practice companies should implement?
Alan: Corporate folks who work with equity compensation should be brought into the loop as soon as possible. The legal and finance teams are usually the lead people and thus are involved from the beginning. Executive compensation and equity plans often play a big role in many transactions because of the public attention they draw as well as the financial impact on shareholders and the metrics of the deal. For these reasons, it is important to get HR and the equity compensation director on board sooner rather than later.
NASPP:What is the silver lining to your topic?
Alan: Our presentation covers a broad array of equity pay issues that arise during a corporate event and that require appropriate planning and action. Oftentimes, not all of these issues are properly addressed in a timely fashion, which may result in unhappy employees, unanticipated costs, legal liability and even lawsuits. Our session will help participants identify the issues they should thinking about in various situations. Our focus will be more about the actions they should taking rather than a detailed analysis of the technical issues.
NASPP:What is something people don’t know about you?
Alan: I grew up in Cleveland and attended John Carroll University, a Jesuit college. That might seem strange because we were Orthodox Jews, but the Jesuits provide a great education and the school was only a few blocks from my home. I am probably the only guy who worked his way through a Jesuit college giving Bar Mitzvah lessons.
The 24th Annual NASPP Conference will be held from October 24-27 in Houston. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
Here’s what’s happening at your local NASPP chapter this week:
Philadelphia: Kerri McKenna and Teresa Swindle of PwC, along with Thomas Swindle of UBS Financial Services present “FASB Simplification of Stock Compensation Accounting and Early Adopters Insights.” (Tuesday, August 9, 11:30 AM)
Atlanta: Valerie Diamond of Baker & McKenzie presents, “The Global Equity Round Up – Latest Developments And Tricky Issues.” (Thursday, August 11, 1:30 PM)
Dallas: Dallas NASPP invites you to the August meeting! Join and get 1 hour of CEP, CPE and SHRM. Aon Hewitt will present, “Share Requests: Doing what is right for your Company.” (Thursday, August 11, 7:30 AM)
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 24th Annual NASPP Conference, is great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.
NASPP: What is the most critical thing NASPP Conference attendees need to know about your topic?
Renee: Life events create administrative challenges for your stock plans and can significantly impact your employees emotionally and financially. Yet some of the toughest events we cover in our session are sensitive topics for some—and, therefore, rarely discussed. “Mind your Ds & Ts” addresses the difficult questions, including administrative and legal considerations with a diverse panel that brings multiple perspectives to the discussion.
NASPP:What is one best practice companies should implement?
Renee: Start talking and don’t shy away from these important topics. Review all your stock plans for how life events (death, disability, retirement, divorce) are handled and proactively communicate this to employees. Encourage them to think about equity in terms of life events and to plan for them.
NASPP:What is the silver lining to your topic?
Renee: Companies are better prepared to deal with life-changing, sometimes traumatic events for employees as it pertains to their equity programs. By thinking beyond the plan mechanics and using equity as a spring board to overall financial wellness, companies also are helping their employees be better prepared to navigate life’s unexpected turns.
NASPP:What is something people don’t know about you?
Renee: I like to play in the dirt—in my perennial gardens.
The 24th Annual NASPP Conference will be held from October 24-27 in Houston. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!
* Schwab Stock Plan Services provides equity compensation plan services and other financial services to corporations and employees through Charles Schwab & Co., Inc. (“Schwab”). Schwab, a registered broker-dealer, offers brokerage and custody services to its customers. Member SIPC. 0716-2730.
Brush up on the basics of full value awards with our newest online program, Restricted Stock Essentials. The full course has been archived for you to complete at your convenience.
Our popular “Meet the Speaker” series, featuring interviews with speakers at the 24th Annual NASPP Conference, is great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.
NASPP: Why is your topic particularly timely right now?
Raul: Our session will discuss how ASU 2016-09 changes EPS, from the exclusion of excess income tax benefits in the assumed proceeds calculations in the Treasury Stock Method method (ASC 260), to the changes in tax expense and in net income due to the elimination of the APIC pool, the net effect of the changes in accounting for forfeitures, and the possible effect of changes to the minimum share withholding requirements.
NASPP:What is one best practice companies should implement?
Raul: A checklist of items that are part of the EPS calculation, such as activity from stock options, RSUs, ESPP, performance shares, buybacks, and roll-forward of outstanding shares.
NASPP:What is the silver lining to your topic?
Raul: EPS is a key calculation and gets a lot of visibility in the company, particularly from senior finance and accounting management and external auditors.
NASPP:What is something people don’t know about you?
The 24th Annual NASPP Conference will be held from October 24-27 in Houston. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!