Across my desk this week came the latest report from Equilar, an executive compensation data firm, on equity trends. In their 2013 Equity Trends Report, key findings included upticks in the use of restricted stock and performance shares, and a slight downturn in the use of stock options. I’ll highlight a few of the observations in today’s blog.
Trending Now
The Equilar report analyzed the equity practices in S&P 1500 companies that are publicly traded and have at least 6 years of disclosures (resulting in a pool of 1,327 companies). Some of the notable findings include:
Restricted stock awards are at an all-time high, with 92.8% of the companies issuing restricted stock in 2012 (compared to about 80% back in 2007). I couldn’t find any breakdown in the report between the use of RSAs vs. RSUs – so for purposes of this analysis the term “restricted stock” appears to encompass both types.
Stock options continue to decline in use. Equilar reports that over the past 6 reporting years (2007-2012), the number of companies reporting that they grant stock options has decreased to 65.2% from 78.5%. The size of the median stock option grant has also decreased for three straight years in a row, continuing a trend we’ve seen over the last decade (only varied by a blip in 2008 and 2009 when companies increased grants to compensate for market conditions). Although there has been a continued downward trend in this area, I personally believe that stock options will continue be mainstream – I don’t see them just riding off into the sunset – at least not in the near term.
Performance shares keep rising in popularity. This has been an ongoing trend, so no big surprise here. The report indicates that 61.8% of the S&P 1500 CEOs received performance grants in 2012, compared to 55.8% in 2011. I expect we’ll continue to see upward mobility in those numbers, year over year.
The Equilar report does cover additional topics of interest, such as trends in dilution and volatility rates. You can access the full report on Equilar’s website. This report affirms some of the trends we’ve observed, and we expect these trends will continue to gain upward (or downward, in the case of some of the stock option trends) momentum in the coming months and years.
This week I have a couple of additional treats from the smorgasbord of topics related to stock compensation. Enjoy!
FAQs on ISS Peer Groups I guess I wasn’t the only one confused by ISS’s new peer group methodology; ISS has issued an FAQ to explain the new process.
There’s still a bunch of stuff about 8-digit, 6-digit, 4-digit, and 2-digit GICS codes that I don’t understand, but the gist that I came away with is that peers are selected first from within the company’s 8-digit code. ISS constrains which companies can be considered peers based on size (by revenue and market capitalization), so if there aren’t any 8-digit peers that fit within those constraints, then ISS moves to the 6-digit peers, and then to the four-digit peers. ISS will not select peers that match only based on the 2-digit code.
I finally googled “GICS Codes” to figure out what all these digits mean. Standard & Poor’s assigns companies to ten 2-digit industry groups (your 2-digit GICS code). Then within that 2-digit code, you are assigned to a more specific 4-digit code, and within that 4-digit code…all the way down to the 8-digit code. So the companies that share your 8-digit code should be those that most closely resemble you in terms of industry classification.
When selecting among those peers that meet your size constraints, ISS will give priority to companies that are in your self-selected peer group or that have been selected you as a peer, as well as companies that have been selected as peers by your peers or that have selected by your peers as their peers. This sort of feels like that game “Six Degrees of Kevin Bacon.” Note that if you’ve changed the companies in your self-selected peer group since last year, ISS has provided a special form that you can use to notify them of the change; you have until Dec 21 to do so.
What does all of this have to do with stock compensation you ask? Well, not much, because these peers have nothing to do with the burn rate tables published by ISS (those are based solely on 4-digit GICS codes). ISS uses these peer groups only for purposes of determining whether compensation paid to your CEO aligns with company performance. But it’s good to be aware of your ISS peer group because it probably differs from the peers you’ve identified for purposes of your performance awards and other LTI programs. Thus, even though your CEO has awards that vest based on performance, ISS could still find that his/her pay doesn’t align with company performance.
Top Ten Myths on Say-on-Pay A group of academics from Stanford and the University of Navarra have written a paper to debunk myths related to Say-on-Pay. Beside being an interesting topic, the paper has the advantages of being short (only 14 pages, including exhibits) and is written in fairly straightforward English (the word “sunspot” doesn’t appear in it anywhere).
My favorite myth is #6: “Plain-vanilla equity awards are not performance-based.”
Our 20th Annual Conference is over, and, I’ll admit, I’m still recovering from the buzz. When I say buzz, I mean the literal energy and enthusiasm that seems to vibrate throughout every conference. It was great to engage with so many members, as well as listen in on sessions that are so timely and relevant to the challenges we face today. Having been to a dozen conferences over the years, I’d rank this year’s conference as our best ever. I won’t recap the full conference in today’s blog (you’ll have to wait for our next Advisor edition for that), but I wanted to share my observation on some of the top topics trending in our world of stock compensation based on things seen and overheard.
The Unofficial Top 5
1.Performance Plans and associated Valuation Strategies: Performance plans are migrating from plainer vanilla (I can’t use the term plain vanilla, because I don’t know of a performance plan that was that simple to administer) to more creative approaches (things like the use of relative TSR). In conjunction with new pay for performance models, the relative accounting impact and considerations are worth understanding.
2.Say-on-Pay: As we’ve passed through the peak of the second annual proxy season since the implementation of Say-on-Pay, it’s still a very much a hot topic. With more companies receiving negative Say-on-Pay votes from shareholders in 2012 than 2011, companies are more invested in ensuring their disclosures will withstand shareholder scrutiny.
3.Global Administration and Mobility: Learning to navigate the intricate nuances of managing global and mobile employee populations continues to be top priority for stock plan professionals. Sessions on global administration always rank highly on our conference attendance lists, and this year was no different.
4. Executives, Executives, and Executives: Handling tricky issues and situations relatives to executives and their compensation ranks high on the interest scale. Things like terminations and pay for performance top the list.
5. Stock Ownership Guidelines: I’ve heard many people talking about the rapid trend towards adopting stock ownership guidelines. If you work for an issuer (or a vendor who provides direct support to issuer stock plan administrators) and are asking “what are stock ownership guidelines?”, you’d better find out quick (in short, they are guidelines implemented by a company regarding minimum amounts of share ownership certain employees must attain and retain.) The vast majority of public companies report having such guidelines in place, and, in my opinion it’s a matter of “if” and not “when” for the stragglers who haven’t implemented guidelines yet.
Many of you likely have some or all of these topics on your radar list. These are definitely trends to observe in the coming months; areas where we’ll likely see lots of activity, new ideas, and administration challenges.
This week, we feature another installment in our series of guest blog entries by NASPP Conference speakers. Today’s entry is written by Brian Frost of Towers Watson, who will lead the session “The Better Part of Valor: Discretion in Performance Share Plans”
Discretion and Long-Term Performance Plans By Brian Frost of Towers Watson
Long-term performance plans are becoming more prevalent every year as companies strive to align executive pay with shareholder returns. However, some compensation committees have become uncomfortable with establishing fixed goals for a three-year period due to the uncertain economic environment or changes happening at the company. To address these challenges, one approach might be for the committee to establish some initial performance goals while reserving the discretion to adjust the payout after taking into account likely outside perceptions and company-specific issues. Maintaining this flexibility comes with some downsides, however, and a particular concern is the potential for significant changes in the timing and amount of compensation reported in the company’s Summary Compensation Table (SCT). This, in turn, can influence the views of shareholders, proxy advisors and the press, which makes the decision to retain and exercise discretion one that requires a full understanding of the implications.
These are among the issues we’ll address in our October 10 session (6.3) at the 20th Annual NASPP Conference entitled “The Better Part of Valor: The Complicated World of Discretion in Performance Plans.” While the accounting rules are fairly straightforward when dealing with mainstream plan designs, more complicated plans, including those involving discretion, often reside in a gray area where accounting guidance is vague and the company and its accountants must use judgment to determine the appropriate accounting treatment. While the accounting interpretation may not have a material impact on the company’s financial statement, it can have a profound impact on the amount and timing of reported pay for NEOs. Participants in our session will gain insights about the plan design considerations that lead companies to use more discretion in determining performance plan payouts, the technical accounting rules that drive proxy reporting and other implications of discretion. Since how equity awards are reported in the SCT is determined under Accounting Standards Codification Topic 718 (ASC 718), we’ll explore the basics of those rules as well as the nuances of when and how discretion can influence the mysterious complexities of “grant date” and “service inception date.”
We also will explore the recent SEC decision in the Verizon case, which received significant publicity and involved his complicated mix of rules. Finally, we’ll review a list of items compensation professionals should know to better understand the decisions that influence the accounting and disclosure of discretionary plan awards so they can anticipate areas of potential concern before they arise.
NASPP “To Do” List We have so much going on here at the NASPP that it can be hard to keep track of it all, so we keep an ongoing “to do” list for you here in our blog.
Don’t miss your local NASPP chapter meetings in NY/NJ and San Diego. Robyn Shutak, the NASPP’s Education Director, and I will be presenting at the San Diego chapter meeting–we hope to see you there!
Wondering what the hottest topics in stock compensation are today? You can find out at the 19th Annual NASPP Conference, with the session “Today’s Hottest Topics in Stock Compensation.” I happen to have caught a glimpse of the panel’s slide presentation, so, in today’s blog entry, I “leak” a few of the topics that will covered.
Today’s Hottest Topics in Stock Compensation I’ve been saying all year that performance-based awards are red-hot and I’m pleased to see that our expert panel agrees (it’s always nice to be right). The panel plans to discuss a number of tricky issues relating to performance-based pay that have emerged over the past year, including:
Setting long-term performance goals in today’s volatile economy without jeopardizing 162(m) deductibility.
Best approaches for disclosing in the CD&A the use of non-GAAP financials for performance awards.
Trends and emerging practices with respect to double-trigger CIC vesting of performance-based awards.
The panel also plans to discuss whether stock options will become more performance-based in light of ISS concerns.
Next year’s proxy season is also clearly on everyone’s minds these days. Here are the proxy-related topics that the panel plans on discussing:
Under what circumstances might a company defy ISS guidance and how should they prepare for the consequences?
Drafting the CD&A disclosure of the Compensation Committee’s response to Say-on-Pay votes.
How will ISS’s new policy (currently in draft form–see the NASPP alert “ISS Issues Draft of 2012 Policy for Comment“) regarding the evaluation of executive pay affect plan design, benchmarking, and support for management’s Say-on-Pay proposals?
What best practices have evolved for developing a strategy for shareholder Say-on-Pay?
The panel will also discuss clawback provisions (particularly what to do about them if the SEC doesn’t finalize rules before the 2012 proxy season).
Don’t miss “Today’s Hottest Topics in Stock Compensation” at this year’s NASPP Conference. The panel wil be moderated by Art Meyers of Choate Hall & Stewart (and of the NASPP Executive Advisory Committee). Art’s co-panelists will be Mike Melbinger of Winston & Strawn (and author of Melbinger’s Compensation Blog on CompensationStandards.com), Mark Borges of Compensia (and author of Borges’ Proxy Disclosure Blog on CompensationStandards.com), and Paula Todd of Towers Watson (and of the NASPP Advisory Board).
See You Next Week in San Francisco! It’s hard to believe, but the 19th Annual NASPP Conference is next week! I hope to see all of my readers at the Conference, which starts next Tuesday, November 1, in San Francisco. We expect to have around 2,000 attendees–it’s going to be a very exciting event; register today to ensure you don’t miss out (and make your hotel reservations, because the hotel is close to selling out).
NASPP “To Do” List We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.
The United States doesn’t have the monopoly on the demand for “pay for performance” compensation strategies for executives. In countries like Canada and the UK we also see a serious interest in whether or not executive compensation reflects the relative success of the company. The Canadian advisory firm, Global Governance Advisors (GGA), published an interactive pay for performance tool this week that allows Canadian investors–or any interested party–to see how CEO pay stacks up against different performance measures. This week there were also announcements from UK companies Vodafone and Telecoms regarding how CEO pay will be more closely linked to performance going forward.
Ride the Wave
One of the problems with limiting performance measures to internal comparisons is that overall company performance can be seriously impacted by general market performance. When the market is heading down and relative success means less dismal earnings than peer companies, don’t expect much support for failing less than the next company. In an upwardly mobile market, however, when peer companies are also realizing profit increases and positive shareholder return, just providing a more attractive financial report than in prior years may not be enough.
Relative Success
When the overall economic picture is sunny, the link between relative performance and executive compensation is more valued. Shareholders want to know that they have made the right decision to invest in your company’s stock instead of another similar stock–linking your executive compensation to the relative success of your company can provide that added assurance. If every other company in your industry is reporting 50% profit growth and your company is only reporting 10% growth, it’s not so great. Relative performance is absolutely a factor that RiskMetrics considers when making recommendations to shareholders, as CME recently felt first hand. Don’t expect to dance your way out of pay for performance, either. With the new Say on Pay requirements, determining how to align executive pay with company performance going forward is essential. Using a relative measure for performance awards gives them the extra edge when marketing pay packages to your shareholders.
NASPP Conference Pre-Session
Of course, as Barbara Baksa highlighted this week, the NASPP has many Conference sessions lined up that can help you better understand pay for performance strategies, Say on Pay and shareholder approval issues, and executive compensation best practices. But, if your company is initiating or updating performance awards this year, the one thing you won’t want to miss is the NASPP pre-conference session, Practical Guide to Performance-Based Awards on November 1. This extensive one-day program has everything you need to tackle performance awards from creating performance metrics to effective administration and even essential global considerations.
Today’s blog looks at a couple of random topics that showed up in my recent Google alerts: 1) options backdating and lawsuits against auditors and 2) yet another study on stock options and employee performance.
Are Your Auditors Going to Get Fussier? Option backdating stories are few and far between these days, but a new development showed up in my Google alert this week. A federal appeals court has ruled that investors can move forward with a lawsuit against Ernst & Young over Broadcom’s option backdating scheme. The ruling reverses a lower court decision dismissing the case.
The lawsuit alleges that Ernst & Young should have investigated deficient and missing documentation relating to Broadcom’s option grants. At this point, the lawsuit has a long way to go–the ruling just allows the suit to proceed, there has been no finding or judgment against E&Y and perhaps there won’t ever be. Nevertheless, I think it’s intriguing that the lawsuits over option backdating have now extended to auditors. I’ve talked to many a stock plan administrator who has felt a bit put upon with respect to the documentation requested by their auditors, and that was before the options backdating scandal. I imagine the documentation requests have already gotten more onerous and, if this lawsuit goes much further, I can only anticipate that auditors will tighten up the documentation requirements even further.
Stock Options=Lottery Tickets=Grateful, Hardworking Employees The debate over whether stock options incent employee performance slogs on. The latest rebuttal is the paper, “Stock Option Exercise and Gift Exchange Relationships: Evidence for a Large US Company” by management professor Peter Cappelli and Martin J. Conyon, senior fellow at Wharton’s Center for Human Resources.
The study posits that stock options motivate employees to work harder, but not in the way employers most likely hope. Instead of working harder to increase the stock price before they exercise, employees view options more like lottery tickets. But, if they get “lucky” and are able to exercise for a profit, employees will work harder in the period following their exercise–often for over a year–in gratitude to the company for the payout they received.
The study examined exercise patterns and job performance of 4,500 managers at a large U.S. public company (unnamed). While the sample size of employees certainly seems large enough, the results would be more interesting to me if the study had looked at more than one company. The authors don’t seem to acknowledge the differences that education (both in terms of the stock plan and company financials) and corporate culture might have on how employees view their stock options and how that influences their performance. It would also be interesting to know if the results translate to restricted stock or RSUs, which guarantee a payout to employees.
It’s Not Too Late for the Online Fundamentals The NASPP’s acclaimed online program, “Stock Plan Fundamentals,” began last Thursday, April 14, but it’s not too late to participate. All course webcasts have been recorded and archived for you to listen to at your convenience. This is a great program for anyone new to the industry or anyone preparing for the CEP exam. Register today.
Online Financial Reporting Course–Only Two Weeks Left for Early-Bird Rate There are only two weeks left to receive the early-bird rate for the NASPP’s newest online program, “Financial Reporting for Equity Compensation.” This multi-webcast course will help you become literate in all aspects of stock plan accounting, including the practical considerations and technical aspects of the underlying principles. Register by April 29 for the early-bird rate.
NASPP “To Do” List We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.
Register for 19th Annual NASPP Conference (November 1-4 in San Francisco). Don’t wait; the early-bird rate is only available until May 13.
Register for the NASPP’s online Stock Plan Fundamentals program. Don’t wait–the course started last Thursday, but all webcasts are archived for you to listen to at your convenience.
I recently attended a San Francisco NASPP chapter meeting that featured a presentation by Yana Plotkin of Towers Watson on trends in equity compensation. Yana included some data from the Towers Watson “2010/2011 Report on Long-Term Incentives, Policies and Practices.” Here are a few highlights:
Portfolio Approach
More companies are granting at least two types of awards–73% of respondents indicated this practice, an increase of 10% from 2009. Larger companies are more likely to utilize three types of awards than smaller companies.
Pay for Performance
Towers Watson is seeing a strong trend towards performance awards, which are now the second most common type of long-term incentive offered by survey respondents, ahead of stock options. Full value shares (RS/RSUs) were the most common type of LTI offered. In the NASPP’s 2010 Stock Plan Design and Administration Survey (co-sponsored by Deloitte), we also saw a strong trend towards performance awards, although we did not see them outpace the usage of stock options.
Full Value Awards
Towers Watson reports that full value awards have outpaced stock options for grants to employees at the manager/individual contributor level. In the NASPP survey, we also saw an increase in full value awards and even performance awards to employees at these levels, but many respondents were still granting stock options.
Award Sizes
For employees earning under $200,000, award sizes (as a percentage of salary) remained flat from 2009 to 2010 in the Towers Watson survey. But for employees at higher salary levels, award sizes increased, although not quite to 2008 levels.
Award Design
In terms of performance award design, Yana mentioned that they are seeing interest in awards with shorter performance periods, e.g., two years, and some sort of trailing service requirement after the performance goals have been met. I am a proponent of this design; for executives, it helps facilitate compliance with ownership requirements and clawback provisions and, for everyone, it can simplify tax withholding procedures.
Interestingly, Towers Watson reports that 35% of respondents to their survey measure performance relative to peers or a market index. For the NASPP survey, this was about the same (41% of respondents). Both surveys also agree on how commonly TSR is used as a performance metric (25% of respondents in the Towers Watson survey, 29% of respondents in the NASPP Survey). Yana indicated that Towers Watson is seeing more companies use TSR than in the past and that certainly aligns with the buzz I am hearing from compensation consultants, etc.
Performance Awards Are the Future
The biggest takeaway I got from Yana’s presentation is that the Say-on-Pay, the disclosures required under the Dodd-Frank Act, and shareholder expectations are making performance awards the hottest thing going today in terms of equity compensation. If you aren’t fully up to speed on them, don’t miss the pre-conference session, “Practical Guide to Performance-Based Awards,” to be held on November 1 in San Francisco, in advance of the NASPP Conference. Register by May 13 for the early-bird discount!
Online Fundamentals Starts in Two Weeks–Don’t Miss It! The NASPP’s acclaimed online program, “Stock Plan Fundamentals,” begins on April 14. This multi-webcast course covers the regulatory framework and administrative best practices that apply to stock compensation; it’s a great program for anyone new to the industry or anyone preparing for the CEP exam. Register today.
NASPP “To Do” List We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.
Register for 19th Annual NASPP Conference (November 1-4 in San Francisco). Don’t wait; the early-bird rate is only available until May 13.
Last Tuesday, January 25, the SEC issued final regulations on Say-on-Pay votes. For the most part, the SEC adopted the proposed regulations, with only a few minor adjustments.
As expected the regulations require three non-binding votes:
Say-on-Pay: Shareholders must be permitted to vote on executive compensation every one, two, or three years. The first vote must be held at the company’s first annual meeting on or after January 21, 2011. Shareholders will be voting on the compensation paid to executives as disclosed in the proxy statement.
Say-on-Pay-Frequency: Shareholders must also be permitted to vote on how frequently the company holds a Say-on-Pay vote. This vote must occur at least every six years, with the first vote occurring at the company’s first annual meeting on or after January 21, 2011.
Say-on-Parachutes: Shareholders must be permitted to vote on golden parachute arrangements. If these arrangements have not previously been voted on, this vote must be included in the proxy statement relating to the merger (or similar transaction) for which the compensation will be paid. This requirement applies to filings on or after April 25, 2011.
McGuireWoods provides a good summary of the final regulations; we’ll be posting an alert with links to additional memos as we receive them.
Other Dodd-Frank Rulemaking Delayed As Broc Romanek mentioned in his blog (“Four of Corp Fin’s Dodd-Frank Rulemakings Delayed,” January 27, 2011), the SEC has pushed back its estimate of when proposed rules will be issued for the following projects:
Pay-for-performance disclosure (how compensation is related to financial performance)
Pay ratios (ratio of CEO pay to median employee pay)
Clawback policies (clawback of officers’ compensation upon financial restatement)
Hedging policies (whether the company has a policy regarding the ability of directors and employees to hedge)
Based on the SEC’s revised timeline for implementing the Dodd-Frank Act–the proposed rules now aren’t expected until August, at the earliest, and possibly as late as December–Broc speculates that rules for these projects may not be finalized in time for the 2012 proxy season.
A More Social NASPP The NASPP has boarded the social networking train: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on Naspp.com–it’s a great way to keep up with all the content we have on the website.
NASPP Members Eligible for Discount on CEP Exam If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the June 4, 2011 exam.*
The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self-study program in the technical regulatory issues affecting equity compensation.
Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187. Don’t wait; registration closes on April 22.
* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187.
NASPP “To Do” List We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.
If you are in the San Diego area, attend the San Diego NASPP chapter meeting on Wednesday, Feb 2. Robyn Shutak, the NASPP’s Education Director will there; be sure to say hello!
Last Tuesday, I blogged about the Say-on-Pay provisions of the Dodd-Frank Act, but the Act includes a number of other corporate governance provisions that are of interest to stock plan professionals. Luckily, the presentation I attended by Mike Andresino of Posternak Blankstein & Lund and David Wise and Sara Wells of Hay Group at the Silicon Valley NASPP chapter meeting covered these aspects of the Act as well.
The Dodd-Frank Act: More Than Say-on-Pay The Dodd-Frank Act is very broad in scope, with banking legislation and consumer protections as well as regulating private placements and private investment funds–that’s nice to know, but we don’t really care about any of it for purposes of this blog. I want to focus on the areas of the Act that are likely to intersect with my readers’ job responsibilities.
Internal Pay Equity
As I noted in my June 29 blog, the Act requires companies to disclose the ratio of CEO pay to the median pay of all other employees. I understand that the jury is still out on how this ratio will actually be computed–preparing a Summary Compensation Table for all employees just to calculate their median pay may not be feasible–but, regardless, this disclosure is likely to cause a lot of consternation (David Wise pointed out that it was a top focus of the business lobby). The definition of all employees could include employees in overseas operations, including, say, manufacturing plants in countries where wages are considerably lower than in the United States. We are only beginning to contemplate the implications of this disclosure.
Relationship of Pay to Performance
Companies will be required to disclose the relationship of executive compensation to corporate financial performance. Like Say-on-Pay, this is another provision that I naively thought we already had–i.e., the performance graph in the executive compensation disclosures. Silly me. As Mike Andresino pointed out, the Act doesn’t limit the disclosure to just the top five NEOs, so this “pay for performance” disclosure could be quite a bit more work to put together than the performance graph.
According to a Pearl Meyer & Partners memo on the Act that we’ve posted in the NASPP’s Say-on-Pay Portal, there are lots of issues to resolve for this requirement, including which “executives,” what “compensation,” what “financial performance,” the time period the disclosure covers, and whether the disclosure is on an aggregate or individual basis (or by component of compensation–imagine what fun that would be to put together).
Clawbacks
The Act expands the requirements for companies to adopt clawback policies for compensation paid to executives beyond what was required under Sarbanes-Oxley. According to the NASPP’s 2010 Domestic Stock Plan Design Survey (co-sponsored by Deloitte), only 32% of respondents have clawback policies for stock compensation and of those that don’t, only 20% are considering adding one. That’s going to have to change.
Broker Non-Votes
The Act requires the SEC to direct the stock exchanges to prohibit brokers from voting uninstructed shares for director elections, executive compensation matters (e.g., Say-on-Pay), and any other significant matter (brokers are already prohibited from voting uninstructed shares on matters relating to stock plans).
This doesn’t leave a whole lot that brokers can vote uninstructed shares on. Mike Andresino pointed out that if there’s nothing in the proxy that brokers can vote on without instruction, companies may have problems achieving a quorum at shareholder meetings.
Compensation Committees
The Act requires the stock exchanges to establish new independence standards for compensation committee members. In addition, the committee must have the ability to retain its own independent (per standards to be determined by the SEC) comp consultants, legal counsel, and other advisors.
18th Annual NASPP Conference Scheduled for Sept 20-23, the 18th Annual NASPP Conference is timed perfectly to help our members prepare for mandatory Say-on-Pay and all of the other executive pay reforms required under the Dodd-Frank Act. Just announced–we’ve added a special Say-on-Pay track, featuring key advice and real-world strategies from in-the-know practitioners. Register for the Conference today.
NASPP “To Do” List We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog.
Tune in next Tuesday, August 10, for the NASPP webcast highlighting the results of the 2010 Domestic Stock Plan Design Survey (co-sponsored by Deloitte, survey support provided by the CEP Institute). There’s sure to be some surprises!
Refer new members to the NASPP so you qualify for the August raffle and Conference discount available through our New Member Referral Program.
Don’t miss your local upcoming NASPP chapter meetings in Boston, Chicago and Michigan. In addition, the San Francisco chapter is hosting its annual all-day program at the bucolic Wente Vineyards on August 11–I’m looking forward to it and hope to see you there.