We are now well into the second season of Say-on-Pay voting. In today’s blog, I provide an update of the voting thus far.
Turn-Around of the Year?
It’s probably a little too early in the season to award the title for “Turn-Around of the Year,” but Umpqua Holdings looks like a strong contender. Last year, their Say-on-Pay vote received only 35% support–an emphatic message of disapprobation from their shareholders. Their vote this year was of interest to me because they were one of the companies that modified options and awards granted to their officers to be subject to performance conditions (see my April 2, 2011 blog, “Happy Birthday, Dodd-Frank“). The modification was in response to last year’s Say-on-Pay vote, so I was curious to see if this year’s vote went any better. It did–this year’s vote received 95% support.
The turnaround was not entirely attributable to the grant modifications; Umpqua also did a significant amount of outreach to its shareholders and implemented some other programs (including a policy that at least 50% of all equity awards to executive officers must be performance based), but the modifications surely were a factor. In their discussion of their response to last year’s vote, the grant modifications are the second item that Umpqua mentions.
Citigroup
The most notable failure so far has been Citigroup. The vote has caused such a splash that I feel obliged to mention it, but to be honest, I got nothin’ on it. As far as I can tell, the failure didn’t have anything to do with Citigroup’s stock compensation program, putting it squarely in the category of “things I don’t really care about.” I’ve read speculation that the failure had more to do with dissatisfaction with the banking industry than with Citigroup’s executive compensation programs.
Funny Numbers
This year’s Say-on-Pay vote for Cooper Industries may prove that it doesn’t pay to get cute with your Say-on-Pay vote. Last year, Cooper Industries reported that their Say-on-Pay vote passed with 50.4% support. But, to achieve this, Cooper chose not to count abstentions as “against” votes. This is legally permissible and handy for Cooper because if the abstentions had been counted as “against” votes, their Say-on-Pay proposal would have failed last year.
But, in the end, their decision about how to count abstentions earned them only a short reprieve–this year’s Say-on-Pay vote failed with 70.6% of the votes cast against the proposal.
The Round-Up
According to Mark Borges’ Proxy Disclosure Blog on CompensationStandards.com (my #1 source for the most recent Say-on-Pay vote tabulations), there have been seven Say-on-Pay failures in the 2012 proxy season as of yesterday. As of May 2, 2011, there had been eleven failed Say-on-Pay votes, so companies this year seem to be faring slightly better (unless there are four more failures by tomorrow). Of the seven failures this season, only one failed last year (I believe Mark is counting Cooper Industries as a failure in 2011, despite how they counted their own vote). Three of the failures (Citigroup, FirstMerit, and International Games) had received strong support (over 80%) for their Say-on-Pay votes in 2011.
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.
Register for the 20th Annual NASPP Conference in New Orleans. Don’t wait, the early-bird rate is only available until May 31.
Register for the NASPP’s newly updated online Stock Plan Fundamentals program–it’s not too late to get into the course; the first three webcasts have been archived for you to listen to at your convenience.
Last week, on April 5, President Obama signed the Jumpstart Our Business Startups (JOBS) Act into law. Intended to make it easier for startups to raise capital and go public, JOBS has three primary thrusts: 1) making it easier to raise capital (including “crowdfunding” and unregistered offerings), 2) making it easier for companies to go public, and 3) making it easier for newly public companies to be public (e.g., reduced public reporting). Today I begin looking at the provisions of JOBS that are relevant to stock compensation.
Reduced Disclosures for EGCs
JOBS creates a new category of company, an “Emerging Growth Company.” An EGC is essentially a company with less than $1 billion in revenues that is private or has been public for less than five years (I’m simplifying this, there are a couple of other requirements). In addition to provisions designed to encourage investment in EGCS and allow them to explore an IPO without filing a public registration statement, JOBS also reduces the public disclosures and reporting EGCs are subject to.
In the context of compensation, EGCs are allowed to comply with the executive compensation disclosures required for smaller reporting companies (companies with a public float of less than $75 million or, if unable to calculate public float, revenues of less than $50 million). This results in the following changes to their disclosures:
Disclosure for only top three, rather than top five, NEOs
No CD&A
Only two years reported in Summary Compensation Table
Fewer tabular disclosures: only the SCT, Outstanding Equity Awards at Fiscal Year-End Table, and Director Compensation Table
Dodd-Frank “Light”
EGCs also don’t have to comply with some of the provisions of the Dodd-Frank Act, including:
Say-on-Pay, et. al.
CEO pay ratio disclosure
Disclosure relating executive pay to company financial performance
Of course, right now, there aren’t any companies required to comply with the CEO pay ratio and executive pay for performance disclosures because the SEC hasn’t promulgated rules on these yet. JOBS only adds to the long list of SEC rule-making projects and I’ve read speculation that the SEC won’t make the deadlines under JOBS because of Dodd-Frank and other rulemaking projects that are still outstanding.
I also find it ironic that, just 21 months after Congress decided that shareholder advisory votes on executive compensation were a critical component of an effective corporate governance system, that policy has now taken a back seat to other considerations when it comes to recently-public companies.
Finally, I can’t quite get my head around the reasoning for exempting emerging growth companies from the CEO pay ratio requirement. It was my understanding that the complaints of the business community that the provision is too burdensome were falling on deaf ears in Congress. Yet, it appears that Congress has just decided that the provision is too burdensome for newly-public companies – a group that, ostensibly, doesn’t face the same compliance challenges of large, global companies.
Stay tuned; next week I’ll discuss the new shareholder thresholds for required registration.
NASPP Conference Early-Bird Rate Ends on Friday The early-bird rate for the 20th Annual NASPP Conference ends this Friday, April 13. This rate will not be extended, so don’t wait any longer to register.
Online Fundamentals Starts on Thursday The NASPP’s acclaimed online program, Stock Plan Fundamentals, starts this Thursday, April 12. This is a great program for anyone new to the industry. Register today so you don’t miss the first webcast.
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.
Register for the NASPP’s newly updated online Stock Plan Fundamentals program–don’t wait; the first webcast is this Thursday.
Register for the 20th Annual NASPP Conference in New Orleans. The early-bird rate is only available through this Friday, April 13.
It was great to see many of you at the NASPP Conference last week. With no shortage of issues to debate, discuss and dissect, there was something meaningful for everyone.
Fresh off the conference, my mind is full of new information. I’ve narrowed my thoughts down to a couple of interesting things that I’ve seen or (over)heard.
Overheard: Say-on-Pay is Still in Infancy
I count myself among the people who were relieved (okay, surprised) to learn that only 40 companies failed to achieve a majority shareholder vote for the say-on-pay agenda item in their 2011 proxy statement. The pessimistic side of me (which is usually far more dormant than the optimistic side) thought the number would have been higher. While it’s good news that the number of say-on-pay failures was low, it’s too soon to truly know how say-on-pay will impact future proxy seasons. Last week’s Plenary Session at the NASPP Conference (“Say-on-Pay Shareholder Engagement: The Investors Speak”) was a fascinating glimpse into the minds of institutional shareholders. For those who missed this session, the panel shared insight into their say-on-pay related analysis and newly emerging policies and practices. A few things I learned included:
Aside from companies who failed to garner an affirmative say-on-pay vote from the majority of their shareholders, the next biggest concern is for those companies whose say-on-pay agenda items did receive a majority vote, but with narrow margins (which seems to be loosely defined as less than 75%). Those companies have a degree of vulnerability going into the 2012 proxy season, because there was something about last year’s disclosures, practices or proposals that created some shareholder stir. Those companies need to carefully evaluate what may be of issue and take proactive steps to work with shareholders early.
Each institution varies in their say-on-pay policies. In short, they are still evolving in determining their respective approaches in this area. This is new to them, too. As a result, there is no present ‘formula’ or magic method that will universally ensure an affirmative say-on-pay vote from the majority of shareholders. If you have concern, you need to talk to each major shareholder to understand their say-on-pay policies and how they are progressing. If your investor demographic changes, don’t assume that the newest shareholders have the same policies as your other shareholders when it comes to say-on-pay.
The institutions want to hear from companies, particularly those with prior vote challenges, and/or those with current proposals/practices that may be potentially problematic or prone to misinterpretation. The key is engaging early – most of the institutions on the panel expressed agitation over being contacted in the days leading up to the shareholder vote. The take away? Reach out early on, before proxy season if possible.
It’s clear that while the say-on-pay fallout from last year’s proxy season may have been less than anticipated, say-on-pay is still in the baby phase. As a result, keeping on top of changes in shareholder attitudes and policies is a must; more so now than ever.
Seen: Time Travel
I took a trip down memory lane this week when a white paper published by Solium crossed my desk. The paper, titled “The NASPP at 19: The Evolution of the Stock Plan Industry”, reviews the past 20 years of regulatory changes, developments, and administration practices. I know we can all attest to the fact that time flies (whether we’re having fun or not!). When I think about the evolution of our industry over the past 20 years, I feel proud of how far we all have come – from the administrators who are now dealing with far more complex stock compensation programs, to the vendors and industry resources that support them. If you want to take a nostalgic journey, view the paper in our Document Library.
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.
Did It Pass? Understanding Shareholder Voting Issues By Keith Bishop of Allen Matkins
Because we live in a democracy, we are likely to feel that we have a good understanding of voting. The basic principle is that whoever or whatever gets the most votes wins. Voting, however, is a far more complicated subject than many governance professionals may realize.
When determining whether a proposal has passed, the first step is to determine the applicable voting rule. This will be a function of state corporate law and the corporation’s charter documents. For Delaware corporations, Section 216 provides a general (there are some exceptions) default rule for matters other than the election of directors – the affirmative vote of the majority of the shares present and entitled to vote present in person or by proxy at the meeting. However, this default rule is not immutable. It can be changed by the certificate of incorporation or the bylaws. Some Delaware corporations, for example, have adopted a majority of the votes cast rule for shareholder action. Thus, it is important to review a company’s charter documents when determining whether a matter has been approved.
What’s the difference between these two rules? Under Delaware’s default rule, broker non-votes are not counted as votes against because they are not considered present and entitled to vote. Under a “votes cast” standard, abstentions and broker non-votes aren’t counted as votes against because neither is a vote against.
But wait, there’s more. In determining whether a proposal has passed, it is critical that companies ask the question “why are we seeking shareholder approval?” If shareholder approval is being sought to meet listing, tax or other requirements, additional, and even conflicting, voting requirements may come in to play.
For example, the New York Stock Exchange (Rule 303A.08) generally requires listed companies to obtain shareholder approval of equity compensation plans. The requisite standard for approval appears to be similar to a majority of the votes cast standard – “the minimum vote which will constitute shareholder approval for listing purposes is defined as approval by a majority of votes cast on a proposal in a proxy bearing on the particular matter, provided that the total vote cast on the proposal represents over 50% in interest of all securities entitled to vote on the proposal.” Rule 312.07. However, the NYSE treats abstentions as votes cast regardless of their treatment under state law. Consequently, a measure may pass as a matter of state law and yet fail to meet the NYSE’s requirement.
Determination of whether a proposal has passed is not as easy as it may seem. It requires an understanding of applicable state law as well as other applicable listing and legal requirements.
Don’t Miss the 19th Annual NASPP Conference The 19th Annual NASPP Conference will be held from November 1-4 in San Francisco. With Dodd-Frank and Say-on-Pay dramatically impacting pay practices, you cannot afford to fall behind in this rapidly changing environment; it is critical that you–and your staff–have the best possible guidance. The NASPP Conference brings together top industry luminaries to provide the latest essential–and practical–implementation guidance that you need. This is the one Conference you can’t afford to miss. Don’t wait–the hotel is filling up fast; register today to make sure you’ll be able to attend.
They grow up so fast! July 21 was the one-year anniversary of the Dodd-Frank Act (in case you are wondering, it’s been nine years since SOX was passed–time sure flies when you’re having fun). Today I take a look at Say-on-Pay results and highlight a recent announcement from the SEC about the timeline of further Dodd-Frank rulemaking projects.
To reminisce more on Dodd-Frank developments over the past year, check out the memo “Dodd-Frank One Year Later” by David Lynn of Morrison & Foerster (and editor of TheCorporateCounsel.net).
Say on Pay: The Results So Far
With proxy season winding down, here are the latest Say-on-Pay results (courtesy of Mark Borges, who has been providing weekly Say-on-Pay updates in his excellent blog on CompensationStandards.com):
2,596 companies have reported votes. Of those, only 37 reported failed votes, but there are three additional companies (Cooper Industries, Hemispherix Biopharma, and isoRay) where whether the Say-on-Pay vote passed depends on how you count. Of course, if your Say-on-Pay vote is that close, it probably doesn’t matter whether you count it as a pass or fail; either way, you are likely to be making some changes to your executive pay.
At least three companies (Lockheed Martin, General Motors, and Umpqua Holdings) modified prior grants to be subject to performance vesting in response to shareholder comments in connection with their Say-on-Pay votes.
At a majority (about 76%) of the companies reporting votes, shareholders expressed a preference for annual Say-on-Pay votes.
SEC Delays Further Rulemaking
In his also excellent blog on CompensationStandards.com, Mike Melbinger reported yesterday that the SEC has modified its schedule for adopting rules relating to the Dodd-Frank Act, including the key provisions applicable to executive compensation. Here is the new schedule:
August – December 2011
§951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation
§§953 and 955: Adopt rules regarding disclosure of pay-for-performance, CEO to median employee pay ratio, and hedging policies
§954: Adopt rules regarding recovery of executive compensation (i.e., clawbacks)
§956: Adopt rules (jointly with others) regarding executive compensation at covered financial institutions
July – December 2012
§952: Report to Congress on study and review of the use of compensation consultants and the effects of such use
Given the new schedule, Mike thinks it unlikely that most of these rules will be effective for next year’s proxy season, but there is a chance that one or two provisions will be effective for proxies filed after January (as with the Say-on-Pay rules, published in January 2011). Mike notes that the SEC will propose rules first (and already has for a couple of the provisions), so we should know well in advance which provisions will be final for the 2012 proxy season.
It’s Not Too Late to Enroll in the NASPP’s Financial Reporting Course The NASPP’s newest online program, “Financial Reporting for Equity Compensation” started on Thursday, July 14, but it’s not too late to get into the course. All webcasts have been archived for you to listen to at your convenience.
Designed for non-accounting professionals, this course will help you become literate in all aspects of stock plan accounting, from expense measurement and recognition, to EPS and tax accounting. Register today so you don’t miss any more webcasts.
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.
Don’t miss your local NASPP chapter meetings in Kansas/Missouri, Philadelphia, and Phoenix. And, next week, on August 10, the San Francisco chapter will host their annual all-day event at Wente Vineyard in Livermore, CA. You really should come out for this exceptional event.
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.
Say-on-Pay vote failures have picked up, with more failures last week than any other week so far this proxy season. Today I provide an update on the latest Say-on-Pay stats and comment on a couple of companies that recently modified options granted to their CEOs in response to shareholder feedback related to their Say-on-Pay votes.
Say-on-Pay: The Latest Data Broc Romanek and Mark Borges have been keeping track of Say-on-Pay votes in their respective blogs on TheCorporateCounsel.net and CompensationStandards.com. Last week, Navigant Consulting, Cogent Communications, MDC Holdings, and Janus Capital were the eighth, ninth, tenth, and eleventh companies to report that their Say-on-Pay proposals failed.
Say-on-Pay Frequency
Say-on-Pay Frequency votes seem to be primarily ending up in the annual camp; if my math is correct, of the companies that have held and reported votes thus far, 72% have reported that shareholders prefer annual votes. Many companies have put forth a recommendation for an annual vote, rather than risk the embarrassment of shareholders voting against managements’ recommendation.
Even so, a triennial vote is a possible outcome–Mark Borges reports that, of the 235 companies where the board has recommended a triennial vote (and the companies have reported vote results), only 43% have reported that shareholders indicated a preference for annual votes. Fascinatingly, at one company (Qualstar), management recommended an annual vote but shareholders preferred a triennial vote.
Options Modified in Response to Shareholder Feedback
I think it is also notable that, in the last two weeks, two companies, GE and Lockheed Martin, announced modifications to options held by their CEOs. The modifications added performance targets to options that were previously only service-based. In both cases, the modified options now vest based on two independent performance goals (50% of the options vest when one goal is met and 50% vest when the other goal is met). In Lockheed’s case, one goal is based on cash from operations and the other is based on ROIC. For GE, one goal is also based on cash-flow, but the other goal is tied to relative TSR–which adds a market condition to an option that was previously only service-based. I’m very intrigued by the accounting implications–or possible lack thereof–of these modifications and I hope to look at them at length in an upcoming issue of The Corporate Executive.
According to SEC filings submitted by both companies, the options were modified in response to conversations they had with shareholders (and ISS, we imagine). It seems likely that the modifications were necessary to ensure passage of their Say-on-Pay votes and are illustrative of the level of power Say-on-Pay has given shareholders.
Save Big on NASPP Conference by Completing Survey NASPP members that complete the NASPP’s 2011 Domestic Stock Plan Administration Survey (co-sponsored by Deloitte) by May 13 can save 10% off the early-bird rate for the 19th Annual NASPP Conference (which is already a significant savings off the regular registration rate). Register to complete the survey today–so you don’t have to explain to your boss why you missed out on this rate.
Only Ten Days Left for NASPP Conference Early-Bird Rate It’s hard to believe how time flies, but the 19th Annual NASPP Conference early-bird rate expires next Friday, May 13. This deadline will not be extended–register for the Conference today, so you don’t miss 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.
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.
Attend your local NASPP chapter meetings in San Diego and Wisconsin. Robyn Shutak, the NASPP’s Education Director, will be at the San Diego meeting–be sure to say hello!
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!
For many stock plan administrators, all the press about Say-on-Pay has been just noise. Companies have been submitting their stock plans for shareholder approval for years, decades even, and stock plan administration often isn’t involved with cash-based executive pay, so what role does stock plan administration have here?
Say-on-Pay=Golden Opportunity?
But, I think that Say-on-Pay is a great opportunity for stock plan administrators to show that they deserve a seat at the table when it comes to designing compensation programs. Stock is likely to be a big part of your executives’ compensation and, likewise, a big part of the CD&A. You can help by making sure the folks drafting the CD&A are aware of which features in your stock plans are likely to draw shareholder criticism–and, therefore, may require additional explanation–and which features are likely to please shareholders–and, therefore, should be highlighted. You might even want recommend changes in your stock compensation programs that would make them more shareholder friendly.
The Critical First Year
I see this first year of Say-on-Pay as critical. Clearly, if shareholders have past grievances against your executive pay programs that they don’t feel have been attended to, this is an opportunity for them to express their ire. But, even more important than the Say-on-Pay vote, is the Say-on-Pay frequency vote–in which shareholders decide whether they want to vote on your executive compensation programs every one, two, or three years.
A well-crafted CD&A that addresses all shareholder concerns is critical this year. You want shareholders to feel absolutely confident about the decisions the company is making about executive compensation, so they don’t feel that they need to vote on the compensation every year (or even every two years).
Write a Memo
Now would be a great time to draft a memo for your manager that highlights the good, the bad, and the ugly in the stock compensation paid to your executives, with appropriate recommendations on how each issue might be addressed (or emphasized, for the good stuff) in the CD&A.
The Bad (and the Ugly)
To get you started, here are few stock-compensation related features that can irritate shareholders. If any of these apply to your stock plans, special discussion in the CD&A may be warranted:
Repricing, especially without shareholder approval
Mega grants
Grants made when your stock was at its low point that are now producing windfalls for executives
Paying dividends on unvested performance awards or units
Tax gross-ups
Performance awards where the performance criteria is too easily achieved or that are paid out even if the goals aren’t achieved
Liberal change-in-control provisions (e.g., CIC provisions that allow awards to be paid out even if the deal doesn’t close)
Of course, it goes without saying that discounted stock options are a problem, but, with the backdating scandal mostly behind us and 409A firmly in place, I doubt many, if any companies, still have any of these. Oddly enough, however, shareholders sometimes show an aversion to even at-the-money options over say, full value awards. So if you are still granting predominately stock options to execs, this may bear some discussion, depending on how enlightened your shareholders are.
The Good
And, here’s the flip side–stock compensation-related features that you want to emphasize to your shareholders:
Performance awards with appropriately challenging targets and where the board retains (negative) discretion over payouts
Hold-through-retirement policies and share retention requirements
Clawback and non-complete (and similar) provisions
Award deferral programs (a risk-mitigation strategy, similar to stock retention requirements)
Double-triggers and other responsible CIC provisions
Anti-hedging policies
And More…
Of course, neither of the above is a complete list–this is a blog that is already too long, not an unabridged compendium of executive compensation. If you missed the 18th Annual NASPP Conference, there were a number of sessions presented on Say-on-Pay and executive compensation that provide further information on shareholder hot buttons–purchase the audio for any and all of the these sessions. And the NASPP’s Plan Design Portal has some great articles that might also help with your memo.
Time is Running Out! All NASPP memberships expire on a calendar-year basis. Renew your membership by Dec 31 and you’ll qualify to receive the audio for one NASPP Conference session for free! Don’t wait any longer–you have less than two weeks left to take advantage of this offer!
This offer is also available to anyone the joins the NASPP before December 31–tell all your friends!
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.
Renew your NASPP membership for 2011 (if you aren’t an NASPP member, join today). Renew or join by Dec 31 to qualify to receive the audio of one NASPP Conference session for free.