Last week, the SEC adopted the final CEO pay ratio disclosure rules. I’ve been on vacation, so I don’t have a lot to say about them, but Broc Romanek’s blog on ten things to know about the rules is better than anything I could have written anyway, so I’m just going to repeat that here:
1. Effective Date is Not Imminent (But You Still Need to Gear Up Now): We can look forward to new “Top 10″ Lists in a couple years. Highest and lowest pay ratios. Although the rules aren’t effective until the 2018 proxy statements for calendar end companies, you still need to start gearing up, considering the optics of your ultimate disclosures. The rules do not require companies to report pay ratio disclosures until fiscal years beginning after January 1, 2017.
2. You Don’t Need to Identify a New Median Employee Every Year! This is the BIG Kahuna in the rules! A big cost-saver as the rules permit companies to identify its median employee only once every three years (unless there’s a change in employee population or employee compensation arrangements). Your still need to disclose a pay ratio every year—but you don’t have to go through the hassle of conducting a median employee cost analysis every year. During those two years when you rely on a prior-calculated median employee, your CEO pay is the variable.
3. Pick Your Employee Base Within Three Months of FYE: The rules allow companies to select a date within the last three months of its last completed fiscal year to determine their employee population for purposes of identifying the median employee (so you don’t count folks not yet employed by that date—but you can annualize the total compensation for a permanent employee who did not work for the entire year, such as a new hire).
4. Independent Contractors Aren’t Employees: Duh.
5. Part-Time Employees Can’t Be Equivalized: The rules prohibit companies from full-time equivalent adjustments for part-time workers—or annualizing adjustments for temporary and seasonal workers—when calculating pay ratios.
6. Non-US Employees & the Whole 5% Thing: For some reason, the mass media is in love with this part of the rules. The rules allow companies to exclude non-U.S. employees from the determination of its median employee in two circumstances:
– Non-U.S. employees that are employed in a jurisdiction with data privacy laws that make the company unable to comply with the rule without violating those laws. The rules require a company to obtain a legal opinion on this issue—can you say “cottage industry”!
– Up to 5% of the company’s non-U.S. employees, including any non-U.S. employees excluded using the data privacy exemption, provided that, if a company excludes any non-U.S. employee in a particular jurisdiction, it must exclude all non-U.S. employees in that jurisdiction.
7. Don’t Count New Employees From Deals (This Year): The rules allow companies to omit employees obtained in a business combination or acquisition for the fiscal year in which the transaction took place (so long as the deal is disclosed with approximate number of employees omitted.)
8. Total Comp Calculation for Employees Same as Summary Comp Table for CEO Pay: The rules state that companies must calculate the annual total compensation for its median employee using the same rules that apply to CEO compensation in the Summary Compensation Table (you may use reasonable estimates when calculating any elements of the annual total compensation for employees other than the CEO (with disclosure)).
9. Alternative Ratios & Supplemental Disclosure Permitted: Companies are permitted to supplement required disclosure with a narrative discussion or additional ratios (so long as they’re clearly identified, not misleading nor presented with greater prominence than the required ratio).
10. Register NOW for the Proxy Disclosure Preconference and August 25 Pay Ratio Workshop:Register now before the discount ends next Friday, August 21. The Proxy Disclosure Preconference will be held on October 27, in advance of the NASPP Conference in San Diego. Registration for the Proxy Disclosure Preconference also includes access to a special online Pay Ratio Workshop that will be offered on August 25. The Course Materials will include model disclosures and more. Act by Friday, August 21 to save!
Last Wednesday, the SEC proposed the last set of compensation-related rules required under Dodd-Frank: clawback policies. This is one of those things where the SEC can’t directly require companies to implement clawback provisions, so instead, they are proposing rules that would require the NYSE and NASDAQ to add the requirement to their listing standards for exchange-traded companies.
Clawback Policies
The requirements for clawback policies under Dodd-Frank are much broader than under SOX (which required misconduct and applied only to the CEO and CFO). Here’s the gist of the SEC’s Dodd-Frank proposal:
Applies to all officers (generally the same group subject to Section 16) and former officers
Clawback is triggered by any material noncompliance with financial reporting standards, regardless of whether intent, fraud, or misconduct is involved
Applies only to incentive compensation contingent on the financial results that are subject to the restatement (interestingly, this includes awards in which vesting is contingent on TSR or stock price targets)
Recoverable Amount
The amount of compensation that would be recovered is the excess of the amount paid over what the officer is entitled to based on the restated financials.
In the case of awards in which vesting is contingent on TSR or stock price targets, the company would have to estimate the impact of the error on the stock price. Which seems a little crazy to me. But I didn’t take a single math, science, economic, or business course in college so my understanding of what drives stock price performance is most charitably described as “rudimentary.” Perhaps this is more straightforward than I think.
In the case of equity awards, if the shares haven’t been sold, the company would simply recover the shares. If the shares have been sold, the company would have to recover the sale proceeds (good luck with that). If you weren’t in favor of ownership guidelines and post-vesting holding periods for executives before, this might change your mind, possession being nine-tenths of the law and all. Check out our recent webcasts on these topics (“Stock Ownership Guidelines” and “Post-Vest Holding Periods“)
Disclosures
In addition to requiring a clawback policy, the SEC has also proposed a number of disclosures related to that policy:
The policy itself would be filed with the SEC as an exhibit to Form 10-K.
Companies would be required to disclose whether a restatement that triggered recovery of compensation has occurred in the past year.
If a restatement has occurred, the company must disclose the amount of compensation recoverable as a result of the restatement and the amount of this compensation that remains unrecovered as of the end of the year. For officers for whom recoverable compensation remains outstanding for more the 180 days, the company must disclose their names and the amounts recoverable from them.
For each person for whom the company decides not to pursue recovery of compensation, the company must disclose the name of the person, the amount recoverable, and a brief description of the reason the company decided not to pursue recovery.
More Info
For more information, check out the NASPP alert on this topic. The memos from Ropes & Gray, Jenner & Block, and Covington, as well as Mike Melbinger’s blogs on CompensationStandards.com, were particularly helpful to me in writing this blog (in case you don’t want to read all 198 pages of the SEC’s proposal).
Fake EDGAR filings are a thing. The EDGAR system requires more access codes than any of my financial accounts: there’s the CIK, CCC, password, password modification code, and passphrase. That’s five codes to access the system. And, to get the codes, you have to submit a notarized form to the SEC. So it seems surprising that anyone would be able to submit a fake EDGAR filing, but apparently it happens.
Recently, someone filed a fake Schedule TO announcing a takeover of Avon (“A Phantom Offer Sends Avon’s Shares Surging,” NY Times, May 14, 2015). In 2012, someone (probably the same someone) submitted a fake buyout offer for the Rocky Mountain Chocolate Factory. A guy named Johnny Earl Satterwhite has filed 61 highly suspicious Section 16 filings claiming, among other things, that he owns 999 billion shares of Microsoft and Exxon Mobil, which is something like more than 100 times the number of shares that actually exist in these companies (“Texan Plays April Fool’s Joke on SEC, Investors with 999 Billion Shares,” Footnoted*, June 20, 2011).
From Broc Romanek’s May 19 blog on TheCorporateCounsel.net:
This latest incident [fake Schedule TO for Avon] is a cautionary tale for investors as it’s not the first fake takeover announcement. My favorite dates back to 2001, as noted in this piece, when a fake “blank check” company calling itself “Toks Inc.” filed a Form SB-2 with the SEC announcing plans to take over General Motors, General Electric, AT&T, Hughes Electronics, AT&T Wireless, AOL Time Warner and Marriott International—roughly $2 trillion in “Toks” stock. The promoter—Ade O. Ogunjobi—didn’t give up even when the SEC issued a “Stop Order” to prevent the registration statement from going effective and suing him for selling unregistered securities, later launching a website to promote his wild ambitions and plans to then hold press conferences to announce his plans for these major US companies he was to take over!
While the idea of fake EDGAR filings may seem a little crazy and fantastical, the fraudulent filings can have serious repercussions. Avon’s stock price increased by about $1 per share (a 20% increase) after the fake Schedule TO filing, then dropped back to prior levels after the TO was revealed to be a hoax. But, according to Bloomberg, $91 million worth of Avon shares changed hands before trading was halted in Avon’s stock, four times Avon’s trading volume the prior day (“About $91 Million of Avon Stock Traded at Peak of Frenzy,” Bloomberg Business, May 14, 2015). The SEC has charged a Bulgarian, Nedko Nedev, with filing using the fake buyout offer to manipulate Avon’s stock price for his personal gain, (“S.E.C. Charges Man in Bulgaria in Fake Takeover Offer for Avon,” NY Times, June 4, 2015).
Here are my key takeaways on this:
Don’t believe everything you read on the internet, even if it is on EDGAR.
Don’t submit fake EDGAR filings for your own personal gain because it seems like it probably isn’t going to be all that hard for the SEC to catch you, even if you are in Bulgaria. Definitely don’t do it more than once.
I feel like I should have some key takeaways on how you an prevent your company from being a victim of a fake EDGAR filing, but I’ve got nothin’ on that. I would suggest not sharing your CIK, but that number is already publicly available all over EDGAR.
– Barbara
Thanks to Tami Bohm of Radian for suggesting this topic.
I’m sure all of my readers know that Form S-8 is used by public companies to register shares that will be issued under an employee stock plan with the SEC. In it’s January-February 2015 issue, The Corporate Counsel took a closer a look at some of the technical requirements of Form S-8. Here are a few things I learned from the article.
Fee Offsets Are Complicated
Companies wishing to register shares on a Form S-8 must pay a registration fee to the SEC. This fee is based on the value of the stock to be issued under the plan and the total number of shares to be issued. Where shares registered under prior S-8 filings will not be issued, companies can use the fees associated with these unissued shares to offset the fees to file a new Form S-8. But there’s a catch: the offering covered by the S-8 that the fees will be transferred from has to be completed, terminated or withdrawn and the new S-8 has to be filed within five years of when the original S-8 was filed. Because most stock plans have a term of ten years (and the offering isn’t viewed as completed until there are no further outstanding options/awards under the plan), this means that this offset often available. This is covered in the Securities Act Rules CDI Question 240.11.
No Share Offsets
Shares cannot be carried forward from one form S-8 to another. Thus, if shares from an expiring plan (and covered under the Form S-8 filed for that plan) will be transferred to a new plan, the shares have be registered again on the Form S-8 filed for the new plan (and are included in the calculation of the registration fee for the new plan).
New Form S-8 Must Be Filed to Register New Share Allocation
Where shares are newly allocated to an existing plan, a new Form S-8 must be filed to register those shares. They cannot be registered by amending the prior Form S-8 filed for the plan. But, the good news is that a abbreviated format can be used for the new Form S-8. The Corporate Counsel says:
In this scenario, General Instruction E to Form S-8 provides that, for the registration of additional securities of the same class covered by an existing Form S-8 relating to an employee benefit plan, the issuer may file an abbreviated registration statement containing only a cover page, a statement that the contents of the earlier registration statement—identified by file number—are incorporated by reference, the signature page, any required opinions and consents, and any information required in the new registration statement that is not in the earlier registration statement.
Share Counting
I was surprised to learn that it may be not permissible to count share usage for Form S-8 purposes the same way shares are counted against the share reserve. According to the article:
A recommended approach for dealing with forfeited shares is to treat the original restricted stock grant and the subsequent re-grant as two separate issuances for purposes of counting the amount of shares remaining on the Form S-8. But be aware that when counting shares this way, an issuer can deplete shares registered on Form S-8 faster than it depletes the plan capacity shares, so the issuer should keep a separate ledger for both the Form S-8 and the plan share counting. Also note that this approach might be overly conservative for some practitioners who do not believe that the issuer needs to count the forfeited shares as having been issued against the total, particularly with respect to options. There is also a concern that this approach can lead to problems in determining the real share reserve for other purposes, such as for accounting purposes.
The article further notes:
Options and stock-settled SARs should be counted when exercised for the full gross amount exercised (i.e., unreduced for any net exercise or withholding), while stock awards should be counted when granted. For performance stock awards, the conservative approach is that they should be counted at grant for the target number of shares—with any shares actually issued in excess of target counted at the time of issuance.
As expected (and as I blogged last week), the SEC has issued a proposal for the pay-for-performance disclosure required under Dodd-Frank. Proxy disclosures aren’t really my gig, so I don’t have a lot more to say about this topic. Luckily, Mike Melbinger of Winston & Strawn provided a great bullet-point summary of the proposed disclosure in his blog on CompensationStandards.com. I’m sure he won’t mind if I “borrow” it.
The proposed rules rely on Total Shareholder Return (TSR) as the basis for reporting the relationship between executive compensation and the company’s financial performance.
Based on the explicit reference to “actually paid” in Section 14(i), the proposed rules exclude unvested stock grants and options, thus continuing the trend to reporting realized pay. Executive compensation professionals will need to sharpen their pencils to explain the relationship between these figures and those shown in the Summary Compensation Table.
For equity-based compensation, companies would use the fair market value on date of vesting, rather than estimated grant date fair market value, as used in the SCT.
The proposed rules also would require the reporting and comparison of cumulative TSR for last 5 fiscal years (with a description of the calculations).
The proposed rules would require a comparison of the company’s TSR against that of a selected peer group.
The proposed rules would require separate reporting for the CEO and the others NEOs—allowing use of an average figure for the other NEOs.
The proposed rules would require disclosure in an interactive data format—XBRL.
Compensation actually paid would not include the actuarial value of pension benefits not earned during the applicable year.
The proposed rules would phase in of the disclosure requirements. For example, in the first year for which the requirements are applicable [2018?], disclosure would be required for the last 3 years only.
The proposed rules exclude foreign private issuers and emerging growth companies, but not smaller reporting companies. However, the proposed rules would phase in the reporting requirements for smaller companies, require only three years of cumulative reporting, and not require reporting amounts attributable to pensions or a comparison to peer group TSR.
A Few More Thoughts
In the NASPP’s last Domestic Stock Plan Design Survey (co-sponsored by Deloitte Consulting), usage of TSR targets for performance awards increased to 43% of respondents. With this new disclosure requirement, will even more companies jump on the TSR-bandwagon?
At least there’s one bit of good news: the disclosure covers only the NEOs, not a broader group of officers as was originally feared.
More Information
To learn more about the proposed regs, check out our NASPP alert, which includes a number of practitioner memos. The memo from Pay Governance includes a nifty table comparing the SEC’s definition of “actual” pay to the SCT definition of pay, traditional definitions of realized and realizable pay, and the ISS definition of pay.
It’s beginning to look this is going to be the year of Dodd-Frank rulemaking at the SEC. We may have the CEO pay-ratio disclosure rules by the end of the year, the SEC recently proposed rules for hedging policy disclosures, and now the SEC appears poised to propose the pay-for-performance disclosure rules this week.
Readers will recall that Dodd-Frank requires the SEC to promulgate rules requiring public companies to disclose how executive compensation related to company financial performance (see my blog entry, “Beyond Say-on-Pay,” August 5, 2010). In his April 24 blog on TheCorporateCounsel.net, Broc Romanek noted that the SEC has calendared an open Commission meeting for this Wednesday, April 29, to propose the new rules.
Broc’s Eight Cents
Broc offered eight points of analysis on this disclosure:
1. Companies can get the data and crunch the numbers. I don’t think that the actual implementation itself will be difficult.
2. But I think what could be particularly worrisome is having yet another metric to figure out what the CEO got paid and trying to explain all of it.
3. You know how companies have different schemes for granting equity, including type and timing. If the rules tend to try to fit everyone into a narrow bucket in order to try to line everyone up for comparability, and a company’s program doesn’t quite fit neatly into it, then the disclosure can get even more complicated.
4. There are two elements: compensation and financial performance. What is meant by “financial performance” for example? Maybe the SEC will just ask for stock price, maybe they’ll go broader.
5. A tricky part likely will be the explanation of what it all means—and how it works with the Summary Compensation Table.
6. I don’t think it will be difficult to produce the “math” showing the relationship of realized/realizable pay relative to TSR and other financial metrics, so long as:
– There’s a tight definition of realized pay
– We know what period to measure TSR (and if multiple periods can be used)
– We know what other performance measures can be included (if any) and if they can be as prominent in the disclosure as TSR
7. Another area of potential difficulty is explaining why there is not a tight or tighter correlation with TSR (“we use metrics other than TSR to drive our compensation; thus, the correlation is not very strong; on the other hand, our compensation is based on Revenue Growth and EBITDA Margin, and as Exhibit II demonstrates, the correlation is very significant”).
In addition, Dodd-Frank has no requirement for a relative ranking, and companies will need to decide if TSR and Pay should be put in some type of relative context (“relative to our peers, our realizable pay was well below the peers; so even though compensation is not tightly aligned with stock price performance the last 3 years, we did not pay our bums very much).
8. I think what may be the most difficult to address is a requirement to discuss what the Compensation Committee plans to change—and why is it now that it has performed the analysis?
Let’s Make It a Dime; Here’s My Two Cents
I’m not sure that the problem with executive compensation is that companies aren’t disclosing enough information about it. Isn’t this what the CD&A is for? Isn’t this why the stock performance graph is included with the executive compensation disclosures?
Moreover, does anyone think that any company will just come out and say that their executive compensation is not based on or tied to company performance in any way? I’m just not sure that public companies need one more disclosure to try to convince their shareholders that the amount of compensation they are paying to their executives is justified by the company’s performance.
It’s been a while since I posted a stock compensation grab bag. Here are a few recent developments that don’t warrant their own entry but are still worth knowing about.
HSR Filing Thresholds
Good news: now executives can acquire even more stock! Under the Hart-Scott-Rodino Act, executives that acquire company stock in excess of specified thresholds are required to file reports with the Federal Trade Commission and the Department of Justice. The thresholds at which these reports are required have increased for 2015. See the memo we posted from Morrison & Foerster for the new thresholds, which are effective as of February 20, 2015.
If you have no idea what I’m talking about, check out our handy HSR Act Portal.
Final FATCA Regs
The Foreign Account Tax Compliance Act (FATCA) requires employees to report any overseas accounts that hold specified foreign financial assets, which could be interpreted to include stock awards issued by non-US corporations. The assets (stock awards, for our purposes) are reported on IRS Form 8938 (“Statement of Specified Foreign Financial Assets”), which is filed with the annual tax return. Final FATCA regulations, released in December 2014, clarify that unvested awards, do not need to be reported on Form 8938 until they have “substantially vested” (except in the case of a Section 83(b) election).
Dodd-Frank Rulemaking Update
The SEC has pushed back its agenda of rulemaking projects under the Dodd-Frank Act. The proposed rules for clawback requirements, disclosure of hedging policies, and pay-for-performance disclosures and the final rules for the CEO pay ratio disclosure have been pushed back to October 2015 (just in the time for the 23rd Annual NASPP Conference). This is despite comments from SEC Chair Mary Joe White last fall that the SEC was pushing to issue the final CEO pay ratio rules by the end of year. That’s a big delay—from the end of 2014 to October 2015—especially given the pressure on the SEC to issue these rules.
Section 83(b) Election Update
When making a Section 83(b) election, employees are required to include a copy of the election with their tax return for the year in which the election is made. In PLR 201438006, the IRS ruled that a Section 83(b) election was valid even though the taxpayer failed to attach a copy of the election to his Form 1040. If the failure had invalidated the election, employees could effectively revoke the election by “forgetting” to include it with their tax return—and, as we all know, Section 83(b) elections are irrevocable once the deadline to file them has elapsed.
I’ve been listening to the recordings of the sessions at the 22nd Annual NASPP Conference. And frankly, I’ve been surprised—pleasantly surprised by how much I’ve learned. All of the sessions I’ve listened to have been very enlightening, even the ones where I thought I already knew everything on the topic.
Take the session on pay-ratio disclosure. I wasn’t really sure how interesting this session would be, since the rules haven’t been finalized yet. I mean, really, how much could there possibly be to talk about? But it turns out that the panel had a lot to say and all of it was very interesting. So for today’s blog entry, I feature five things I learned from listening to the panel, “Pay Ratio (& Other Issues): Pointers from In-House.”
1. Run a Test Calculation.
If you haven’t already, you really should perform a test of how you will calculate your CEO pay ratio. It might prove to be harder than you expect. Patty Hoffman-Friedes of Seagate Technology noted that they actually didn’t get very far in their test, but they are now much more prepared for the final calculation. Things you haven’t thought about come to light. Patty noted that Seagate provides shoes to employees in China and they had to think about whether those should be included in compensation.
2. How Will the Ratio Be Used?
The panel spent some time discussing how the ratio will be used by ISS and investors. Although it isn’t clear how ISS will use the disclosure, everyone felt that they will eventually use it. But, as Patty noted, perhaps the bigger question is how the NY Times will use the disclosure.
Stacey Geer of Primerica brought up a concern that hadn’t occurred to me: how employees will react when they realize they are below the median. Valerie Ho from ICF explained that she is planning to educate her HR business partners on the ratio, so that they can be prepared to address employee inquiries. She will also be looking to them for feedback on what employees are saying about the ratio.
3. Your Peers Are the Wildcard.
As moderator Barry Sullivan of Semler Brossy noted, the first year the rules are in effect will be a little bit like the Wild West. Everyone will have to decide on an approach and draft their disclosure without really knowing what their peers will be doing and how their ratio will compare to that of their peers.
Panelists recommend using your outside advisors—attorneys and compensation consultants—for a sanity check, since they will at least have some insight into trends and practices among their clients. Ask for feedback on your methodology and help with drafting the disclosure.
4. Year-Over-Year Comparisons Are Likely to be a Challenge.
Several panelists noted concerns about how much variation will exist in the results from one year to the next. If the median employee shifts from the United States to another country, if the company acquires another company, if there is a significant reduction in force, if a new CEO steps in—all of these events, and lots more, could cause significant year-to-year variability in the ratio, which could be confusing for investors and the media. Before you decide on a methodology, make sure you run comparisons of the results for the past several years, so you can get a feel for how much the number changes from one year to the next. And keep this potential for variability in mind when drafting the disclosure.
5. Thorough, Accurate, Ease of Calculation, Reliable, and Reproducible (and Defensible)
The panel touched on the various approaches companies can take to find the median employee. Primerica has 1800 employees located in the US and Canada; Stacy Geer can download W-2 income to a spreadsheet and calculate the median in about ten minutes. But fellow panelist Charles Grace of EMC—with 60,000 employees in 75 countries and upwards of 30 payroll systems—has a much more involved decision-making process. Include all employees in the calculation or use statistical sampling? What compensation to include? Patty Hoffman-Friedes noted that the range of approaches Seagate is considering could involve using salary, using actual wages earned, including benefits, or including all elements of compensation (even shoes for those employees in China).
Patty explained that Seagate has five touchstones that they are using to evaluate the methodologies: thoroughness, accuracy, ease of calculation, reliability, and reproducibility. Barry Sullivan noted that a sixth is defensibility. I think these are great touchstones for any company to consider as it decides on a methodology.
The House Financial Services Committee has recently been engaged in efforts to help start-up companies raise capital, including a bill (H.R. 4571) that directs the SEC to increase the threshold (from $5 million to $20 million) at which companies are required to provide additional disclosures to employees under Rule 701.
Background
Privately held companies typically rely on Rule 701 to issue stock through compensatory awards granted to employees. Where a company has relied on Rule 701 for the issuance of more than $5 million worth of stock in a 12-month period, the company is required to provide additional disclosures to employees, including the financial statements of the company prepared in accordance with US GAAP, risks associated with purchasing the company’s stock, and a summary of the material terms of the plan.
Proposed Change
The legislation passed by the House Financial Services Committee directs the SEC to increase the $5 million threshold to $20 million and further requires that this amount be indexed to inflation on a five-year basis. The bill makes no other changes to Rule 701.
The $5 million threshold has been in place since Rule 701 was adopted in 1988. Originally, Rule 701 actually capped issuances at $5 million; in 1999 the Rule was amended to merely require additional disclosures when this threshold is exceeded.
This threshold is frequently a concern for private companies, especially technology start-ups and others that grant equity broadly throughout their employee population. Anyone who has tried to buy real estate recently in California knows that $5 million in today’s economy isn’t what it was in 1988. According to the inflation calculator on the Bureau of Labor Statistics website, $5 million in 1988 had the buying power of a little over $10 million today; half the amount of the increase proposed by the House Finance Committee. We guess if the House Finance Committee is going to go for something, they might as well go for broke (or perhaps the bill sponsors felt they needed a little room for negotiation).
Next Steps
This legislation still needs to be voted on by the full House, then by the Senate, and then signed into law by the President. GovTrack.us (where you can sign up to receive email, Twitter, or Facebook updates on the bill) gives the bill only a 31% chance of passing. And after the bill is signed into law, the SEC has to draft a proposed rule, solicit comments, review the comments and issue a final rule before the change will take effect.
But, what is particularly interesting here is that—unlike some other limits I’d like to see adjusted for inflation (the ESPP $25,000 limit and the ISO $100,000 limit come to mind)—Congressional action isn’t necessary for Rule 701 to change. This is a rule promulgated by the SEC; as such, it could be modified by the SEC with or without direction from Congress. The SEC revamped Rule 144 in 2007; it’s been a lot longer than that since Rule 701 was updated. Perhaps this legislation will put this issue on the SEC’s radar.
We are excited to bring our popular “Meet the Speaker” series back to the NASPP Blog, featuring interviews with speakers at the 22nd Annual NASPP Conference. This is a great way to get to know our many distinguished speakers and find out a little more about their sessions in advance of the Conference.
For our first Meet the Speaker interview, we feature Mike Andresino of Posternak Blankstein & Lund, who will moderate the session “10b5-1 Plan Twists & Turns.”
NASPP: What is the most critical thing NASPP Conference attendees need to know about Rule 10b5-1 plans?
Mike: If your company does not yet use 10b5-1 plans as part of its insider compliance program, you are missing out on an important tool. If you do use these plans, there are important best practices that companies ignore at their peril.
NASPP: What are some best practices companies should implement for 10b5-1 plans?
Mike: Companies need to address, up-front, the expectations that plan participants should have regarding issues such as suspension, amendment or termination of 10b5-1 plans, SEC disclosure of their plans, price targets and other hot button issues that are not addressed in the 10b5-1 regulations but are part of the administrative environment for the plans.
NASPP: What is the worst horror story you have heard about a 10b5-1 plan gone wrong?
Mike: Angelo Mozilo, former CEO of Countrywide Financial, agreed in 2010 to a $67.5 million settlement with the SEC over charges that he abused his 10b5-1 plans for trading gains. If I’m trying to get directors and officers to pay attention to compliance issues, sixty-eight million bucks will usually do it!
NASPP: And last, just for fun, if you had a store on Etsy, what would you sell in it?
Mike: One word–Marinade! More specifically, I would bottle and sell a marinade that I use for salmon and other fish, that uses oil, soy sauce, honey and dark rum. Maybe I would package it in a kit with the rub I use. Hmm, now I just need a good design for the bottle….