Say on pay is inevitable, but it’s difficult for stock plan managers to know exactly what that means to them. Because it’s practically unheard of for the equity compensation team to be on the decision-making side of executive compensation, it may feel easy to dismiss say on pay as an issue that can be overlooked.

However, availing yourself as a knowledgeable resource within your company elevates you as a subject matter expert. Being a part of the conversation when it comes to new policies or grant practices always helps ensure that the solutions coming down your pipeline are both effective and manageable. In that spirit, these are my top three action items for stock plan managers to prepare for say on pay:

1. Know what shareholders; hot buttons are for share-based compensation, including what features and provisions are likely to be unacceptable and those that increase the likelihood of acceptance. Take a good look at your company’s executive equity compensation to see how outstanding grants rate. Here are a few:

Pay for Performance – A significant majority of the bad press generated over executive compensation focuses on the disparity between executive compensation pay-outs and the relative success of the company during the same period. Pay for performance is more than simply slapping a performance condition on a grant, especially if the performance measures are not adequate to inspire long-term success. This year, we have a fantastic pre-conference program dedicated to performance awards, the Practical Guide to Performance-Based Awards. If you’re looking for ways to beef up your knowledge on performance awards, this is the program for you!

Dividend Payments – Shareholders generally don’t want to see executive compensation that pays out dividends or DERs on unvested shares. This follows right in line with pay for performance; shareholders don’t want to see that an executive will be eligible for dividends on unearned shares.

Long-term Focus – One of the hottest buttons for shareholders is whether or not executive compensation has a long-term focus. For equity compensation, this includes issues like minimum vesting periods (e.g.; at least 3 years, but preferably 5 years) and holding requirements. Increasing the length of time executives must wait before they can cash out their company shares reduces the temptation executives may feel to take excessive risks. Take a close look at your executives’ equity compensation and create a list of features or provisions that demonstrate a long-term focus.

Double-trigger – When it comes to change in control provisions in your grant agreements, shareholders (and potential acquiring companies) absolutely want to see a double-trigger for acceleration of vesting in the event of a change in control. If you haven’t already, take a close look at your grant agreements to see what your company’s change-in-control provisions look like.

Clawback Provisions – depending on how the House and Senate reconcile their final versions of their bills, clawback provisions could be required for listed companies. Shareholders generally like to see that clawbacks are not only in place, but also enforceable. Typically, clawback provisions are found in employment contracts, so have a conversation with your legal team to find out what your company’s current practice is and if that will be changing. Remember that clawback provisions can extend beyond fraud situations; they also may be part of other provisions such as non-compete requirements.

2. Know what your peer companies are doing and how it compares to your company. This is getting easier to do with enhanced proxy disclosure. If your company’s compensation philosophy already identifies peer companies or groups, then the difficult part has already been done for you. Check out the 2010 proxies from those companies and review their executive compensation practices. Also, keep up with the latest news on shareholder advisory votes; particularly keeping your eyes open for any executive compensation that does not garner vote of approval from shareholders.
3. Coordinate with your legal and compensation teams. First, it’s important to just keep the lines of communication open and be a part of the conversation. More specifically, find out if tackling say on pay (along with increased disclosure requirements) will require you to provide different or additional data and/or analysis. The earlier you know about additional data requirements, especially if they will ultimately be a periodic need, the more time you have to find the most efficient solution to providing that data.

The NASPP Conference’s Say on Pay Track
Hot off the presses! This week, we announced the “Say on Pay” track that we’ve added to our 18th Annual NASPP Conference. Don’t get left behind on decisions your company may be making in light of say on pay, join us for these essential sessions!

-Rachel