Earlier this summer, Apple announced that CEO Tim Cook’s previously granted RSU for 1 million shares will be modified to vest contingent on relative TSR–per his own request. In today’s blog entry, I take a look at this development.
The Modification
Cook’s award was granted in 2011 and originally vested as to 500,000 shares in August 2016 and another 500,000 shares in August 2021. I’m sure you can guess what I thought of the original award, based on my prior entries covering Apple and mega grants (“Steve Jobs’ Affinity for Mega Grants,” April 28, 2009, and “And Another Thing,” May 5, 2009).
As modified, 100,000 shares still vest in August 2016 and 2021, regardless of performance. The remaining shares vests in increments of 80,000 per year, from 2012 to 2021, with the vesting in years 2014 to 2021 subject to a relative TSR goal (a small portion of the shares vesting in 2013 is also subject to a relative TSR goal). The TSR goal is applicable to 50% of each 80,000-share vesting tranche–so 40,000 shares vest every year regardless of Apple’s TSR and another 40,000 shares vest if specified TSR thresholds are achieved.
Why Do This?
What’s most interesting about this story is that the award was modified at the request of Cook. Past examples of companies modifying awards to vest contingent on performance conditions have been executed under threat of a failed Say-on-Pay or stock plan proposal or in response to a failed Say-on-Pay vote (“Eleven and Counting,” May 3, 2011). So why would Cook voluntary ask for his award to be modified? The stated reason (Apples’ Form 8-K, June 21, 2013) is that Apple is going to be granting performance awards to executives in the future and Cook wants to lead by example. Which could be true, but I’m a skeptic, especially when it comes to grants of stock currently worth close to $500 million. So I wondered, was the real reason:
To demonstrate confidence in Apple’s products and performance
To make other CEOs look bad
Because Cook is worried he won’t perform well if not properly motivated
Because Cook really wants his personal wealth to be better aligned with Apple’s shareholders’ wealth
After gestating on this question for a while, my suspicion is that it was a preemptive strike. In the 8-K announcing the change, Apple says:
“In outreach discussions this year with many of our largest shareholders, we heard that they believe it is appropriate to attach performance criteria to a portion of our future executive stock awards that have been entirely time-based (i.e., vesting for continued service) in the past.”
I think that Cook saw awards held by other CEO’s modified in response to shareholder pressure and thought it might be smart to get out ahead of any demands for the same thing from Apple’s shareholders. This way, he has more control over the modifications and was able to ensure that over 50% of the award still vests based solely on the passage of time.
More on Say-on-Pay and Performance Awards
Tune in tomorrow for the NASPP’s webcast “Performance Equity Design in Light of Say-on-Pay,” which will take a look at the pressure to grant performance awards that has resulted from Say-on-Pay votes and how this is changing long-term incentive programs.
When public companies are contemplating changes to their stock compensation programs, it is not uncommon to ask the NYSE (or Nasdaq, depending on where their stock is trading) for an informal opinion as to whether the changes require shareholder approval. Today I blog about a recent Delaware court ruling that calls the authority of these informal opinions into question.
Here is the sequence of events:
A company wants to grant a large ($120 million) “performance award” to its CEO that will vest only upon continued service; the stated purpose of the award is retention. The company’s stock plan doesn’t allow grants of performance awards that vest merely on continued service, so this requires a plan amendment.
The company asks the NYSE if the plan amendment requires shareholder approval and an NYSE staffer tells the company that the amendment doesn’t require shareholder approval.
The company proceeds with the amendment and issues the grant.
The grant quickly garners a lot of negative attention from the media.
A shareholder (a large pension fund) sues the company’s board and CEO, alleging that the plan amendment was illegal. The gist of the argument is that shareholder approval of the amendment is required under the NYSE listing standards and that, because the plan has a provision in it requiring shareholder approval of amendments when such approval is required by the exchange on which the company’s stock is traded, the amendment isn’t legal under the terms of the plan.
The lawsuit has along ways to go before we get an actual decision, but the Delaware Chancery Court has allowed the lawsuit to proceed, despite the fact that the company has an informal opinion in writing (an email) from an NYSE staffer stating that the amendment did not require shareholder approval.
My synopsis here is based on the very excellent Sullivan & Cromwell memo summarizing the case that is posted on Naspp.com. In addition to the highlights I’ve covered here, the memo includes a great discussion of some of the key factors the judge considered in issuing the ruling. If you are going to be seeking informal guidance from the NYSE or Nasdaq, you should definitely check it out–you might pick up a couple of pointers to make the opinion you receive a little more reliable.
I Have a Couple Questions
This saga raises a couple of questions for me (and since the company involved does not appear to have any NASPP members, I feel unfettered in my contemplation of them).
First, why didn’t the company just amend the plan to allow for the grant of RSUs, rather than the seemingly much more convoluted and backwards amendment to allow the grant of performance awards that don’t vest based on performance. Honestly, in today’s “pay-for-performance” world, that just seems like asking for trouble. The plan already allows the grant of restricted stock that vests based purely on service and question C-3 of the NYSE’s FAQs on the shareholder approval requirements specifically states that where a plan already allows the grant of restricted stock, an amendment to allow the grant of RSUs is not material. Seems like not only might this have avoided the lawsuit (or at least the ruling allowing the lawsuit to proceed) but the company also wouldn’t have had to bother with the informal opinion from the NYSE. I’m sure there must be good reason, but I’m completely baffled as to why the company didn’t approach the amendment this way.
Second, how much do you have to pay your CEO to get him to stay? $120 million seems like a lot, just to get the guy to stick around. And, in this case, the CEO’s last name happens to also be the name of the company, which isn’t a coincidence–he’s the son and nephew of the co-founders of the company. And it takes $120 million to get him to stick around? That just seems wrong.
Some Barbara Trivia
One interesting piece of trivia is that the company involved is a large real estate investment trust that happens to own the shopping mall that was my sister’s and my favorite when we were growing up. We spent a lot of time at that mall. (What? We lived in the suburbs and that’s what suburban kids did back then–they went to the mall).
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.”
By now, you are probably finishing off any remaining leftovers from Thanksgiving. On that theme, I have a few leftover items for the blog and now seems like a good time to use them up. Sort of like making a casserole out of turkey, mashed potatoes and stuffing, but not quite as tasty.
Update on Proxy Disclosure Lawsuits On November 6, I blogged about plaintiffs’ attorneys that are now bringing lawsuits alleging that companies’ disclosures related to their stock plan or Say-on-Pay proposals are inadequate (“Martha Stewart and Your Proxy Statement“). The lawsuits seek an injunction to delay the shareholder votes on these proposals (which, in effect, delays the annual meetings); companies targeted by these attorneys are faced with settling and paying out plaintiffs’ attorney fees in the six figures (up to $625K) to avoid a delay.
Last week, Mike Melbinger provided an update on this issue in his Compensation Blog on CompensationStandards.com. To date, 20 companies have been targeted and at least six have settled, meaning that they agreed to make additional disclosures and pay fees to the plaintiffs’ attorneys. At least one company (Brocade Communications) also had to delay the vote on their stock plan proposal (although they did hold their annual meeting on time). At least three companies (Clorox, Globecomm Systems, and Hain Celestial) got courts to reject the injunction. And Microsoft got the law firm that filed the complaint (Faruqi & Faruqi, which has initiated most of these suits) to withdraw it. The article “Insight: Lawyers Gain from Say-on-Pay” Suits Targeting U.S. Firms,” published by Reuters on November 30, has a good summary of the various suits.
This is an opportunity for you, as a stock plan administrator, to demonstrate the value that you bring to the table. Make sure that your legal department is aware of the potential for these lawsuits, so that if your company is targeted, they aren’t caught offguard. You also might want to forward the memo we’ve posted from Orrick to legal (“New Wave of Proxy Statement Injunctive Lawsuits: How to Win & Prevent Them“), which include thoughts on strengthening your disclosure so they will be more likely to withstand one of these lawsuits.
IFRS: Hot or Not? An article published on November 13 in Accounting Today (“SEC Still Has Reservations about IFRS” by Michael Cohn) reports on comments by SEC officials at FEI’s 31st Annual Current Financial Reporting Issues conference on where the SEC stands on IFRS. The upshot is that SEC researchers have identified a number of concerns with adopting IFRS in the US and that the SEC is still taking a wait and see approach. Some of the areas the researchers looked at were the cost of conversion, whether or not IFRS makes sense for US capital markets, the interpretative process, the impact on private companies, investor understanding, and what our exit strategy might be if the US adopts IFRS and it backfires. Based on this report, I’d say we still have a long ways to go before we are under IFRS (or some sort of equivalent) here in the US.
Of course, things may change now that there will be a new chair at the SEC.
Even the SEC Makes Mistakes The next time someone finds a typo in something you’ve written, you can point out that you are in good company. In his blog for Allen Matkins, Keith Bishop notes a number of errors on the Form 10-K posted to the SEC website (“The SEC’s Form 10-K: ‘In Endless Error Hurled,'” April 11, 2012), including cites to regulations that don’t exist and outdated instructions. I feel a lot better now about the myriad typos I’m sure can be found in my blogs. If the SEC isn’t perfect, how can the rest of us be expected to be error-free?
More Than You Ever Want to Know About Stock-for-Stock Exercises I spent an hour or so today drafting a 1,200-word essay in response to a question in the NASPP Discussion Forum about stock-for-stock exercises. I’m so pleased with my response that I wish I had another use for it. But I don’t, so I’m mentioning it here in the hopes that a few more people will read it. If you want to understand what a tax-free exchange of property is (and what it isn’t), check out Topic #7391.
Shout-Out Finally, a shout-out to Sara Spengler at Facebook for suggesting the Thanksgiving tie-in for today’s blog entry.
Both ISS and Glass-Lewis have published updated corporate governance guidelines for the 2013 proxy season. The good news for my readers is that, in both cases, there aren’t a lot of changes in the policies specific to stock compensation; I think that Say-on-Pay is a much hotter issue for the proxy advisors right now than your stock compensation plan. Here is a quick summary of what’s changed with respect to stock compensation.
I don’t think ISS made any changes that directly apply to stock compensation, but there were some changes in their general policies on executive and CEO pay that may have an impact on your stock program:
Peer Groups: ISS assigns each company to a peer group for purposes of identifying pay-for-performance misalignments in CEO pay. The determination of company peer groups has been an ongoing source of much consternation; many companies disagree with the peers ISS assigns. In the past, peers have been determined based on GICS codes, market capitalization, and revenue. The new policy involves a lot of technical mumbo jumbo about 8-digit and 2-digit CICS groups that I don’t understand, but the gist that I came away with is that companies’ self-selected peers will somehow be considered in constructing peer groups. I’m not convinced this will be the panacea companies are looking for, but hopefully it will be an improvement.
Realizable Pay: Where ISS identifies a quantitative misalignment in pay-for-performance, a number of qualitative measures are taken into consideration before ISS finalizes a recommendation with respect to the company’s Say-on-Pay proposal. Under the 2013 policy, for large cap companies, these measures will include a comparison of realizable pay to grant date pay. For stock awards, realizable pay includes the value of awards earned during a specified performance period, plus the value as of the end of the period for unearned awards. Values of options and SARs will be based on the Black-Scholes value computed as of the performance period. If you work for a large-cap company, you should probably get ready to start figuring out this number.
Pledging and Hedging: Significant pledging and any amount of hedging of stock/awards by officers is considered a problematic pay practice that may result in a recommendation against directors. My guess, based on data the NASPP and others have collected, is that most of you don’t allow executives to pledge or hedge company stock. But if this is something your company allows, you may want to get an handle on the amounts of stock executives have pledged and consider reining in hedging altogether.
Say-on-Parachute Payments: When making recommendations on Say-for-Parachute Payment proposals, ISS will now focus on existing CIC arrangements with officers in addition to new or extended arrangements and will place further scrutiny on multiple legacy features that are considered problematic in CIC agreements. If you still have options or awards with single-trigger vesting acceleration upon a CIC (and, based on the NASPP and Deloitte 2010 Stock Plan Design Survey, many of you do), those may be a problem if you ever need to conduct a Say-on-Parachute Payments vote.
Glass Lewis Updates
Glass Lewis, in their tradition of providing as little information as possible, published their 2013 policy without noting what changed. I don’t have a copy of their 2012 policy, so I couldn’t compare the two but I’ve read reports from third-parties that highlight the changes.
As far as I can tell, the only change in their stock plan policy is that Glass Lewis will now be on the lookout for plans with a fungible share reserve where options and SARs count as less than one share (the idea is that full value awards count as one share, so options/SARs count as less than a share). It’s a clever idea for making your share reserve last as long as possible, but, to my knowledge, these plans are very rare (I’ve never seen one even in captivity, much less in the wild), so I suspect this isn’t a concern for most of you.
If you are an issuer that will be submitting a request for additional shares for your stock plan to a shareholder vote in the upcoming proxy season, you need to read this blog. I’m filing this under “don’t say I didn’t warn you.”
What Does Martha Stewart Have to Do With This?
A while back, a short blurb about Martha Stewart Living Omnimedia caught my eye and I put it in my back pocket for a future blog entry if I ever figured out what the heck it was about. The blurb appeared in Mark Borges’ proxy disclosure blog on CompensationStandards.com:
Martha Stewart Living Omnimedia Inc. was the target of a shareholder class action lawsuit alleging that the company’s disclosure in connection with a proposal to increase the share reserve of its omnibus stock plan was inadequate.
This intrigued me because:
In my other, non-stock compensation life, I secretly want to be Martha Stewart (but with better hair and no insider trading scandal), so I’m fascinated by anything involving her. (Don’t scoff–I’m very crafty! I make all my own window treatments, can refinish a dining room table, and can whip up some pretty tasty jams and jellies.)
It involved the company’s stock plan, which falls squarely into the category of “things I care a lot about.”
Now, thanks to Mike Melbinger’s Oct 26 blog entry on CompensationStandards.com, I’ve finally figured out the implications of the lawsuit and determined that, if you are an issuer, it should be something you care a lot about as well.
Lawsuit Over Stock Plan Disclosures Could Delay Shareholders Meeting
There have now been several similar lawsuits filed. The lawsuits allege that the company’s disclosures relating to stock plan or Say-on-Pay proposals are inadequate and seek to delay the shareholders meeting. As Mike explains it:
[Companies] are forced to decide between (a) paying the class action lawyers hundreds of thousands of dollars of attorneys’ fees and issuing enhanced disclosures or (b) fighting the matter through a preliminary injunction hearing, which may have the effect of delaying [their] shareholder meeting (and create additional legal fees).
One company has already paid $625K to plaintiff attorneys to settle a similar lawsuit and, while they didn’t have to delay their entire annual meeting, they still had to delay the vote on their stock plan and file a supplement to their proxy statement with additional disclosures about the plan.
What Can You Do?
Mike asks “Does that sound like Armageddon?” and I’d say that it sure sounds like that me. Mike says that it is too soon to panic but suggests taking extra care in drafting your disclosures relating to any stock plan proposals and your Say-on-Pay propoals. A recent memo we posted from Orrick has suggestions for fortifying both types of disclosures against attack. Here are their suggestions for disclosures relating to any stock plan proposals:
Disclose the number of shares currently available for issuance under the stock plan and explain why the existing share reserve is insufficient to meet future needs. Consider citing your current burn rate and anticipated shares needed for new grants over the next year.
Explain how the remaining shares in the reserve and the new shares will be used and how long the new share reserve is expected to last.
Describe how you determined the number of shares you are requesting approval of.
ISS has issued a draft of proposed updates to its corporate governance policies for the 2013 proxy season.
Speak Your Mind–But Be Quick About It
If you have an opinion on the draft that you’d like to express to ISS, you need to get your comments in by October 31. I know you’re thinking that maybe I could have mentioned this a little sooner, but actually, I couldn’t have. The draft was just released last week, after my blog was published. If you follow the NASPP on Twitter or Facebook, however, you at least knew about the draft by last Thursday, when we posted an NASPP alert on it.
You Probably Don’t Have a Lot to Say Anyway
The quick turnaround time for comments probably isn’t a problem because my guess is you aren’t going to have much to say about the proposed changes. ISS is proposing only three changes on their policies relating to executive compensation and only one of those changes relates directly to stock compensation. Here are the proposed changes:
New methodology for determining peer groups
Qualitative analysis will consider how “realizable pay” compares to grant date pay
Allowing executives to pledge company stock will be considered a problematic pay practice
Peer Groups
ISS’s determination of peer groups is critical to their analysis of whether CEO pay aligns with company performance. ISS puts together a peer group of around 14 to 24 companies (I have no idea why 14 to 24 and not, say, 15 to 25–that’s just what ISS says): if your CEO’s pay outpaces the peer group by more than the company’s performance, ISS perceives a possible pay-for-performance disconnect. As noted in my blog “Giving ISS an Earful” (August 14, 2012), the peer group methodology was already an anticipated target for change in this year’s policy.
Up to two years ago, ISS based peer groups solely on GICS codes. Last year, ISS updated it’s policy to base peer groups on revenue and market capitalization, in addition to GICS codes. This year, ISS is further refining peer identification to take into account the GICS codes of the company’s self-selected peers.
Realizable Pay vs. Grant Date Pay
If you follow Mark Borges’ Proxy Disclosure Blog on CompensationStandards.com, you know that a number of companies have been comparing the grant date pay disclosed in the Summary Compensation Table to “realizable pay.” Grant date pay, is, of course, the fair value of awards at grant. Realizable pay is a calculation of how much the executives could realize from their awards as of a specified point in time (usually the end of the year). As I’m sure my reader’s can imagine, the values are usually very diffferent.
Where ISS perceives a pay-for-performance disconnect, it will perform a more in-depth qualitative analysis of the CEO’s pay. In this year’s policy, ISS is proposing to include “realizable pay compared to grant pay” in that analysis.
ISS doesn’t provide any further information, such as what might be considered a favorable comparison or even how “realizable pay” will be determined. In taking a quick gander at the realizable pay disclosures Mark has highlighted recently in his blog, it seems that there is significant variation in practice as to how companies calculate this figure. Some look at pay realizable only from options and awards granted during the current year, others look at all outstanding options and awards, and others look at options and awards granted within a specified range (e.g., five years). I’m not sure whether ISS will perform its own realizable pay calculation (and whether it would have sufficient information to do so) or just accept the number disclosed by the company (assuming a company chooses to make this voluntary disclosure).
More Information
For more information on ISS’s proposed policy updates, including their discussion of the policy around pledging and proposed changes to their policy for Say-on-Parachute-Payment votes, see the NASPP alert “ISS Draft of 2013 Policy Updates.”
If you have concerns or comments that you’d like to voice to ISS about their policies, now is your chance. ISS’s policy survey, the responses to which will be used to formulate their corporate governance policies, is open through the end of this week (Friday, August 17). Speak now or forever hold your piece (well, not really “forever,” presumably they’ll do another survey next year).
This Year’s ISS Policy Survey
The only questions on the survey I noticed that directly address stock compensation were a couple of questions that ask about single-trigger acceleration of vesting of stock awards in the event of a change-in-control. A few other topics in the survey that could indirectly have an impact on stock compensation include:
ISS’s determination of peer groups
How pay should be measured (always a challenge for stock compensation)
Types of performance metrics (e.g., TSR vs. internal metrics)
A few last topics ISS focuses on in the survey that could have an even more indirect impact on stock compensation include director qualifications, director independence, and pledging (e.g., allowing executives to use company stock as collateral for margin accounts or other loans). There also were a bunch of topics that fall under the heading of “Things I Don’t Care About,” so I didn’t read those questions (e.g., corporate lobbying, proxy access, sustainability performance measures).
A Preview of Policy Changes to Come?
The issues covered in the survey are likely indicative of the areas where ISS is considering revising its corporate governance policies for next year–otherwise why would they be asking about these topics? ISS changed its peer group determinations as part of last year’s overhaul of the pay-for-performance analysis (see my blog entry “ISS Policy Updates for 2012,” November 29, 2011); now it looks like ISS may be considering further changes to peer groups. (But probably only for the pay-for-performance analysis; ISS didn’t change peer groups for burn rate purposes last year so I don’t think they’ll change burn rate peer groups for this year either.)
Next Steps
The ISS survey will close this Friday. ISS will hold round-table discussions of the topics covered in the survey during August and September and expects to release the survey results in September. ISS will then accept comments on the results until October and will release its final policy update in November.
For today’s blog, I have a couple of updates related to Glass Lewis and ISS.
Through a Glass (Lewis) Darkly While ISS has been somewhat forthright about its voting policies, the methodologies employed by Glass Lewis to evaluate management proposals have always been a black box. Recently, however, Glass Lewis launched a new “Issuer Engagement Portal” to provide insight into their decision-making process when making vote recommendations on proxy ballots.
The portal includes both “US Abridged Guidelines” and “Continental Europe Abridged Guidelines.” A few highlights from the US Abridged Guidelines relating to stock options:
Companies should seek additional shares only when needed and the number of shares requested should be small enough that the company will need an additional allocation of shares within three to four years (or less).
The annual cost of the plan should be reasonable as a percentage of financial results and the overall value of the company and in comparison to peers. Plans that are relatively expensive and that provide grants solely to senior executives and board members are a particular concern.
The intrinsic value received by option grantees in the past should be reasonable compared with the financial results of the business.
The portal also includes Issuer FAQs and a short summary of Glass Lewis’ Equity-Based Compensation Analysis, which discusses their analysis relating to program size, cost, and features.
While this is no where near the level of transparency provided by ISS and still leaves many questions unanswered, it is at least a step in the right direction.
ISS: Do as We Say, Not as We Do The disadvantage about disclosing your voting polices is that others can then apply them to you–or, in this case, to ISS’s parent company, MSCI. Exequity has prepared an in-depth analysis of how MSCI’s executive compensation programs would fare under ISS’s policies (ISS does not issue a report on MSCI due to the inherent conflict of interest in reporting on their own parent). Exequity found a number of areas where MSCI engages in practices that ISS criticizes:
Not splitting the CEO and Chairman of the Board roles;
Not having stock holding requirements, stock ownership guidelines, or a clawback policy;
Not using preset performance goals for the annual bonus plan (the plan is discretionary);
Not providing the specific performance goals for the performance-based equity awards until after the two-year performance period ends;
Aiming to compensate named executive officers at the “higher end of market practice”; and
Granting equity awards with single-trigger change-in-control provisions.
More at the NASPP Conference This year’s NASPP Conference will feature a session that will sort out fact from fiction on the proxy advisor policies and help you evaluate how critical it is for your company to comply with ISS and Glass Lewis policies. Look for more information when we announce the full program in a few weeks. The 20th Annual NASPP Conference will be held in New Orleans from Oct 8-11–register by May 31 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 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; all webcasts have been archived for you to listen to at your convenience.
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.