Tag: Executive Compensation

ISS 2016 Voting Policies

Andrew R. Brownstein is partner and co-chair of the Corporate practice group, and David A. Katz is a partner specializing in the areas of mergers and acquisitions, corporate governance and activism, and crisis management at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Mr. Katz, David M. Silk, Trevor S. NorwitzSabastian V. Niles, and S. Iliana Ongun.

[November 20, 2015], ISS announced its final U.S. voting policies for the 2016 proxy season. ISS had previously released draft proposals on several of the topics in October. Changes to non-U.S. policies were also announced, including with respect to Brazil, Canada, France, Hong Kong & Singapore, India, Japan, the Middle East & Africa and the U.K. & Ireland. ISS also released an updated equity plan scorecard “FAQ,” which contains a new model index for large companies that are newly public or emerging from bankruptcy, as well as other minor adjustments to scorecard factors.


The Pay Ratio Rule: Preparing for Compliance

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher/FW Cook co-publication authored by Mr. Kess, Yafit Cohn, Bindu M. Culas, and Michael R. Marino, available here.

On August 5, 2015, the Securities and Exchange Commission (SEC) adopted its much-anticipated final rule implementing the pay ratio disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Section 953(b) of the Dodd-Frank Act instructed the SEC to adopt rules requiring reporting companies to disclose the median of the annual total compensation of all company employees other than the company’s chief executive officer (CEO), the CEO’s annual total compensation and the ratio between these two numbers.


Corporate Governance Responses to Director Rule Changes

Cindy Vojtech is an Economist at the Federal Reserve Board. This post is based on an article authored by Dr. Vojtech and Benjamin Kay, Economist at the U.S. Treasury’s Office of Financial Research.

Much of the corporate governance literature has been plagued by endogeneity problems. In our paper, Corporate Governance Responses to Director Rule Changes, which was recently made publicly available on SSRN, we use a law change as a natural experiment to test how firms adjust the choice and magnitude of governance tools given a floor level of monitoring from independent directors. Through this analysis, we can recover the structural relationship between inputs in the governance production function. We study these relationships with a new board of director dataset with a much larger range of firm size.

In 2002, U.S. stock exchanges and the Sarbanes-Oxley Act established minimum standards for director independence. These director rules altered firm choice of other tools for mitigating agency problems. On average, treated firms do not increase the size of their board, instead inside directors are replaced with outside directors.


2015 Corporate Governance & Executive Compensation Survey

Creighton Condon is Senior Partner at Shearman & Sterling LLP. This post is based on the introduction to a Shearman & Sterling Corporate Governance Survey by Bradley SabelDanielle Carbone, David Connolly, Stephen Giove, Doreen Lilienfeld, and Rory O’Halloran. The complete publication is available here.

We are pleased to share Shearman & Sterling’s 2015 Corporate Governance & Executive Compensation Survey of the 100 largest US public companies. This year’s Survey, the 13th in our series, examines some of the most important governance and executive compensation practices facing boards today and identifies best practices and merging trends. Our analysis will provide you with insights into how companies approach governance issues and will allow you to benchmark your company’s corporate governance practices against the best practices we have identified.


ISS Proposed 2016 Policy Changes

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Mr. Dicker, Lyuba Goltser, and Megan Pendleton. The complete publication is available here.

Yesterday [October 27, 2015], Institutional Shareholder Services released its key draft proposed proxy voting policy changes for the 2016 proxy season. ISS is seeking comments by 6:00 p.m. EDT on November 9, 2015. ISS expects to release its final 2016 policies on November 18, 2015. [1] The policies as updated will apply to meetings held on or after February 1, 2016.

Proposed Amendments to ISS Proxy Voting Policies for 2016

ISS’s proposed voting policy changes for U.S. companies would:


SEC Rulings on Shareholder Proposals and Ordinary Business Rule

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising, Sarah E. Fortt, Julia LapitskayaRonald O. MuellerKasey Levit Robinson, and Lori Zyskowski.

On October 22, 2015, the Securities and Exchange Commission’s (“SEC” or “Commission”) Division of Corporation Finance (the “Division”) issued Staff Legal Bulletin No. 14H (“SLB 14H”), setting forth a dramatically different standard for when it will concur that a shareholder proposal that conflicts with a company proposal can be excluded from the company’s proxy statement under Rule 14a-8(i)(9). The Division also reaffirmed its views on the application of the “ordinary business” standard in Rule 14a-8(i)(7). SLB 14H is available here.


“Is Short-Term Behavior Jeopardizing the Future Prosperity of Business?”

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton and Sabastian V. Niles. Mr. Niles is counsel at Wachtell Lipton specializing in rapid response shareholder activism and preparedness, takeover defense, corporate governance, and M&A. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, by Leo E. Strine (discussed on the Forum here).

In a must-read report highlighting the pressures public companies face to meet quarterly guidance, maximize immediate profits and extract value today instead of investing for the future, the Conference Board examines what is driving short-term behavior and outlines what can be done to restore balance. The following specially selected highlights from the report and associated release (omitting tax policy matters discussed in detail in the actual report) support the need for action to curb short-termism and the excesses of shareholder activism that are detrimental to the American economy and society:


ISS Preliminary 2016 Voting Policy Updates

Andrew R. Brownstein is partner and co-chair of the Corporate practice group at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, David M. SilkDavid A. KatzSabastian V. Niles, and S. Iliana Ongun.

Today [October 26, 2015], ISS announced it is considering changing its U.S. voting policies in three areas heading into the 2016 proxy season: (i) when a sitting CEO or a non-CEO director will be viewed as “overboarded “on account of service on multiple boards, (ii) unilateral board actions that reduce shareholder rights (with a focus on newly classified boards and supermajority voting provisions) and (iii) compensation disclosure at externally managed issuers. Notably, the areas highlighted for change in the U.S. market do not address proxy access, “responsiveness” to majority-supported shareholder proposals or other current topics. ISS is also proposing changes to non-U.S. policies, including with respect to Brazil, Canada, France, Hong Kong & Singapore, India, Japan, the Middle East & Africa and the U.K. & Ireland.


The SEC Proposed Clawback Rule

Joseph E. Bachelder is special counsel in the Tax, Employee Benefits & Private Clients practice group at McCarter & English, LLP. The following post is based on an article by Mr. Bachelder which first appeared in the New York Law Journal. Andy Tsang, a senior financial analyst with the firm, assisted in the preparation of this column. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance includes Excess-Pay Clawbacks by Jesse Fried and Nitzan Shilon (discussed on the Forum here).

On July 1, 2015, the Securities and Exchange Commission (SEC) issued Proposed Rule 10D-1 relating to so-called “clawbacks” pursuant to Section 10D of the Securities and Exchange Act of 1934 (the Exchange Act). Section 10D of the Exchange Act was added by Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank).

(On Aug. 5, 2015 the SEC issued its final rule requiring the disclosure of the ratio of the annual pay of the CEO to the median annual pay of all employees (excluding the CEO). Issuers subject to the rule must comply with it for the first fiscal year beginning on or after Jan. 1, 2017. The pay ratio rule will be the subject of a future post.)


Harvard Convenes the 2015 Executive Compensation & Corporate Governance Roundtable

The Harvard Law School Program on Corporate Governance and the Harvard Law School Program on Institutional Investors convened the Harvard Roundtable on Executive Compensation & Corporate Governance last Wednesday, October 21, 2015. The event brought together for a roundtable discussion 62 prominent experts with a wide range of perspectives on the subject, including senior officers from leading institutional investors (both mutual funds and public pension funds) with aggregate assets under management exceeding $13 trillion, and from significant issuers, prominent advisors, and academics. Participants in the event, and the topics of discussion, are set out below.

The Roundtable discussion on issues relating to the process of determining executive compensation included discussion of the work of proxy advisors and their interaction with investors and issuers, engagement between issuers and investors themselves and compensation disclosure issues, such as pay-for-performance disclosure and pay-ratio disclosure. The Roundtable then moved to a discussion of the substantive terms of compensation arrangements, including compensation levels, composition, and structures. Issues that were considered included the composition of long-term and short-term incentive pay and contractual provisions such as claw-backs and hedging policies. The Roundtable ended with a discussion of current issues in corporate governance, including lessons from the 2015 proxy season, current thinking on engagement with investors, and proxy access.

The Roundtable was co-organized by Lucian Bebchuk, Stephen Davis, and Scott Hirst, and was supported by a number of co-sponsors (listed here), the supporting organizations of the Program on Corporate Governance (listed on the program site here), and the institutional members of the Harvard Institutional Investor Forum (listed here).

The participants in the Harvard Roundtable on Executive Compensation & Corporate Governance included:


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  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    David Fox
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    Jack B. Jacobs
    Paula Loop
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Morton Pierce
    Barry Rosenstein
    Paul Rowe
    Rodman Ward