Yearly Archives: 2019

The key challenge for compensation committees is to approve compensation programs that directors believe will promote the long-term interests of a company and its shareholders, while taking into account shareholder views and maximizing investor support for those programs.

Three notable developments affected the public company compensation landscape in 2018. First, the elimination by the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Reform Act”) of the performance-based exception to the $1 million per-person annual limit on the deductibility of compensation for certain public company executives under Section 162(m) of the U.S. Internal Revenue Code (the “Code”) resulted in a significant increase in 2018 in nondeductible compensation. However, the 2017 Tax Reform Act did not result in dramatic changes in compensation design, as most companies remained committed—both for substantive reasons and due to investor relations considerations—to traditional performance-based compensation paradigms. Second, the 2018 proxy season featured the first “pay ratio” disclosure under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). Institutional Shareholder Services (“ISS”) and Glass Lewis have thus far not taken pay ratio disclosure into their recommendations on say-on-pay votes. However, many companies are deeply focused on the issues of perception associated with pay ratio disclosure. In some cases, the most challenging messaging is internal, to employees intensely interested in the pay of the “median” employee that is required to be disclosed in the pay ratio discussion in the proxy. Third, the SEC issued long-awaited final regulations on the Dodd-Frank statutory mandate requiring companies to disclose hedging policies that apply to executives or directors.

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