Monthly Archives: June 2020

Compensation Impacts of COVID-19 on Performance-Based Incentive Awards

Posted by Gregory T. Grogan, Jeannine McSweeney, and Eric Wolf, Simpson Thacher & Bartlett LLP, on
Tuesday, June 2, 2020
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Gregory T. Grogan and Jeannine McSweeney are partners and Eric Wolf is Counsel is Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Grogan, Ms. McSweeney, Mr. Wolf, Andrew Blau, Bradley Goldberg, and David E. Rubinsky. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

The coronavirus disease 2019 (“COVID-19”) outbreak continues to impose significant and unprecedented economic harm and uncertainty for companies across numerous sectors. As companies continue to evaluate the impact of the pandemic on stock market volatility and company performance, an important issue to be addressed from both a private and public company perspective is how to address the impact of the pandemic on performance-based compensation; specifically, establishing new performance-based compensation awards for 2020, adjusting existing performance goals for both annual and long-term incentive compensation and revisiting the form and vesting terms for equity-based compensation. This post discusses selected issues that companies may face and strategies that companies may take to continue to retain top talent, with the ultimate goal of ensuring alignment between the goals of companies and the incentives of their key employees during this challenging period.

Granting New Equity and Cash Performance-Based Incentive Awards 

Structuring new equity and cash bonus programs to implement realistic performance goals during a period of extreme market volatility and uncertainty is a timely issue for public companies whose boards and compensation committees are currently preparing new compensation programs. Three possible approaches are to: (1) maintain the status quo, (2) delay grants or delay setting performance targets or (3) set flexible performance targets.

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Sharpening the Tools at Hand: New Rulings Provide Sensible Balance to Section 220 Litigation

Posted by Gregory V. Varallo, Andrew Blumberg, and Alla Zayenchik, Bernstein Litowitz Berger & Grossmann LLP, on
Tuesday, June 2, 2020
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Gregory V. Varallo is a partner and Andrew Blumberg and Alla Zayenchik are associates at Bernstein Litowitz Berger & Grossmann LLP. This post is based on their BLB&G memorandum and is part of the Delaware law series; links to other posts in the series are available here.

Section 220 of the General Corporation Law of the State of Delaware is the statute allowing shareholders of a Delaware corporation to seek books and records for various purposes, including to investigate potential corporate wrongdoing, among other things. When properly utilized, stockholder use of the Section 220 remedy should help avoid litigation where corporate records can correct misconceptions about how and why questionable events took place, resulting in a higher quality of the claims that are actually pursued to litigation.

Over the last decade or more, the courts of Delaware at first suggested, and then nearly insisted, that plaintiffs utilize the statute to conduct pre-filing investigations prior to bringing cases challenging fiduciary misconduct in transactions and other contexts. The response has been the widespread use of Section 220 among Plaintiffs’ counsel to conduct pre-filing investigations.

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The Forum Attracts Numerous Citations from Academics and Practitioners

Posted by Tami Groswald Ozery (Harvard Law School), on
Monday, June 1, 2020

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Tami Groswald Ozery is a co-Editor of the Forum and a Fellow at the Harvard Law School Program on Corporate Governance.

Posts published by the Harvard Law School Forum on Corporate Governance have had considerable influence on the discourse and literature in the field of corporate governance, as measured by citations of Forum posts. Since the Forum was established in 2006, Forum posts have been cited more than 1400 times, and such citations have appeared in more than 800 articles.

The list of articles citing Forum posts is available here and includes the following noteworthy aspects:

Established in 2006 by Professor Lucian Bebchuk and the Harvard Law School Program on Corporate Governance, the Forum has become the leading online resource and the central outlet for the exchange of ideas and debate in the field of corporate governance. In an article about the Forum that was featured in the Harvard Law Bulletin a few years ago, former Chief Justice Leo Strine observed that “[i]t is amazing to see the [Forum] become required reading among the intelligentsia … of corporate governance.”

The success of the Forum has been made possible by the contribution of numerous authors, as well as by the engagement of the Forum’s ever-growing readership. As we celebrate another record-breaking year, we are deeply grateful for the support of our contributors and readers and look forward to continued fruitful engagement!

Finding the Proper Balance of Legal and Consulting Advice for Compensation Committees

Posted by Ena Kaur, Jeremy Erickson, and, Jonathan M. Ocker, Pillsbury Winthrop Shaw Pittman LLP, on
Monday, June 1, 2020
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 Jeremy D. Erickson is counsel, Ena Kaur is an associate, and Jonathan M. Ocker is a partner at Pillsbury Winthrop Shaw Pittman LLP. This post is based on their Pillsbury memorandum.

Takeaways

  • Executive compensation counsel taking minutes of compensation committee meetings and working with the compensation consultant to make sure the meetings go smoothly with informed decisions translates into a better proxy and a winning say-on-pay vote.
  • Equity plan proposals are more likely to win shareholder approval and less likely to attract proxy trolls when executive compensation counsel and the compensation consultant collaborate in advance on the appropriate plan modifications and disclosures, determining whether the equity plan with its proposed modifications will pass shareholder advisor tests.

Executive compensation counsel and compensation consultants are useful resources for compensation committees when developing and approving compensation arrangements. A compensation committee can maximize the benefit provided by both advisors by setting up a collaborative process with executive compensation counsel, the compensation consultant, and internal company professionals. The following examples show how integrating both advisors into the decision-making process can benefit a compensation committee.

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