The Harvard Law School Forum on Corporate Governance

U.S. Executive Compensation: 2015 Recap, Developments & Trends

Fri, 15 Apr 2016 13:02:01 +0000

Posted by Avrohom Kess & Yafit Cohn, Simpson Thacher & Bartlett LLP, on Friday, April 15, 2016

Editor's Note: Avrohom J. Kess is partner and head of the Public Company Advisory Practice and Yafit Cohn is an associate at Simpson Thacher & Bartlett LLP. This post is based on the Executive Summary of a co-published memorandum from Simpson Thacher and Frederic W. Cook & Co., authored by Mr. Kess, Ms. Cohn, and Jamin R. Koslowe of Simpson Thacher; and Bindu Culas and Metin Aksoy of FW Cook. The complete publication is available here.

For public companies, boards of directors, and practitioners, 2015 was an eventful year in executive compensation. This post presents the key developments and trends we observed during 2015 and their implications for 2016 and beyond.

In 2015, consistent with prior years, an overwhelming percentage of Russell 3000 companies obtained majority “Say-on-Pay” support. In 2015, Say-on-Pay voting entered its fifth year.

2,121 companies (97%) passed Say-on-Pay, and 56 companies (3%) failed.
On average, passing companies had a 92% approval rate, while those that failed had a 39% approval rate.
On a related note, approximately 80% of Russell 3000 companies hold annual Say-on-Pay votes.

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Facebook Settlement: Litigation Over Director Compensation

Thu, 10 Mar 2016 14:06:19 +0000

Posted by David E. Gordon, Frederic W. Cook & Co., Inc., on Thursday, March 10, 2016

Editor's Note: David E. Gordon is a Managing Director in the Los Angeles office of Frederic W. Cook & Co., Inc. This post is based on a FW Cook publication authored by Mr. Gordon and Bindu M. Culas.

Executive compensation experts were unpleasantly surprised by the settlement in late January of Espinoza v. Zuckerberg, a case challenging the reasonableness of stock awards to Facebook’s non-employee directors. [1] The facts surrounding this settlement create concern that unless a company has a shareholder-approved plan with meaningful limits on both the cash and equity compensation that can be awarded to non-employee directors in a year, it faces a risk of being sued, particularly where the actual amount of compensation gives plaintiffs’ lawyers a credible argument that pay is “above market.”

There are several reasons why Espinoza is concerning. First, the amount of the allegedly “excessive” compensation did not seem particularly large. Second, the plaintiff’s lawyers are expected to receive attorneys’ fees of $525,000 even though it appears highly likely that Facebook would have eventually prevailed because its controlling shareholder approved the transaction. Last, the settlement can be read to require a shareholder vote every time there is an increase in director pay, thus creating a precedent of a “Say-on-Director-Pay” standard. It should be noted that Frederic W. Cook & Co. has no knowledge of the facts in Espinoza outside the public filings.

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The Pay Ratio Rule: Preparing for Compliance

Sun, 15 Nov 2015 13:47:10 +0000

Posted by Avrohom J. Kess, Simpson Thacher & Bartlett LLP, on Sunday, November 15, 2015

Editor's Note: 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.

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