Tag: Compensation disclosure


Compensation Season 2016

Michael J. Segal is senior partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Segal, Jeannemarie O’BrienAdam J. ShapiroAndrea K. Wahlquist, and David E. Kahan. 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).

Boards of directors and their compensation committees will soon shift attention to the 2016 compensation season. Key considerations in the year ahead include the following:

  1. Say-on-Pay. If a company anticipates a challenging say-on-pay vote with respect to 2015 compensation, it should proactively reach out to large investors, communicate the rationale for the company’s compensation programs and give investors an opportunity to voice any concerns. Shareholder outreach efforts, and any changes made to the compensation program in response to such efforts, should be highlighted in the proxy’s Compensation Disclosure and Analysis. ISS FAQs indicate that one possible way to reverse a negative say-on-pay recommendation is to impose more onerous performance goals on existing compensation awards and to disclose publicly such changes on Form 8-K, though the FAQs further note that such action will not ensure a change in recommendation. Disclosure of prospective changes to the compensation program will demonstrate responsiveness to compensation-related concerns raised by shareholders.

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Private Equity Portfolio Company Fees

Ludovic Phalippou is an Associate Professor of Finance at Saïd Business School, University of Oxford. This post is based on an article authored by Professor Phalippou; Christian Rauch, Barclays Career Development Fellow in Entrepreneurial Finance at Saïd Business School, University of Oxford; and Marc Umber, Assistant Professor of Corporate Finance at Frankfurt School of Finance & Management.

When private equity firms sponsor a takeover, they may charge fees to the target company while some of the firm’s partners sit on the company’s board of directors. In the wake of the global financial crisis, such potential for conflicts of interest became a public policy focus. On July 21st 2015, thirteen state and city treasurers wrote to the SEC to ask for private equity firms to reveal all of the fees that they charge investors. The SEC announced on October 7th 2015, that it “will continue taking action against advisers that do not adequately disclose their fees and expenses” following a settlement by Blackstone for $39 million over accelerated monitoring fees.

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FAST Act: Capital Formation Changes and Reduced Disclosure Burdens

Stacy J. Kanter is co-head of the global Corporate Finance practice at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden alert by Ms. Kanter, David J. Goldschmidt, Michael J. Zeidel, and Brian V. Breheny.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (FAST Act), which, despite its name, contains several new provisions designed to facilitate capital formation and reduce disclosure burdens imposed on companies under the federal securities laws. The provisions build upon the 2012 Jumpstart Our Business Startups Act (JOBS Act), which created a new category of issuers called “emerging growth companies” (EGCs) [1] and sought to encourage EGCs to go public in the United States. [2] The FAST Act provisions, which were first introduced in a package of bills often called “JOBS Act 2.0,” are the culmination of a continuing congressional effort to increase initial public offerings (IPOs) by EGCs, reduce the burdens on smaller companies seeking to conduct registered offerings and provide trading liquidity for securities of private companies.

While some of the new provisions require rulemaking by the U.S. Securities and Exchange Commission (SEC) before they are effective, other provisions of the FAST Act amend the Securities Act itself and therefore are effective, with an immediate effect on current offerings.

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Which Shareholders Benefit from Low-Cost Monitoring Opportunities?

Miriam Schwartz-Ziv is Assistant Professor of Finance at Michigan State University. This post is based on an article authored by Professor Schwartz-Ziv and Russ Wermers, Professor of Finance at the University of Maryland.

The traditional view in the finance literature is that shareholders that hold a large stake in a company are more likely to take costly actions, such as initiating a proxy fight or confronting management, while small shareholders will enjoy a free ride. In our recent paper, entitled Which Shareholders Benefit from Low Cost Monitoring Opportunities? Evidence from Say on Pay, we examine which shareholders are likely to take advantage of a low-cost monitoring opportunity, specifically, the Say-On-Pay vote (SOP). As we shall specify, we contrast SOP voting behavior on three levels: the aggregate level, the mutual fund level, and the institutional level to provide a finer granularity of voting patterns. Our primary finding is that, compared to large-scale shareholders (those who own greater than 5% of outstanding shares), small institutional shareholders are more likely to vote against management on the SOP vote. This voting pattern implies that, when ownership is dispersed, the low-cost SOP vote provides an opportunity for many small institutional shareholders to coordinate, and to voice a unified message.

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ISS and Glass Lewis Updated 2016 Voting Policies

Ellen Odoner and Lyuba Goltser are partners in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Ms. Odoner, Ms. Goltser, and Reid Powell. The complete publication, including appendices, is available here.

ISS and Glass Lewis have released updates to their proxy voting policies for the 2016 proxy season. [1] ISS has also modified its QuickScore 3.0 Technical Document and Equity Plan Scorecard. [2] In this post we provide guidance for U.S. public companies on addressing these developments.

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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.

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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.

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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:

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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.)

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2016 Proxy Season Update

Laura D. Richman is counsel and Michael L. Hermsen is partner at Mayer Brown LLP. This post is based on a Mayer Brown Legal update, available here, authored by Laura D. Richman, Robert F. Gray, Michael L. Hermsen, Elizabeth A. Raymond, and David A. Schuette.

It is time for public companies to think about the upcoming 2016 proxy and annual reporting season. Preparation of proxy statements and annual reports requires a major commitment of corporate resources. Companies have to gather a great deal of information to produce the necessary disclosures. In addition, with increasing frequency, companies are choosing to implement the required elements of their proxy statements with a focus on shareholder engagement, seeking to clearly present, and effectively advocate for, their positions on annual meeting agenda items. As the process for the 2016 proxy and annual reporting season begins, there are a number of recent developments that public companies should be aware of that will impact current and future seasons.

This post is divided into five sections covering the following topics:

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