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Performance Share Fundamentals

Meridian explains the key features of performance shares and other considerations companies should know about.

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Description Performance shares are performance-contingent pay denominated in common stock and earned over a performance period if certain performance goals are attained. Often, performance share plans provide for a payout matrix under which performance shares are paid at differing levels…

Proxy Tabular Disclosure

Meridian explains tabular disclosures required in proxies, with annotated examples.

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The Basics Overview In 2006, the SEC dramatically changed proxy disclosure requirements. Six required tables provide a quantitative picture of companies’ executive pay in the prior one to three years. Companies must generally disclose compensation amounts for the top five…

Restricted Stock Fundamentals

Meridian explains everything you need to know about the basics of restricted stock.

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Description Restricted stock is an award of employer stock that is subject to vesting requirements and transferability restrictions (generally at no cost to the employee). Key Features Dividend and Voting Rights Restricted shares typically have voting and dividend rights. Dividends…

Stock Appreciation Rights Fundamentals

Basics of stock appreciation rights and what companies should know about them.

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Description A stock appreciation right (SAR) entitles an employee to the appreciation in value of a specified number of shares of employer stock over an “exercise price” or “grant price” over a specified period of time. Key Features Base Price…

Fundamentals of Compensation Committee Governance

Covering the four key categories companies should be aware of: planning, due consideration, analysis and access to the consultant.

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The fundamentals of good compensation committee governance have evolved over the years as executive compensation has become more complicated, more visible and more controversial. The goals of such processes are to ensure that the following goals are met: Enough time…

Performance Unit Fundamentals

Looking at performance units and how they operate in executive compensation plans.

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Description Performance units are performance-contingent pay denominated in dollars and earned over a performance period if certain performance goals are attained. Often, performance unit plans provide for a payout matrix under which performance units are earned at differing levels (e.g.,…

Restricted Stock Unit Fundamentals

Defining RSUs and explaining their place in executive compensation.

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Description Restricted stock units (RSUs) are an award of units that correspond in number and value to a specified number of shares of employer stock that typically are subject to vesting requirements and transferability restrictions. Units do not represent any…

Dilution, Overhang and Run Rate

Calculating the cost to shareholders of stock given to employees to drive behavior and align compensation.

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The majority of long-term incentives arrangements utilize shares of company stock as a mechanism for driving employee behavior and aligning compensation to shareholder value creation. The use of shares does not create a cash expense; however, it does have a…

Compensation Committee Calendar

Meridian provides a sample calendar for the compensation committee.

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It is good governance to establish in advance a Compensation Committee Calendar for the full year. Topics and timing should be pre-determined and agreed-upon. Following is a sample calendar. Executive sessions are presumed to take place at each meeting. First…

Developing Effective Peer Groups

Meridian looks at the key factors companies should consider when developing peer groups.

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The Basics Companies conduct executive compensation benchmarking for a number of reasons, mainly to provide the compensation committee with an objective evaluation of the competitiveness of the company’s compensation levels and programs. Peer groups can be useful in helping compensation…

$1 Million Limit on Deductible Executive Compensation—Sec. 162(m)

Meridian explains the basics and the details of this rule which limits the deductibility of compensation to certain employees.

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The Basics What is the rule? The corporate tax deduction of compensation to certain employees is limited to $1 million per year. The rule applies to the compensation of the executive officers named in the proxy (except, by a statutory quirk, for…

Executive Retirement Arrangements

Explaining the differences between qualified and unqualified plans, and more.

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Qualified Retirement Plans A qualified retirement plan is a funded plan for which organizational assets irrevocably have been set aside, outside the reach of general creditors of the company. These funds pay for benefits as they become due. Companies obtain…

Annual Incentive Basics

Looking at how annual incentive plans are typically designed.

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The primary purpose of an annual incentive plan, also called an annual bonus plan, is to drive and reward behaviors that have an impact on the operating success of the company. Following is information on how such plans are typically…

Stock Option Fundamentals

What you need to know about stock options in the executive compensation context.

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Description A stock option is a right to purchase employer stock at a fixed price (e.g., an “exercise price”) during a specified period of time. Key Features Exercise Price The exercise price generally is equal to the underlying stock’s fair…

Change-in-Control Arrangements

Meridian covers the basics as well as the details of change-in-control arrangements.

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The Basics What are change-in-control arrangements? Executive change-in-control arrangements generally refer to any severance, payments or special benefits that are provided to an individual in connection with a change in control (CIC) of the company. A CIC is typically defined…

Best Practices in Benchmarking

Covering why companies should do compensation benchmarking and the most effective ways to do it.

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The Basics What is compensation benchmarking? Compensation benchmarking is the process of comparing a company’s compensation levels and practices against those of other companies (i.e., the “market”). In order to benchmark compensation, you must define, value, analyze and summarize market…

Executive Severance Arrangements

Looking at how and why severance arrangements are used in executive compensation.

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The Basics What are executive severance arrangements? General executive severance arrangements generally refer to any severance, payments or special benefits that are provided to an individual due to a termination from the company. General severance is provided for terminations not…

Accounting for Executive Compensation

What companies should know about accounting for their executive compensation packages.

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The Basics The exchange of services for equity creates an accounting expense that must be recognized in the income statement. ASC Topic 718 (formerly SFAS 123R) is the rule that governs expensing of all stock-based compensation. The expense realized is…

Fundamentals of Long-Term Incentives

Pros and cons of the three most common categories of long-term incentives.

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Long-term incentives (“LTI”) are forms of variable (“at risk”) compensation based on the achievement of longer-term performance and objectives. Primary objectives are to: Align executive interests with shareholders and align executive pay with company performance and strategy. Balance annual incentives…

Nonqualified Deferred Compensation

Meridian answers your questions about nonqualified deferred compensation.

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Overview A nonqualified deferred compensation plan represents an unsecured promise by an employer to pay compensation to an employee at a future date. Such a plan is not subject to the complex rules under ERISA that are applicable to tax-qualified…