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Treasury Department and IRS Issue Guidance on Code Section 162(m)

The Treasury Department and Internal Revenue Service (IRS) have issued initial guidance under Notice 2018-68 (“Notice”) on the amendments to Internal Revenue Code Section 162(m) made under the Tax Cuts and Jobs Act of 2017 (“TCJA”). The Notice provides guidance on the definition of “covered employee” and the transition rule.

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Section 162(m) Prior to TCJA Prior to its amendment under TCJA, Section 162(m) generally prohibited a public company from taking a deduction for compensation that exceeded $1 million during a taxable year that was paid to a “covered employee”. However,…

Institutional Shareholder Services Releases its 2019 Policy Survey Questionnaire

Institutional Shareholder Services (ISS) recently issued its 2019 policy survey questionnaire, which previews potential changes in ISS’s proxy voting policies.

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Through its annual policy survey, ISS seeks feedback from institutional investors, public companies, corporate directors and the consulting and legal communities on emerging trends in corporate governance, executive compensation and other matters as part of its policy formulation process. The…

SEC Chair Announces Staff Review of Proxy Process

On July 30, 2018, Securities and Exchange Commission (SEC) Chair Jay Clayton announced that the SEC staff will be holding roundtable discussions with investors, public companies and other market participants about whether the SEC’s proxy rules should be refined.

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The last time that the SEC engaged in a wholesale review of the proxy rules was in 2010, at which time the SEC issued a concept release seeking public comment on whether the U.S. proxy system as a whole operates…

Report on Say on Pay and Select Shareholder Proposals For the 2018 Proxy Season

Meridian Compensation Partners, LLC is pleased to provide this periodic report on key voting results for the 2018 proxy season.

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Executive Summary Meridian Compensation Partners, LLC is pleased to provide this periodic report on key voting results for the 2018 proxy season. Specifically, this report will cover the following areas: ■ Standard & Poor’s (S&P) 500 Say on Pay (SOP)…

Two Companies Settle Director Pay Lawsuits

Recently, two biotech companies (Clovis Oncology, Inc. and OvaScience, Inc.) agreed to settle director pay lawsuits, one of which is pending court approval1. The settlements, which are remarkably broad and prescriptive, set specified director pay levels (or pay range), mandate certain proxy disclosures and require the reformed director pay policies to be submitted to a binding shareholder vote.

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Clovis Oncology, Inc. and OvaScience, Inc. were subject to substantially similar shareholder derivative lawsuits brought by the same law firm. The lawsuits alleged that non-employee directors breached their fiduciary duties to shareholders by awarding themselves “excessive” compensation under non-shareholder approved…

ISS Evaluation of Director Pay Could Lead to Negative Vote Recommendation on Select Board Members in 2019

Beginning this proxy season, Institutional Shareholder Services (ISS) began to examine the reasonableness of non-employee director pay. The outcome of this examination could lead ISS to issue a negative vote recommendation on incumbent directors serving on the board committee responsible for setting director pay who are standing for election in 2019.

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Under its new proxy voting policy on non-employee director compensation, ISS will generally recommend shareholders vote AGAINST members of the board committee that are responsible for approving or setting non-employee director (NED) compensation if there is a pattern (i.e., 2…

Senate Banking Committee Requests Answers from Proxy Advisory Firms

Earlier this month, members of the U.S. Senate Banking, Housing, and Urban Affairs Committee sent letters to the two major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis (GL), requesting answers about their business practices.

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In these letters, Senator Dean Heller (R-NV) and his colleagues raise questions related to each proxy advisory firm’s voting system, report inaccuracies and conflicts of interest. The letters also express concern about the proxy advisory firms’ market concentration and significantly…

Status of Proposals to Link State and Local Corporate Taxes to CEO Pay Ratio

As we reported last March, several jurisdictions have proposed (and one has enacted) tax surcharges, higher corporate income tax rates or fees tied to a public company’s CEO pay ratio. Since then, these proposals seem to have gained little legislative traction. This Update examines whether the ongoing public disclosures of CEO pay ratios have proven to be a catalyst for legislative action and whether other jurisdictions have proposed similar taxes.

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New Proposal – California Proposes Scaled Corporate Income Tax Rate Tied to a Public Company’s “Compensation Ratio” California is the sole jurisdiction to propose linking corporate income tax to a public company’s compensation ratio since last March. Submitted to the…

ISS Guidance on Proxy Reports and Company Engagement

Institutional Shareholder Services (ISS) recently issued updated guidance related to the publication of its U.S. proxy research reports and the process for company engagements. These are timely topics for a company to consider with the 2018 Proxy Season well underway.

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Generally, ISS issues its U.S. proxy research reports between 13 and 18 calendar days prior to the shareholder meeting date during peak U.S. proxy season from April through June. At other times of the year, ISS aims to publish its…

Delaware Court Case May Have Far Reaching Effects on Director Compensation

Boards of public companies should closely examine the manner in which director compensation is determined in light of a recent decision by the influential Delaware Supreme Court regarding Investors Bancorp (“Bank”).

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The upshot of the Delaware Supreme Court decision is whether equity plans of public companies should include prescribed annual limits on director compensation. According to the Court’s decision, the presence or absence of such limits will determine whether director compensation…

Sweeping Tax Reform Bill Passed by Congress

Congress has passed the most far reaching tax reform bill in over 30 years, the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act will affect nearly all taxpayers (business and individuals). Corporations will be subject to a significantly reduced income tax rate of 21% and generally will be taxed solely on U.S. based income (with some exceptions). Individuals will see the elimination of many itemized deductions but higher standard deductions and slightly lower marginal tax rates.

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Generally, the changes made to the Internal Revenue Code (“Code”) under the Tax Act are effective for taxable years beginning after December 31, 2017. The changes to the corporate income tax provisions are permanent. However, most changes to individual income…

Senate Passes Tax Reform Bill

In the early hours of December 2, the Senate passed its own tax reform bill. While passage of the bill seemed improbable as recently as last Thursday, Senate Republicans were able to overcome objections within their own caucus with last minute tinkering to their tax proposal. Up next is the reconciliation process during which House and Senate Republicans will iron out differences between their respective tax reform bills. At this point, passage and enactment of a reconciled tax reform bill appears to be highly likely prior to year-end.

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Under the Senate bill, changes to the Internal Revenue Code (“Code”) would be effective for tax years beginning after 2017, except for the change in the corporate income tax rate would first become effective in 2019. Under the House tax…

ISS Issues 2018 Final Policy Updates and Additional Guidance on Pay-for-Performance Assessment and Equity Plan Evaluations

Institutional Shareholder Services (ISS) has issued final updates to its proxy voting policies for 2018 and significant guidance through a series of FAQs on certain U.S. compensation policies, including its methodologies for assessing pay for performance and equity plan proposals.

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Final Policy Updates for 2018 The policy updates and guidance revise ISS proxy voting policies and methodologies for U.S.-listed companies in the following areas relating to executive compensation and corporate governance: ■ ISS quantitative pay-for-performance assessment, ■ ISS Equity Plan…

House Passes Tax Reform Bill

On November 16th, the U.S. House of Representatives passed its tax reform bill by a vote of 227 to 205.

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The tax reform bill approved by the full House does not substantively differ from the bill previously approved by the House Ways and Means Committee, as described in our Client Updates dated November 7, 2017 and November 10, 2017. Therefore,…

Senate Proposal on Tax Reform

On the heels of the House tax proposal, the Senate Republicans released their own tax reform proposal on November 9, 2017. The Senate tax proposal departs from the House Republicans’ tax proposal in several significant respects, including with regard to the effective date of the change in corporate tax rates. Generally, the Senate Republicans’ proposed changes to the Internal Revenue Code (“Code”) would be effective for tax years beginning after 2017. However, under the Senate tax proposal, the change in the corporate income tax rate would first become effective in 2019, while under the House tax proposal this change would first become effective in 2018.

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We expect further changes to be made in both the House and Senate tax proposals. Ultimately, any differences between the House and Senate proposals would need to be addressed during the reconciliation process. This Update first summarizes the Senate tax…

House Tax Bill Amendment Removes Controversial Provision on Nonqualified Deferred Compensation

The House Ways and Means Committee amended the House tax reform bill to eliminate the proposed and potentially sweeping changes to the tax treatment of nonqualified deferred compensation plans and certain equity awards.

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This means that the current tax law treatment of nonqualified deferred compensation and equity awards, such as RSUs, PSUs, SARs and nonqualified stock options, remains unchanged. However, the House tax bill changes to Section 162(m) of the Interal Revenue Code…

House Proposal on Tax Reform

On November 2, 2017, the House Republicans issued a sweeping tax reform bill that generally adheres to the themes of President Trump’s previous tax proposals, except that it includes a number of surprises involving executive compensation. Generally, the proposed changes to the Internal Revenue Code (“Code”) would be effective for tax years beginning after 2017.

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President Trump hopes to have a tax reform bill to sign by Thanksgiving. We believe that this timeframe is overly optimistic, given that the legislative process on the bill has just begun. Further, while House Republicans may be able to…

Proxy Advisors and Investors Announce How They Will Use CEO Pay Ratios in 2018

The major proxy advisors and three large institutional shareholders announced that CEO pay ratios will have little to no impact on their vote recommendations and vote decisions, respectively, in 2018.

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At a recent conference hosted by CompensationStandards.com, David Kokell, Vice President of Institutional Shareholder Services (ISS), stated that CEO pay ratios will not have any impact on ISS’s analysis or vote recommendations in 2018. However, ISS will include the information…

ISS 2017–2018 Policy Survey Summary of Key Items

ISS’s recent Policy Survey previews potential changes in its 2018 proxy voting policies.

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Each year, Institutional Shareholder Services (ISS) surveys institutional investors, public companies (“issuers”) and the consulting and legal community on emerging corporate governance and executive compensation issues as part of its annual policy formulation process. Issuers and their advisors are collectively…

President Trump Proposal on Tax Reform

President Trump’s proposed tax plan is largely similar to the plan outlined by the White House in July – large cut in corporate tax rate, reduction in individual tax rates with consolidation of tax brackets, elimination of most deductions and increase in the standard deduction.

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The White House issued President Trump’s proposal on tax reform entitled “Unified Framework for Fixing Our Broken Tax Code.” The tax proposal provides slightly more details than the one issued in July, but remains a work in progress. The President…