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Report on Say on Pay and Select Shareholder Proposals For the 2019 Proxy Season

Meridian Compensation Partners, LLC is pleased to provide this periodic report on key voting results for the 2019 proxy season.

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Executive Summary Specifically, this report will cover the following areas: ■   Standard & Poor’s (S&P) 500 Say on Pay (SOP) Vote Results and Analysis, ■   Russell 3000 SOP Vote Results and Analysis, and ■   Analysis of Vote Results on Select…

Council of Institutional Investors (CII) Overhauls its Policy on Executive Compensation

On September 17, 2019, the Council of Institutional Investors (CII) announced an overhaul of its policy on executive compensation, urging public companies to reduce the complexity of their executive compensation plans and set longer service-based periods for time-based equity awards.

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CII is an influential advocacy group for institutional investors. Its membership includes a wide range of asset managers with over $35 trillion in assets under management. To advance the interests of its members and reflect changes in the corporate governance…

Summary of Key Results from ISS 2019 Annual Policy Survey

ISS’s recent Policy Survey previews potential changes in to 2020 proxy voting policies.

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

Corporate Share Repurchase Programs Draw Increasing Criticism

Since 2009, corporate share repurchase programs have been a ubiquitous feature of many public companies’ capital allocation strategies. Generally, these programs have been applauded by institutional shareholders, while raising little concern by other parties. That dynamic is now changing with share repurchase programs drawing sharp criticism from politicians, state and union pension funds, and others.

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Recently, politicians, the media, academics and governance experts have criticized company stock buyback programs as a mechanism for enriching shareholders and executives through short-term boosts in a company’s stock price, while harming employees and misallocating capital to the detriment of…

SEC Issues Guidance on Proxy Advisory Firms

On August 21, 2019, the Securities and Exchange Commission (“SEC”) issued guidance covering the role that proxy advisory firms play in the proxy voting process and the use of proxy advisory firms by investment advisers.

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Despite reports to the contrary, the guidance (which does not carry the weight of law) does not represent meaningful federal oversight of proxy advisory firms. In fact, Institutional Shareholder Services (ISS) and Glass Lewis already largely comply with the guidance.…

Institutional Shareholder Services Releases its 2019 Policy Survey Questionnaire

Institutional Shareholder Services (ISS) recently issued its 2019 policy survey questionnaire, which generally 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…

Investor Group Seeking Greater Disclosure on Workplace Equity Policies

A group of 99 institutional investors are requesting “that companies increase investors’ accessibility to information related to their workplace equity policies and practices across gender, race, ethnicity, sexual orientation, and other federally protected classes.”

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Through a yet-to-be launched letter campaign, so far, a group of 99 institutional investors representing over $1.6 trillion of assets owned, advised or managed are signatories to an “Investor Statement” calling for public companies to provide enhanced disclosure on workplace…

Illinois’ Proposed Board Diversity Law Stripped of Diversity Mandate

Earlier this month, the Illinois House of Representatives and Senate passed legislation that requires certain public companies to report diversity data and information, but excludes the requirement that these public companies’ board of directors meet racial and gender quotas (which were a part of the initial proposed legislation).

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As we previously reported in our Client Update dated May 22, 2019, the Illinois House of Representatives and Illinois Senate were both considering separate bills that would have required subject corporations’ boards of directors to include at least one female…

UPDATE: Draft Legislation Released Changing Tax Treatment of Stock Options Effective January 1, 2020

On June 17, the federal government released draft legislative language to implement the proposed changes to the taxation of stock options in Canada, as introduced in the 2019 Budget in March.

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The budget proposed to eliminate the preferential tax treatment of stock options, above an annual $200,000 face value, for large, long-established, mature firms. (See Meridian’s update here for details of the original proposal.) The highlights of the implementation language include:…

House Committee Hearing on Corporate Accountability Bills

On May 15, 2019, the U.S. House of Representatives Committee on Financial Services held a hearing to consider four draft bills that, if enacted, would impose new compensation and human capital disclosure requirements on public companies and additional regulatory oversight of corporate stock buyback programs.

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The Financial Services Committee (FSC) majority staff has developed three legislative proposals that would require public companies to make sweeping disclosures on officer and employee compensation, human capital metrics, and domestic and foreign employees. A fourth legislative proposal is a…

SEC Releases Rulemaking Agenda for Next Twelve Months

On May 22, 2019, the Securities and Exchange Commission (SEC) released its Spring 2019 Regulatory Flexibility Agenda (“Reg Flex Agenda”), which identifies rule-making initiatives that the SEC expects to address over the next year and beyond.

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In its latest semiannual Reg Flex Agenda, the SEC identifies the following rule-making initiatives as among those that the SEC expects to address over the next twelve months: ■ Propose rule amendments regarding the thresholds for shareholder proposals under Rule…

Illinois Proposes Law Requiring Gender and Racial Diversity on Boards of Corporations Whose Principal Executive Offices are in Illinois

Illinois is the first state in the nation to propose a law that would require publicly traded corporations to include on their boards at least one female, one African American and one Latino director. The proposed law would solely apply to those publicly traded corporations whose principal executive offices are located in Illinois.

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The Illinois House of Representatives (“House”) on March 29, 2019 passed a bill (“House bill”) that would impose gender and racial diversity requirements on boards of directors of publicly traded corporations whose principal executive offices are located in Illinois, irrespective…

Federal Court Reinstates Employee Pay Data Reporting Requirement

In an unexpected ruling, a federal court recently ordered the Trump administration to reinstate an Obama-era rule that will require employers to report pay data by employee gender, race and ethnicity.

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Absent a reversal on appeal, the court ruling means that covered employers will be required to report this pay data to the Equal Employment Opportunity Commission (EEOC) on revised Form EEO-1 by September 30, 2019. Revised EEO-1 Disclosure Requirements Currently,…

Economic Value Added—New Governance Considerations

Starting this proxy season, Institutional Shareholder Services (ISS) will be disclosing in U.S. and Canadian company proxy reports Economic Value Added (EVA) metrics. These metrics will be shown for informational purposes only. However, we believe it is likely that ISS will incorporate EVA metrics into its CEO pay-for-performance analysis within the next two proxy seasons, subject to investor feedback.

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ISS’s introduction of EVA metrics is likely to foster discussion among compensation committees about the nature, merit and implication of these metrics. EVA may also be of interest among institutional investors as an additional lens to assess pay and performance…

Glass Lewis Launches New Service that Provides U.S. Companies the Opportunity to Give Feedback on its Vote Recommendations

On March 14, 2019, Glass Lewis announced the launch of a new Report Feedback Statement (RFS) service, which will allow a U.S. public company to provide feedback on Glass Lewis’ analysis of the company’s proxy proposals for its annual meeting. Glass Lewis will then disseminate these comments directly to its investor clients.

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The RFS service provides an opportunity for U.S. public companies1 to express their differences of opinion with Glass Lewis’ analysis on proxy proposals (e.g., Say on Pay proposal) to be voted on at their annual meeting. Glass Lewis will then…

House Passes Bill to Curb Potential Abuses of Rule 10b5-1 Trading Plans

The U.S. House of Representatives passed a bipartisan bill that would require the Securities and Exchange Commission (SEC) to determine whether to adopt specified amendments to the rules governing 10b5-1 trading plans.

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Background SEC Rule 10b-5 prohibits securities fraud, including insider trading through the purchase or sale of securities on the basis of material non-public information. SEC Rule 10b5-1, which was adopted in 2000, allows insiders to transact in their company’s securities…

2019 Federal Budget: Changes to Tax Treatment of Stock Options

One of the proposed legislative changes in the Liberal government’s 2019 Federal Budget directly affects executive compensation.

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The government has proposed to limit the preferred tax treatment for stock options. Currently options are eligible for a deduction the effect of which is to tax them at one-half the ordinary income tax rate (similar to capital gains treatment).…

Will the New Year Bring Regulatory Oversight of the Proxy Advisory Firms?

The Senate and the SEC are operating on parallel paths toward the potential regulation of proxy advisory firms. However, the outcome remains uncertain.

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We have seen many false starts on the road to regulate proxy advisory firms. Several recent Congressional attempts to pass legislation to regulate the proxy advisory firms have failed. In 2017, the U.S. House of Representatives passed two bills (the…

SEC Adopts Final Rules for Disclosure of Hedging Policies

On December 18, 2018, the Securities and Exchange Commission (SEC) adopted final rules that require companies to disclose in proxy statements their policies on hedging employer securities.

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In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which, among other things, directed the SEC to adopt rules requiring public companies to disclose their hedging policies. On February 9, 2015, the SEC issued proposed…