It has been six years since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which mandated that the Securities and Exchange Commission (SEC) develop rules intended to address the then-current financial crisis. One such rule concerns the ratio of CEO pay to median worker pay, which was finalized on Aug. 5, … Continued
In contrast to the mandatory (but non-binding) advisory votes on executive compensation (“Say on Pay” votes) in the U.S., Say on Pay remains voluntary in Canada. Close to 80% of the S&P/TSX 60 companies have a Say on Pay vote – a level that has remained fairly stable for the last few years. The S&P/TSX … Continued
This year marks the sixth year in the United States of say on pay, the rule that allows shareholders to cast non-binding votes that voice their approval—or disapproval—of a company’s executive compensation programs. Shareholders cast votes based on the perceived degree of alignment between executive pay and company performance, and achieving a high level of … Continued
The structure of a share unit plan and how a share unit is settled can have a significant impact on its taxation and accounting treatment. This update: Considers three alternative share unit plans that are generally used in Canada and outlines the key advantages and disadvantages of each alternative Summarizes the proposed changes to the … Continued
Compensation is often more about the message than the money. BP’s recent shareholder vote offered some valuable lessons for other energy companies about sending the right messages to shareholders when commodity prices impact business results. On April 14th, nearly 60% of voting BP shareholders opposed BP’s compensation programs. The press reported that shareholders were upset … Continued
The current industry downturn is already impacting compensation programs and will likely also impact the upcoming Say on Pay season. Based on our research, the market decline will cause an increased number of energy companies to trip a key ISS test in 2016. Fortunately, it’s easy to spot now so companies can anticipate the issue … Continued
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 highest paid executive officers, including the Chief Executive Officer, the Chief Financial Officer and the … Continued
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 may be paid currently or may be paid upon satisfaction of vesting requirements. Vesting Time-based. … Continued
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 The base price generally is equal to the underlying stock’s fair market value on the … Continued
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., threshold, target and maximum) based upon achieved performance. Key Features Performance Period Performance period typically … Continued
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 actual ownership or equity interest. Dividend and Voting Rights RSUs have no voting or dividend … Continued
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 cost to shareholders through dilution of earnings and voting power of existing shareholders. (See separate … Continued
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 the CFO), who are employed as of the last day of the taxable year. The … Continued
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 tax deductions for contributions made to qualified plans at the time the contributions are made. … Continued
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 market value on the date of grant. Vesting The most typical type of vesting is … Continued
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 based on a “fair value” determined at the date of grant. This fair value is … Continued
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 with focus on long-term (3- to 10-year) results. Retain executives. Facilitate long-term executive stock ownership. … Continued
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 retirement plans (regarding eligibility, nondiscrimination, funding, trust requirements, etc.). This gives employers significant flexibility in … Continued
The Basics The Compensation Discussion and Analysis (CD&A) is a required part of a company’s annual proxy statement. Its purpose, per SEC rules effective in 2006, is to “provide material information about the compensation objectives and policies for named executive officers” and “put into perspective for investors the numbers and narrative that follow it”. The … Continued
The Basics What is the rule? Section 16 imposes restrictions on when and how a corporate “insider” may buy and sell shares of company stock. Who does it apply to? “Insiders”, defined as officers, directors, and more than 10% shareholders are covered by the rules. What is the impact of Section 16? An insider is … Continued
The Basics Many companies promise contractually to make special payments or provide special benefits to executives at the time of, or upon a qualified termination of employment following, a merger, acquisition or other change in control (CIC) of the company. These payments, such as severance pay, benefits continuation or acceleration of vesting on stock incentives … Continued
There are three primary corporate filings related to executive compensation: the proxy statement, Form 8-K filings and Form 4 filings. Proxy Statement Companies must file proxy statements with the SEC in connection with shareholder meetings. The proxy contains executive compensation disclosures including the Compensation Discussion and Analysis (“CD&A”), other narrative disclosures and tabular disclosures. CD&A. … Continued
The Basics What is the rule? Section 409A of the Internal Revenue Code establishes a complex regime for taxation and regulation of nonqualified deferred compensation. Who does it apply to? The reach of Section 409A is extensive, as it applies to employees, directors and third-party service providers of private and public companies, as well as … Continued
“The key to making a good forecast,” statistician Nate Silver noted in his 2012 book “The Signal and the Noise: Why So Many Predictions Fail—But Some Don’t,” “is not in limiting yourself to quantitative information. Rather, it’s having a good process for weighing information appropriately.” For the inaugural Prognosticators of Pay event, NACD invited a … Continued
Although Say on Pay remains voluntary in Canada, the number of companies with an advisory resolution on executive compensation continues to rise, with 162 companies holding Say on Pay votes in 2015 – up from 156 in 2014 and 133 in the year prior (a 22% increase since 2013). Participation among Canada’s largest companies continues … Continued
Introductory Comments from Matt Isakson, Lead Consultant As discussed last week in Seattle, the Compensation Committee’s review of management’s proposed goals is now a primary focus for directors. There are many tools available to the Compensation Committee to help assess the goals from an objective perspective. On a related note, the SEC’s proposed no fault … Continued
The SEC recently proposed rules outlining a new CD&A disclosure coming out of Dodd-Frank (see Meridian Alert here) – these rules require disclosure of the link between performance and compensation “actually paid”. While the proposed disclosures will likely require a significant amount of legwork to calculate and there is a lot of information proposed to … Continued
As banks prepare for their annual shareholder meetings, most will have a say-on-pay vote where shareholders indicate whether they support the executive compensation program. This process has pressured companies to improve their compensation disclosures and clearly explain their pay practices and decisions. Today’s bank boards should engage with shareholders to understand their evolving perspectives on … Continued
After a long period of relative stability and near parity, the Canadian dollar has fallen to about 80 cents U.S. – a six-year low. The outlook for further movement up or down, is unclear and is tied both to the general economic outlook for Canada and the U.S., as well as to worldwide commodity prices. … Continued
The significant increase in shareholder activism has many companies and compensation committees playing defense. While the specter of activist interest is generally viewed with concern, looking at your executive compensation programs from the perspective of an activist investor can focus compensation committees on three critical areas: Performance of the company relative to competitors for business … Continued