In the past year, several factors have driven change in the executive compensation landscape in the U.S. Each year, Meridian identifies key developments regarding how companies respond to these ever changing conditions. (Read last year’s survey here.) In 2019, numerous factors impacted the U.S. executive compensation landscape. An increased focus on environmental sustainability, diversity and inclusion … Continued
A new and mandatory executive pay proxy disclosure requirement is about to hit. A remnant of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, this pay-for-performance disclosure rule will become effective for most public companies shortly after the US Securities and Exchange Commission (SEC) officially posts the final rules and a related comment … Continued
As 2019 comes to a close, this alert provides updates on three fronts: ▪ The implementation date for changes to the taxation of stock options in Canada has been delayed. ▪ A new position paper on the use of non-GAAP performance measures has been released by the Canadian Coalition for Good Governance (CCGG). ▪ Proxy … Continued
Historically, a company’s communication with investors has been centred around the quarterly tion of financial business results and forward-looking guidance, along with year- end results. However, developments over the past several years have led companies to engage with major institutional investors on a more frequent and individualized basis on executive compensation matters. The case for … Continued
In the wake of corporate scandals and high-profile executive misconduct, compensation committees are reviewing the adequacy of their clawback and forfeiture policies. Board members want to be assured they have the tools needed if they find themselves in the headlines. The original clawback provision under Sarbanes-Oxley requires only the CEO and chief financial officer (CFO) … Continued
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: The new tax rules will take effect for grants made on or after January 1, … Continued
The bill includes six procedural restrictions for the SEC to study for consideration as potential amendments to Rule 10b5-1. The proposed restrictions prescribe a reasonable approach for administering plans based on sound governance practices. One might wonder why companies would wait for Congress (and the SEC) when they could consider these changes now. The SEC … Continued
This potential wave has generated questions about Change-in-Control (CIC) severance protections, amplified by the significant coverage of Anadarko’s last minute enhancements to its CIC severance programs (see article). The Anadarko enhancements included elevated severance benefits and the re-insertion of excise tax gross-ups. Most companies, including Anadarko, eliminated the use of excise tax gross-ups in new … Continued
The newly introduced Bill to implement the federal government’s budget measures includes proposals that will, if enacted, require publicly-traded companies incorporated under the Canadian Business Corporations Act (CBCA) to: 1. Hold an annual non-binding shareholder vote on the executive compensation approach (i.e., a “Say on Pay” vote). 2. Develop an approach to compensation of directors … Continued
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 alignment. This Client Update provides an overview of EVA, how ISS intends to use it … Continued
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). There are two proposed exemptions to this change: 1. The proposed rule will only affect … Continued
Until recently, outside director compensation has not been subject to similar scrutiny primarily due to the narrow range of pay practices for directors, in both pay value and design/delivery. However, a new heightened level of scrutiny is now being applied to outside director pay. This has prompted many companies and their boards of directors to … Continued
The financial crisis and recession may be history, but the impact these events have had on the financial services industry remains. Meridian Compensation Partners LLC, a consulting firm that serves clients on executive compensation and governance matters, has a dedicated team that specializes in serving financial services organizations. Susan O’Donnell and Daniel Rodda, partners at … Continued
[embedyt] https://www.youtube.com/watch?v=oSZ-8hhjzuI[/embedyt] While the Tax Cuts and Jobs Act has brought some positives to the economy and certainly to select individuals, it has also brought some challenges to compensation committees as they try to figure out the correct balance for long-term incentives as part of the executive pay package. In this episode, Bob Romanchek, partner … Continued
Board compensation is always a hot topic for directors, with outside director compensation, lead director compensation, equity grants, the actual value of outside director pay and instances where companies have been sued for excessive outside director pay all front-burner topics. In the video above, Corporate Board Member recently sat down with Bob Romanchek, partner with Meridian Compensation Partners to talk … Continued
A wave of lawsuits surrounding director compensation surfaced a couple of years ago, often alleging “excessive” pay for boards of directors on a variety of grounds. Because boards set their own pay levels, there are potential legal ramifications due to the “self-dealing” nature of director compensation. While lawsuits were settled and subsequent litigation has subsided, … Continued
As the Dodd-Frank-mandated CEO pay ratio looms large this proxy season, many boards and compensation committees have already completed their calculations and are awaiting the impact. Added as a last-minute mandate to the Dodd-Frank Act in 2010, the CEO pay ratio was established in response to mounting discontent with the widening gap between executive and … Continued
[embedyt] https://www.youtube.com/watch?v=Y8eqctYRuBM[/embedyt] Episode Summary Serving on the compensation committee has become a formidable challenge for most directors regardless of one’s background or career. Not only do compensation committees have to navigate a host of regulations and complex terminology, but over the last several years, shareholders have made a significant push towards transparency on how decisions … Continued
Introduction Bank executive compensation practices continue to evolve, as does the regulatory influence on pay programs. Eight years after the Dodd Frank Act was signed, incentive compensation rules under Section 956 of the Act remain outstanding and seem unlikely to move forward under the current administration. The 2016 re-proposal of Section 956 regulations included prescriptive … Continued
Serving on the compensation committee has become a formidable challenge for most directors regardless of one’s background or career. Not only do compensation committees have to navigate a host of regulations and complex terminology, but over the last several years, shareholders have made a significant push towards transparency on how decisions are made. Bob Romanchek, … Continued
Approximately 25 percent of U.S. public companies will be asking shareholders to approve a new or amended share plan this proxy season. Since most companies do not revise share plans on an annual basis, boards may want a refresher on issues to consider when seeking shareholder approval. When asking for approval of a share plan, … Continued
The principal focus of the CHOICE Act is the banking provisions of Dodd-Frank and the Consumer Financial Protection Bureau. In addition, the CHOICE Act includes provisions relating to agency rulemaking requirements, judicial review of agency actions and capital formation. In the context of executive compensation and corporate governance, if ultimately approved by Congress, the CHOICE … Continued
While we wait to see what deregulation might come out of the new administration regarding Dodd-Frank or other executive compensation regulations, the Texas legislature might take a huge step in favor of corporate boards and management. A bill currently pending in committee in the Texas legislature would impact any company headquartered in Texas, which includes … Continued
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