Corporate Counsel Weekly™ helps corporate lawyers get the big picture on the legal challenges facing corporations today. Practitioners can discover trends on the horizon and stay alert to the full...
By Michael Greene
Sept. 18 —Speakers at a Sept. 12 conference on executive compensation discussed issues that directors and board members should consider involving shareholder engagement, CEO succession planning, SEC enforcement of regulatory filings and Dodd-Frank.
Shareholder engagement has become increasingly more important since the implementation of say-on-pay, and directors are opening themselves up more to shareholders, said Linda Rappaport, a partner at Shearman & Sterling LLP.
Since the Dodd-Frank Wall Street Reform and Consumer Protection Act required nonbinding say-on-pay votes to approve executive pay at least once every three years, and the Securities and Exchange Commission adopted its corresponding rule thereon (26 CCW 25, 1/26/11), investors have used the say-on-pay vote to communicate more with management (29 CCW 129, 4/23/14).
Shareholder engagement has become a more “proactive” process, she said.
As part of this process, companies must think about who should lead the outreach effort; sometimes the CEO may not be the best person. This person needs to be a “good communicator” and always should be careful about the information the company shares, she said.
Additionally, proper shareholder engagement requires identifying the right investors, said Rappaport.
Larger shareholders can account for up to “30 to 40 percent” of the vote so it is “important to get their reaction,” which sometimes requires listening rather than communicating, according to Charles M. Elson, finance professor at the University of Delaware's Alfred Lerner College of Business & Economics.
The panelists also discussed the controversial pay ratio rule.
Under Dodd-Frank—and a SEC rulemaking promulgated in 2013, but not yet finalized (29 CCW 287, 9/17/14)—public companies are required to disclose the median annual compensation of all employees and the annual income of their CEO.
Companies may use a “reasonable estimate” to calculate annual compensation, and the SEC will be “flexible on the calculation methodology” used, Rappaport explained.
She added, however, that companies need to start thinking about issues related to the choice of methodology, including cataloging their work forces, currencies and exchange rates, and the integration of different payroll systems. Moreover, they should figure out what measurements they are going to use in making their methodology seem “sensible.”
In other practical advice, Rappaport warned that firms are reading through proxies and looking “for problems in the way equity plans are administered.”
This trend is coming up more now because many companies have stock prices that are depressed. When advising a company in this area, attorneys should consider what protocols are used in counting shares and whether there are different interpretations on how to count shares when they are rewarded, she said.
According to Rappaport, establishing a protocol for counting shares may be the best way to defend against this type of lawsuit.
The Practising Law Institute sponsored the “Hot Issues in Executive Compensation 2014” conference.
To contact the reporter on this story: Michael Greene in Washington at email@example.com
To contact the editor responsible for this story: Ryan Tuck at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)