Newsletter
Newsletter
By Peter J. Hunt, Mark Jones,
12.11.12
Questions from Our Readers..
Q What issues will be heavily discussed in upcoming meetings of compensation committees for publicly traded companies?
A Clawback, stock pledging and change-in-control policies are likely to be on the minds of many boards this upcoming year. Each issue fits a pattern that may seem quite familiar by now: actions items from the Dodd–Frank Act expanded upon by the shareholder proxy services.
New to the Institutional Shareholder Services’ (“ISS”) proxy guidance policy this year is a strict stance against stock hedging (i.e., utilizing instruments negatively correlated to stock price) and stock pledging (i.e., utilizing stock as loan collateral) by directors and executive officers. While Dodd–Frank section 955 merely contemplates a stock hedging disclosure regime, ISS favors prohibition of hedging. In addition, ISS may provide negative vote recommendations at companies with significant pledge commitments relative to shares outstanding and without any antipledging policies.
The SEC will likely release guidance on the Dodd–Frank section 954 financial restatement clawback in 2013. ISS scrutinizes board responses to all shareholder clawback proposals based on the company’s history of financial controls issues and its current clawback policy. For boards that choose to preempt shareholder clawback proposals, arriving at the proper plan will require a thoughtful evaluation of the culture and incentive structure at the company.
ISS has also expanded its review of Dodd–Frank section 951 “say on golden parachute” votes. Whereas ISS only reviewed recently adopted or revised severance agreements during the 2012 proxy season, in 2013 all severance agreements will be analyzed, regardless of adoption date. Weighing against ISS approval of a golden parachute vote are the existence of any single and modified single-trigger cash severance payments, single-trigger acceleration of unvested equity and “excessive” golden parachutes.
The upcoming year is sure to be an interesting one. We wish you good health and great success in 2013!