Settlement of Solak v. Barrett May Provide Additional Guidance on Setting Director Pay

I’ve stressed how important it is for public company executives and directors to stay apprised of developments in the director pay area, including developments/settlements of director pay lawsuits.  Earlier this summer, the Delaware Chancery court approved a settlement of Solak v. Barrett, a case in which the plaintiffs alleged that the directors of Clovis Oncology breached their fiduciary duties by adopting a compensation plan that overcompensated themselves, in relation to companies of comparable market capitalization and size. In their complaint, the plaintiffs cited as evidence, the fact that the non-employee directors of Clovis each had been paid an average of $429,163 annually between 2012 and 2016, while Fortune 50 companies pay their directors a median total of $281,667 a year and S&P 500 companies pay an average $277,237 a year.  Read More ›

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Yet Another Reason to Focus on Director Pay

We have previously encouraged our readers to focus on the size of their director pay packages and the processes their boards undertake in setting director compensation.  Prior focus on these issues was recommended largely as a way to mitigate the risk of litigation for excessive pay.  In their current U.S. Compensation Policies FAQ, Institutional Shareholder Services Inc. (“ISS”) has given boards yet another reason to focus on director compensation. In the FAQ, ISS indicates the following:

  • In evaluating non-employee director pay, ISS will look for “reasonable practices” that “adequately align the interests of directors to those of shareholders.”
  • A director pay program should incorporate “meaningful” stock ownership and/or holding requirements.
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Review of Qualified Plan Compensation Definition May be Needed Due To Tax Reform

Tax reform made few changes that directly impact qualified retirement plans; however, it made some changes that may indirectly impact qualified retirement plans.  We previously blogged on the indirect changes that tax reform had on hardship distributions. 

Tax reform also made changes to the taxation of certain fringe benefits that may impact the definition of “compensation” used in some qualified plans. Some qualified plans define compensation for plan purposes based on the taxability of a fringe benefit.  For example, a qualified plan may exclude from its definition of compensation “moving expenses, to the extent excluded from gross income.”  After tax reform, employers may no longer pay or reimburse moving expenses on a tax-free basis.  Read More ›

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Changes to Accounting Rules Alter Approach to Share-Based Withholding

Earlier this year the Financial Accounting Standards Board released Accounting Standards Update No. 2016-09 (the “ASU”) to improve the accounting treatment of certain stock-based compensation payments.  Among other updates, the ASU modifies the manner in which employers withhold on stock-based compensation awards. 

Under the current accounting rules, one requirement for favorable equity (rather than liability) accounting treatment is that the employer limit the amount it can withhold in connection with stock-based withholding to the minimum statutory amount necessary to satisfy taxes.  The ASU provides that equity accounting treatment will be retained if an employer withholds at the maximum statutory amount necessary to satisfy taxes (or allows the employee to elect his or her withholding rate as long as the elected rate does not exceed the maximum statutory rate in the employees’ applicable jurisdiction).  Read More ›

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