Yet Another Reason to Consider Separate Annual Limits on Director Equity Awards

As reported in a prior blog post, public company employers that are adopting or amending equity-based compensation plans should consider adding a separate annual limit on director equity awards.  In a recent Delaware Chancery Court opinion (Calma v. Templeton), the Chancery Court refused to grant the board of directors of Citrix Systems, Inc. the protection afforded by the business judgment rule when they approved equity awards to themselves under the Company’s 2005 shareholder-approved equity compensation plan. The Chancery Court’s failure to review the director equity awards using the business judgment rule meant that the shareholder derivative action in Calma could proceed to trial under a more plaintiff-friendly “entire fairness” standard of review. Read More ›

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Don’t Miss Short-Term Deferral Day

Section 409A, the provision of the Internal Revenue Code that regulates the time and form of payment of nonqualified deferred compensation, contains a helpful exception for “short-term deferrals.”  Specifically, Section 409A provides that a payment will not be considered nonqualified deferred compensation if the employer makes the payment on or prior to the 15th day of the third month following the end of the employee’s (or, if later, the employer’s) taxable year in which the employee’s right to the payment vests.  For individuals and for employers with calendar fiscal years, the key date for purposes of the short-term deferral exception is March 15th. Read More ›

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ISS Issues FAQs on Equity Plan Scorecard

As reported in my October 24, 2014 post, Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, has adopted a new “scorecard” approach to evaluating public company equity compensation plans.  In a recent set of FAQs, ISS offers additional guidance on how it will apply the new scorecard when analyzing equity plan proposals made on or after February 1, 2015.

Among other things, the FAQs clarify that regardless of other scorecard factors, the following equity plan features will continue to result in an “against” vote: (i) a liberal change in control definition that could result in vesting of awards by any trigger other than a full double trigger, (ii) provisions that permit the repricing and/or cash out of underwater options or stock appreciation rights without shareholder approval, (iii) provisions that make a plan a vehicle for problematic pay practices or create a pay for performance disconnect, and (iv) any other plan features that are detrimental to shareholder interests which may include tax gross-ups or reload options. Read More ›

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ISS Proposes New Approach to Evaluating Equity Compensation Plans

Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, recently proposed a new “scorecard” approach to evaluating public company equity plans (the “Equity Plan Scorecard”).  Under the new approach, ISS will recommend a “for” or “against” vote based on a company’s Equity Plan Scorecard.  Pursuant to the proposal, a company’s Equity Plan Scorecard score will be based on factors related to the following three categories:

•  The total potential cost of the company’s equity plan relative to industry/market cap peers, measured using ISS’ proprietary “shareholder value transfer” or “SVT” model.

•  Plan features including automatic single trigger vesting on change in control, discretionary vesting authority, liberal share recycling, and minimum vesting periods for grants made under the plan. Read More ›

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ISS Offers New Equity Compensation Plan Data Verification Portal

Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, recently launched a new data verification portal to assist it in verifying the information it uses in evaluating public company equity compensation plans. Public companies that file their proxy statements after September 8, 2014 (and that have an equity plan proposal on their proxy ballot), can use the portal to verify the key data points that ISS will use in its equity plan evaluation.

According to a recent set of FAQs, the data verification period will open after the date a participating company files its proxy statement. After the proxy is filed, ISS will direct the participating company to verify key data points and to request changes. Read More ›

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Consider Adding Separate Annual Limits on Director Equity Awards

As reported in Part 1 of our End of Year Plan Sponsor “To Do” Lists, employers that are adopting or amending equity-based compensation plans in 2014 should consider adding a separate annual limit on director equity awards.  Including a separate sublimit for director equity awards appears to be a trend that continues to gain momentum amongst executive compensation practitioners.  A recent survey published by Towers Watson indicates that 22% of Form 500 companies that adopted or amended stock plans during the 2013 proxy season added a separate limit on director equity awards.

Many employers have added the separate sublimit for directors to respond to the Delaware Chancery Court’s ruling in Seinfeld v. Read More ›

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