On November 9, 2016 Andrew Liazos presented at the New York City Bar. He discussed innovative approaches used by public companies during the 2016 proxy season for disclosing executive compensation practices. Andrew addressed the changes in practices for disclosing director compensation in light of director pay lawsuits and CEO pay ratio disclosures that were made by some public companies in advance of the effective date under SEC final rules. Further, he suggested approaches for clawback policies in light of possible changes by the SEC and institutional shareholder services and closed the session with comments on changes to Item 402 executive compensation rules on a going forward basis.
John Roe from Institutional Shareholder Services (ISS) also presented regarding upcoming changes to ISS voting guidelines for the 2017 proxy season. He encouraged public companies to consider the new form of non-GAAP financial disclosures as part of ISS’ pay for performance analysis.
Much attention has been given to recent U.S. Securities and Exchange Commission (SEC) proposed rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) that would require disclosure of chief executive officer pay ratios and a new pay-for-performance table. But there’s another proposed rule that could cause significant headaches for public companies during the 2016 proxy season. As we previously reported, the SEC has proposed rules that would require disclosure of what categories of transactions are – and are not – allowed under issuer hedging policies. These rules would implement Section 955 of the Dodd-Frank Act. We believe that this issue has not received significant attention because most public companies already have hedging policies. What’s not appreciated is that the scope of the proposed rules is quite broad and could cover many common investment transactions that would not be a hedge under many public company hedging policies. For example, purchasing the stock of other issuers could be a hedge under the proposed rules. If the proposed rules are implemented in their current form, public companies could be forced to choose between (i) disclosing that some forms of hedging are allowed under their hedging policies, thereby risking adverse voting recommendations from proxy advisory services (such as ISS and Glass-Lewis, at least under current voting guidelines) or (ii) modifying existing hedging polices to limit investment approaches used to diversify concentrated stock positions, which would complicate compliance oversight of hedging policies and lead to changes by executives in their investment strategies, including potentially more sales of issuer stock under 10b5-1 programs. McDermott Will & Emery has submitted comments urging the SEC to clarify and narrow the scope of hedging transactions that would be covered as part of the final rules – click here for a copy of the comment letter. We recommend that public companies keep in mind the need to review existing hedging polices in light of what the SEC adopts as final rules on hedging policy disclosures, which could be finalized by early this fall.
Subscribe
