February 3, 2015

Glass Lewis Changes Its Pay-for-Performance & Equity Plan Models

As noted in this Glass Lewis blog, Glass Lewis made these changes effective yesterday (here’s a related Tower Watson memo):

Glass Lewis is pleased to announce enhancements to the performance metrics used in its US and Canadian pay-for-performance (P4P) models, as well as its US equity plan model. These changes will go live on February 2, 2015. Glass Lewis’ P4P models evaluate the linkage between pay and performance at companies versus their peers. Weighted-average executive compensation percentiles and weighted-average performance percentiles are reviewed to determine how well a company aligns its executive pay with its corporate performance. When calculating the performance percentiles, the current models evaluate the following five metrics: Change in Operating Cash Flow, Change in Earnings Per Share, Total Shareholder Return, Return on Equity, and Return on Assets.

Glass Lewis has determined that changing some of the performance metrics for certain industries will better reflect how the operating performance of companies in these industries is measured and evaluated by management, boards, and industry analysts. Along those lines, Glass Lewis will:

– Replace Change in Operating Cash Flow with Tangible Book Value Per Share Growth for companies in the Bank, Diversified Financials, and Insurance sectors
– Replace Change in Operating Cash Flow with Growth in Funds From Operations for REITs, with the exception of Mortgage and Specialized REITs.

In order to be consistent with these updates, Glass Lewis will also make the same changes to the performance metrics used in its US equity plan model. Glass Lewis has back-tested these changes in the P4P and equity plan models. The results indicate that there will be minimal impact on the grades generated by the P4P models, as well as minimal impact on the pass/fail assessments generated by the equity plan model.

SEC Budget: Obama Seeks 15% Raise to $1.7 Billion

According to this WSJ article (and this Bloomberg article), President Obama submitted his budget yesterday for the SEC. Here’s the WSJ’s opening paragraph:

The Securities and Exchange Commission would see its funding levels rise about $200 million to $1.7 billion under the White House’s 2016 budget blueprint, according to people familiar with the matter. The Obama administration is set to unveil the proposal Monday. The plan would fund the federal government for the fiscal year beginning Oct. 1. The blueprint is widely seen as an opening bid for budget negotiations with congressional Republicans and is unlikely to be enacted without tweaks. It marks the second consecutive year the White House has sought $1.7 billion in funding for the SEC. For the current fiscal year, lawmakers agreed to boost the agency’s funding by $150 million—$250 million less than what the White House sought—as part of a last-minute federal spending plan enacted in December.

Here’s what SEC Chair White said in a statement:

The FY 2016 $1.7 billion budget request is a 15 percent increase above the enacted level for FY 2015. The request would allow the SEC to hire an additional 431 staff for key priorities, including 225 examination staff, 93 enforcement personnel and 37 positions to enhance market oversight. The SEC’s funding comes from securities transaction fees and does not impact the federal deficit or the funding available for other agencies.

If you’re a “gotta know everything about the budget” kind of person, this “What’s New” page on the SEC’s site has no less than 7 documents related to the SEC’s proposed budget, including this “budget request by program” with Corp Fin’s stuff on pages 73-74. Corp Fin seeks 7 new positions next year – and reviewed 5100 filings last year (the same number forecast for this year & next)…

Recorded Conversations with In-House Counsel Permitted as Evidence in FCPA Trial

This Akin Gump blog would give any lawyer the chills. Here’s the intro:

Earlier this month, a federal judge in New Jersey held that a secretly recorded conversation between a former chief executive officer and his general counsel may be used by prosecutors as evidence against the former executive in a bribery trial. The ruling serves as an important reminder regarding the limitations of the attorney-client privilege.

– Broc Romanek