Today is the “Tackling Your 2010 Compensation Disclosures: The 4th Annual Proxy Disclosure Conference”; tomorrow is the “6th Annual Executive Compensation Conference.” Note you can still register to watch online by using your credit card and getting an ID/pw kicked out automatically to you without having to interface with our Staff (but you can still interface with them if you need to). Both Conferences are paired together; two Conferences for the price of one.
– How to Attend by Video Webcast: If you are registered to attend online, just go to the home page of TheCorporateCounsel.net or CompensationStandards.com to watch it live or by archive (note that it will take about a day to post the video archives after it’s shown live). A prominent link called “Enter the Conference” on the home pages of those sites will take you directly to today’s Conference.
Remember to use the ID and password that you received for the Conferences (which may not be your normal ID/password for TheCorporateCounsel.net or CompensationStandards.com). If you are experiencing technical problems, follow these webcast troubleshooting tips. Here are the Conference Agendas; times are Pacific.
– How to Earn CLE Online: Please read these FAQs about Earning CLE carefully to see if that is possible for you to earn CLE for watching online – and if so, how to accomplish that. Remember you will first need to input your bar number(s) and that you will need to click on the periodic “prompts” all throughout each Conference to earn credit. Both Conferences will be available for CLE credit in all states except for a few (but hours for each state vary; see the CLE list for each Conference in the FAQs).
– How Directors Can Earn ISS Credit: For those directors attending by video webcast, you should sign-up for ISS director education credit using this form. This is meant only to facilitate providing information to ISS; they are the ones in charge of accreditation and any disputes will need to be taken up with them.
Black & Decker’s CEO Does the Right Thing? Foregoes Change-of-Control Payment
I loved Michelle Leder’s title of her footnoted.org blog recently entitled “On Black and Decker’s CEO and unicorns…“. Michelle was referring to the Form 8-K filed by Black & Decker which reveals that its CEO would forego $20 million in severance, a sum he would be entitled to under his arrangements with the company as triggered by this week’s announced merger with Stanley Tools. The Washington Post ran this article last week noting how this move is perhaps not as generous as it seems.
And here is a response from a member:
I don’t mean to throw stones, but Mr. Archibald is 66 years old. Why is he entitled to three years severance in the first place?
Based on my review of his new three year Executive Chairman Agreement, he is entitled to a base salary of $1.5 million per year, a target bonus of $1.875 million per year and long-term incentives of $6.65 million per year, (of which 50% is in stock options and 50% in restricted stock). Add to that, a 1 million share “sign-on” stock option grant (estimated value $15 million) and a Synergy Bonus Amount of as much as $45 million. All in, he could earn $90 million over the next three years, which would easily make up for his contract waiver if the company performs.
It is also worth noting that his current SERP is worth $35 million as of December 31, 2008, and he retained the right to an enhanced SERP if he is terminated before the end of the new contract term (i.e., he gets additional years of service and his foregone severance is included in the benefit calculation).
While I am glad to see a CEO waiving severance, it looks to me like he is getting it back, and then some.
You may also want to read Paul Hodgson’s “Extraordinary merger bonuses at Pfizer” from The Corporate Library Blog. Also check out this NY Times article from the front page yesterday with a quote from Jesse Brill.
Reminder: Many Companies Need to Amend for Section 162(m) by Year End
Mike Melbinger of Winston & Strawn recently issued this reminder in “Melbinger’s Compensation Blog” on CompensationStandards.com:
Many companies will need to amend their employment agreements, equity plans and awards, and other incentive plans and agreements by December 31, 2009, to preserve the deductibility of performance-based awards and amounts under Code Section 162(m) [the $1 million limit on public companies ability to deduct compensation payments to its named executive officers] in light of Rev. Rul. 2008-13.
Background: Rev. Rul. 2008-13 held that if a plan or agreement provides for payment following an executive’s termination without cause, for good reason, or due to retirement, the plan or agreement does not pay “remuneration payable solely on account of the attainment of one or more performance goals,” as may be required by Code Sec. 162(m) and Treas. Reg. §1.162-27(e)(2)(i). Therefore, agreements providing for the accelerated vesting of performance-based cash or equity awards and a payment regardless of actual performance upon retirement, termination of the executive by the company without cause, or termination by the executive for good reason, would cause the awards to fail to satisfy 162(m)’s performance-based exception – even if the accelerated vesting and payout is never triggered. (The IRS first took this position in PLR 200804004.)
The IRS’ rationale for this position was simple: terminations without cause, for good reason, or due to voluntary retirement, are not listed as permissible payment events under the 162(m) regulations. The IRS has also pointed out that, under the sample definitions of “cause” and “good reason” set forth in the ruling, the involuntary termination may arise as a result of the employee’s poor performance and failure to meet the performance goal.
Effective Date Transition Rules: The IRS declared that it would not apply the holdings in the Rev. Rul. to disallow a deduction for any compensation that otherwise satisfies the requirements for qualified performance-based compensation under 162(m) and that is paid under a plan or agreement with payment terms similar to those in the ruling if either:
– The performance period for such compensation begins on or before January 1, 2009 or
– The compensation is paid pursuant to the terms of an employment contract as in effect (without respect to future renewals or extensions, including renewals or extensions that occur automatically absent further action of one or more of the parties to the contract) on February 21, 2008.
Thus, compensation paid for 2009 performance under most agreements and programs was exempt.
For most companies, the 2009 performance period is ending and, therefore, the delayed effective date under Rev. Rul. 2008-13 will not be available much longer. Every company should consider whether it needs to revise its performance-based compensation plans and agreements to comply with Rev. Rul. 2008-13 and, if it must, how to revise the plans and agreements to achieve the original purposes of the acceleration. Remember, Rev. Rul. 2008-13 would deny deductibility to plans and agreements with the offending language even if the acceleration event never occurs.
Mike also was the first one to blog about the IRS starting Section 409A audits about a month ago. Compensation newsletters I’ve seen are only now getting wind of this development…
– Broc Romanek