September 28, 2016

ISS FAQ: You May Need to Review Grandfathered Employment & Other Agreements

Here’s a blog that Mike Melbinger recently wrote on It’s September, welcome back to “school”. As we all begin to prepare for setting 2017 compensation and the 2017 proxy season, among the issues that executives and compensation professionals should consider – and consider raising with compensation committees – is the subtle change ISS made to its policies for executive compensation early this year. This change appeared in the January 2016 FAQs, but that was too late for most companies to do anything about it. However, the change will be fully effective for the upcoming proxy season.

65. Would a legacy employment agreement that is automatically extended (e.g., has an evergreen feature) but is not otherwise amended warrant an adverse vote recommendation if it contains a problematic pay practice?

Automatically renewing/extending agreements (including agreements that do not specify any term) are not considered a best practice, and existence of a problematic practice in such a contract is a concern. However, if an “evergreen” employment agreement is not materially amended in manner contrary to shareholder interests, it will be evaluated on a holistic basis, considering a company’s other compensation practices along with features in the existing agreement.

Companies and committees should be conscious of the fact that ISS is taking a firmer approach to problematic pay practices in “grandfathered” agreements, including “evergreen” agreements with problematic pay practices. In fact, the 2016 U.S. Executive Compensation Policies, Frequently Asked Questions, does not include the phrase “grandfathered.”

Whistleblowers: You May Need to Review Severance & Other Agreements

Speaking of changes to agreements, these memos posted in our “Whistleblowers” Practice Area give similar advice to this excerpt from Bryan Pitko’s blog:

As part of the settlement, the company agreed to amend its severance agreements to make clear that employees may report possible securities law violations to the SEC and other federal agencies without prior approval and without having to forfeit any resulting whistleblower award, and make reasonable efforts to contact former employees who had executed severance agreements, following the adoption of the whistleblower rules, to notify them that former employees are not prohibited from providing information to the SEC staff or from accepting SEC whistleblower awards. The defendant did not admit or deny the SEC findings in the enforcement action.

The terms of recent settlements should serve as reminder to any company that falls within the SEC’s enforcement jurisdiction (a significantly broader group that just public companies) to consider including provisions in severance and confidentiality agreements to explicitly provide that an employee may communicate with the SEC (and other federal agencies) about potential securities law violations without company approval (notwithstanding other confidentiality and disclosure obligations in the agreement). Likewise, for pre-existing severance and confidentiality agreements with employees, companies should consider broad communications highlighting that any agreements with former employees will not be interpreted as restricting such former employee’s ability to provide information to the SEC or accept SEC whistleblower awards.

Whistleblowers: Sean McKessy Lands at Whistleblower Speciality Firm

Recently, the SEC’s first Chief of its Whistleblower Office – Sean McKessy – announced he was leaving. He has now landed at Phillips & Cohen, a law firm that specializes in helping whistleblowers. Jane Norberg was promoted today to Chief of the SEC’s Whistleblower office – she served as the Deputy under Sean…

As noted in Ning’s blog, the SEC’s Enforcement Director – Andrew Ceresney recently gave this speech about the agency’s whistleblower program – including some interesting data. Ceresney also gave this recent speech on auditors & auditing…

Broc Romanek