Like Disney and Hewlett-Packard before them (see this blog), General Electric and Northern Trust recently filed additional soliciting materials challenging ISS’s recommendations on their say-on-pay. We are compiling a list of all the companies that do this on CompensationStandards.com’s “ISS Policies & Ratings” Practice Area.
GE notes a “significant disagreement” with ISS. GE’s materials directly confront ISS. GE’s points are:
– ISS’s analysis fails to consider actions that aligned pay with performance during the recession.
– Mr. Immelt’s pay increased a modest 6.4% since 2007, the last year he received a bonus.
– ISS’s valuation of Mr. Immelt’s option grant significantly overstates his total compensation.
– ISS’s model to value options differs from GE’s model and is inconsistent with applicable accounting guidance.
Northern Trust
ISS claims Northern Trust has a pay-for-performance disconnect. Northern Trust’s materials reemphasize components of compensation related to equity-based incentive pay, cash incentives and business results. Northern Trust also claims that ISS’s calculations of comparative financial performance are flawed because the index includes several companies engaged in entirely different and unrelated businesses. Its also worth noting that Glass Lewis & Co. recommended shareholders approve executive compensation.
Yesterday, Allegheny Technologies joined those fighting their proxy advisor recommendation with these additional solicitation materials. And ISS’s Ted Allen blogged about how AFSCME has launched the first public “just vote no” campaign this proxy season against two companies over their pay practices.
XBRL: Foreign Private Issuers Using IFRS Get Relief from the SEC
On Friday, Corp Fin issued a no-action letter relieving foreign private issuers that prepare IFRS financial statements from filing XBRL until the SEC specifies a XBRL taxonomy that they can use. This will be a huge relief for FPIs as they were starting at a deadline of fiscal years ending on or after June 15, 2011 and no such taxonomy had yet been specified for IFRS. See more on Vanessa Schoenthaler’s blog including an update that Anne Leslie-Bini of rass-XBRL tells us that as of last June, there were 174 FPIs filing IFRS financials – with more than 300 additional now eligible to do so.
Smaller reporting companies will continue to cross their fingers for some sort of SEC relief too as they begin to comprehend the cost burden of XBRL, as I have blogged about several times recently.
Congress Splits the Baby on SEC’s 2011 Budget
As noted in this WSJ article yesterday, the SEC’s budget of $1.19 billion for the 2011 fiscal year – which we already are halfway through – will be $74 million more than last year (here’s the Senate Appropriations Committee press release). The budget is $116 million more than the steep cuts that the House Republicans tried to slice from the agency. So the SEC has dodged a bullet – for now. Here’s one of my numerous recent blogs regarding the politics being played with the SEC’s budget.
If you haven’t been to the SEC’s home page in a while, you will not have seen the new “Operating Status” box, which presently states: “The SEC is operating under normal conditions. All agency operations are continuing without interruption.” I know I’ll be hearing some sarcastic remarks from some of youse…
I’m not sure what you heard from your spouse, friends and colleagues about the news from the past week that CEO pay has gone up in the double digits over the past year, but I’m getting an earful. They are angry that too many CEO are being rewarded for laying people off in a poor economy or having their incentive packages reset at the bottom of the market. They have also read that there is a widening gap between the CEO’s pay and the median pay of other Named Executive Officers. And the recent Transocean flap doesn’t help things – here’s an excerpt from this Houston Chronicle article:
Only a wily compensation consultant could come up with a rationale whereby Transocean not only rewards its executives but touts its safety record after an accident like that. Only a tone-deaf board could endorse such a proposal and only a myopic corporate counsel could allow it to be placed in the company’s proxy statement.
Anyways, here are the two 2010 CEO pay studies that have been released so far:
And this Gretchen Morgenson NY Times’ column entitled “Enriching a Few at the Expense of Many” is quite thought-provoking, featuring a money manager who uses pay as a “crucial tire” to kick when making investment decisions and how companies overseas seem to do a better job of paying their CEOs.
I’m still in the process of developing the agenda for “The Say-on-Pay Workshop: 8th Annual Executive Compensation Conference,” but I do know it will feature a number of prominent investors since they are so important going forward in a say-on-pay world. Remember that this conference is paired with the “6th Annual Proxy Disclosure Conference” and they will be held on November 1st-2nd in San Francisco and via video webcast. Register now to obtain a 25% Early Bird Discount!
Hat tip to Lois Yurow for pointing out this hilarious “The Forbes Fictional 15.” Here is an excerpt from the opening:
You’re not imagining it: The rich do keep getting richer. Even the fictionally rich. The members of our 2011 list of wealthiest fictional characters have an average net worth of $9.86 billion, up 20% from last year. In aggregate, the Fictional 15 are worth $131.55 billion -more than the gross domestic product of New Zealand.
In its “Implementation of Dodd-Frank Act” rulemaking timeline, on Friday, the SEC pushed back its estimate of when it will push out proposed rules from April-July to August-December for the following topics that relate to Corp Fin:
– §952: Adopt exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; adopt disclosure rules regarding compensation consultant conflicts
– §975: Adopt permanent rules for the registration of municipal advisors
– §1502: Adopt rules regarding disclosure related to “conflict minerals”
– §1503: Adopt rules regarding disclosure of mine safety information
– §1504: Adopt rules regarding disclosure by resource extraction issuers
The above topics join these four that had already pushed back to August-December a few months ago (as I blogged previously):
– Pay-for-performance disclosure (how compensation is related to financial performance; Section 953)
– Pay ratios (ratio of CEO pay to average employee pay; Section 954)
– Clawback policies (clawback of the compensation of current and former officers upon restatement; Section 954)
– Hedging policies (whether company has a policy regarding the ability of directors and employees to hedge; Section 955)
I don’t think these delays were caused by the threat of a government shutdown, although I imagine that certainly didn’t help. Note that about a dozen other rulemakings were pushed back that are not Corp Fin-centric. Hat tip to Davis Polk for tracking which rulemakings were delayed, not an easy task.
It also looks like there could be a delay in the implementation of Dodd-Frank’s investment adviser registration framework as reflected in this letter from the SEC’s Division of Investment Management to the President of NASAA. The letter anticipates that the SEC will have its new Advisers Act rules in place by the July 21st deadline – but that the SEC will consider extending the date by which advisers will be required to comply with the new rules to the first quarter of 2012 (particularly due to the need to reprogram the IARD to accept transition filings).
Say-on-Pay: A Sixth Failed Vote
Last week, Ameron International filed a Form 8-K to reveal it has become the sixth company to fail to receive majority support for its say-on-pay, with 42% voting in favor. As noted in this LA Business Journal article, the company also was the subject of a proxy fight. As I blogged earlier, I’m counting Hemispherx Biopharma as the 5th failed vote until someone convinces me otherwise (here is our list of failed votes so far)…
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 1689 companies filing their proxies, 42% triennial; 4% biennial; 51% annual; and 4% no recommendation.
More on “Shutdown: Corp Fin Will Slow to a Crawl (If Even That)”
On Friday, I blogged about the SEC’s statement about how limited its operations will be during the government shutdown. I also posted a poll allowing you to guess how many Corp Fin Staff would be working during the shutdown (guess came out to: 10% for “less than 3”; 33% for “4-10”; 24% for “11-20”; 16% for “20-50”; and 1% for “more than 50.” I believe the “4-10” folks would have been closest to the mark).
On Friday, before the shutdown was averted, the SEC posted this contingency plan that provided more details regarding the lapse in operations compared to its statement that was posted on Thursday. In addition, a group of law firms issued this “10 Law Firm Consensus Report” that contains 12 FAQs regarding the impact of the shutdown on the SEC. And even more comprehensive is this podcast from Dave Lynn and Marty Dunn (which also was taped before the shutdown was averted) that addresses:
– Processing of filings during a shutdown
– Continuing filing obligations and counting business days
– Availability of no-action and interpretive advice
– Dealing with preliminary proxy statements
As noted in the SEC’s contingency plan, the rationale for federal employees not being permitted to work during a shutdown is a 19th-century law known as the Anti-Deficiency Act. I wonder if reading this blog would be considered “work” under that statute…
Yesterday, the SEC issued this statement explaining that in the event of a government shutdown, EDGAR will remain fully functional – but that the SEC’s Divisions (including Corp Fin) will be unable to process filings, provide interpretive advice, issue no-action letters or conduct any other normal activities. As a result, new or pending registration statements or applications for exemptive relief will not be processed regardless of the status of any review of those filings.
There will be only an “extremely limited number” of Staffers working during the shutdown – so although the SEC’s statement provides an email address and phone number for emergencies, I imagine only true emergencies will be handled by the Staff. Other than these designated essential Staffers, any attempt to work during the shutdown is a firing offense – so there is nothing that a staffer can do for you even out of kindness of their heart. The government is scheduled to shutdown tonight at midnight.
Proxy Access: Judges Question the SEC’s Rule
During oral argument yesterday, the three judges for the US Court of Appeals for the DC Circuit pressed the SEC on its assessment of the costs and benefits of its proxy access rule and asked whether the rule would empower labor and public pension funds at the expense of other investors, among other things.
As noted in this Reuters article, the judges frequently interrupted SEC Assistant General Counsel Randy Quinn during his arguments and even extended his time twice to ask more questions – and then Randy ran out of time to present a closing argument. The judges also pressed Randy when he mentioned that the proxy access rule would result in fewer contested elections. As Ted Allen noted in ISS’s Blog: “While it can be difficult to predict the outcome of a case based on oral arguments, the judges appeared receptive to the arguments by Eugene Scalia, the lawyer for the business groups, that the SEC inconsistently judged how frequently the rule would be used and how much it might cost.” Here are articles from the WSJ and Bloomberg – and this Cooley alert is good too.
Poll: How Many Corp Fin Staffers Will Be Working During the Shutdown?
As noted above, the SEC’s statement regarding the shutdown notes that only an “extremely limited number” of Staffers will be working if the shutdown is not avoided. Take a moment to predict how many Corp Fin Staffers that phrase means:
A month ago, I blogged some high-level stuff about what happens to the SEC if the federal government shuts down. Now that it’s looking likely that the shutdown will indeed happen, members are emailing me in droves asking what the definitive answers are to the numerous pressing questions that relate to a shutdown.
We haven’t yet heard from the SEC – but luckily, our friends at Gibson Dunn posted this memo last night with their own reasoned guesses about what may happen, which is repeated below:
On Tuesday, April 5, 2011, the Obama administration and Congressional leaders announced that they had failed to reach a budget agreement, which could lead to a partial shutdown of the federal government if no budget bill or continuing resolution is approved by the close of business on Friday, April 8, 2011. The SEC is likely to be significantly affected by any shutdown due to the budget impasse.
While the details of a potential SEC shutdown have not been officially announced or confirmed, we understand that, in the event of a shutdown, only a very limited number of essential emergency personnel will be on duty at the SEC after Friday, April 8, 2011, until funding or a continuing resolution is approved in legislation passed by Congress and signed by President Obama. We understand that during any shutdown, non-emergency personnel will not have access to their offices or SEC online resources.
As a result, we believe that little or no action will be taken during any shutdown on matters requiring action by SEC staff, including with respect to comment letters for IPOs or other securities offerings, M&A transactions or periodic filings, reviews of confidential treatment requests or no-action letters, review/no-review decisions and rulemaking actions. We expect that the Division of Trading and Markets will have limited staff on hand to deal with time sensitive trading, markets, or financial responsibility issues.
We believe that EDGAR will still be operational, and that filings and transactions that do not require processing by the SEC staff may proceed. For example, we believe it will be possible to file reports on Forms 8-K, 10-K and 10-Q, Section 16 reports, definitive proxy statements for annual meetings and similar reports.
We also believe that it will be possible to file registration statements that are automatically effective upon filing (and post-effective amendments for such registration statements), such as Forms S-8 and S-3ASR, and to file prospectus supplements in connection with such registration statements and already effective registration statements on Form S-3. Issuers contemplating such transactions in the near future should ensure they have sufficient funds in their accounts with the SEC to pay any necessary filing fees. We note that offices such as the Office of EDGAR Information Analysis and EDGAR Filer Support will likely not be available to support filers that are having difficulties.
We recommend that clients and friends prepare for a possible SEC shutdown by:
– wiring funds into the SEC’s lock-box for any potential filing that requires the payment of filing fees sufficiently in advance of Friday;
– submitting any requests for any necessary SEC filing codes as soon as possible; and
– for those working on responding to SEC comment letters, waiting for a review/no-review decision, seeking no-action relief, or otherwise actively dealing with SEC staff on a matter, reaching out to your contact person regarding the status of any outstanding comments or other feedback, on or before this Friday.
In Corporate Disclosure, a Murky Definition of Material
Yesterday, the NY Times’ DealBook ran this article by Prof. Steven Davidoff entitled “In Corporate Disclosure, a Murky Definition of Material.” The Professor is pushing for real-time disclosure under a new materiality standard. Good food for thought on a topic that was heavily debated a decade ago and I think is worth revisiting.
How Insider Traders (Eventually) Get Caught
It’s always fascinating to read the background of how those that engage in illegal insider trading get caught because I’m constantly amazed over how brazen most of them are. The simple stuff, such as if a record of those phone calls being placed doesn’t exist. Today’s Washington Post has a front-page article about the latest – a law firm deal lawyer in DC who traded ahead of deal announcements for 17 years. 17 years! Here’s the SEC’s press release.
We have posted the survey results regarding the latest clawback policy trends, repeated below:
1. Has your company adopted a clawback policy:
– Yes, we adopted a policy during 2010 for first time – 9.6%
– Yes, we already had one before 2010 but we recently amended it – 5.2%
– Yes, we already had one before 2010 and we intend to amend it soon – 28.9%
– Not yet – 56.3%
2. If you answered “Not yet” to question above, do you intend to take any of the following steps in advance of adopting or amending a clawback policy:
– Add provision into terms & conditions of certain incentive awards to enable a potential clawback – 22.5%
– Have executives sign an independent document to enable a potential clawback of incentive awards generally – 7.5%
– Add disclosure in proxy statement about the intention to adopt or amend a clawback policy after finalization of SEC rules implementing Section 954 of Dodd-Frank – 45.0%
– None of the above – 40.0%
3. Does your company plan to adopt a new clawback policy or amend an existing policy:
– Prior to finalization of SEC rules implementing Section 954 of Dodd-Frank – 7.5%
– After finalization of SEC rules implementing Section 954 of Dodd-Frank – 70.7%
– Don’t know yet – 15.8%
– No – 6.0%
4. Once fully completed or amended, does/will your clawback policy apply to:
– Executive officers only – 25.9%
– Group of key employees broader than executive officers – 20.7%
– All employees – 3.0%
– Some provisions of policy apply to certain group of employees and other provisions apply to other groups or all employees – 5.9%
– Don’t know yet – 44.4%
5. Once fully completed or amended, does/will your clawback policy apply to directors:
– Yes, the entire clawback policy will apply to directors – 8.2%
– Yes, but only part of clawback policy will apply to directors – 0.8%
– No, it will not apply to directors – 33.6%
– Don’t know yet – 57.5%
Please take our new “Quick Survey on Regulation FD Practices.”
Nerd Alert: Seeing “10Q” Gets Me Excited
You know you’re a securities law geek when you come across a service called “10Q” and it gets you excited. However, this site has nothing to do with the law – it’s a service that sends you an answer to a question a year after the question is posed. It sends you the answer that you gave to the question; it’s a site to help you gauge how you’ve changed over the course of the year. Sort of like sending yourself spam with a long lag. Hat tip to Michelle Leder of footnoted.com for finding this site…
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– Supreme Court: Companies Don’t Have “Personal Privacy” Interest Assertable Under FOIA Exemption
– Even More on ” An Insider’s View of the SEC: Principles to Guide Reform”
– US Accounting Standard-Setting Outlook for 2011 and Beyond
– Which Blogs Should My Directors Read?
– Study: How Non-Executive Chairs and CEOs Work Together
As I have blogged back in January, KBR filed a lawsuit in the Federal District Court for the Southern District of Texas seeking a declaratory judgment that would allow the company to exclude a shareholder proposal submitted by John Chevedden due to his alleged lack of eligibility. Yesterday, the court ruled in KBR’s favor, upholding the Apache decision from last year (which had been filed in the exact same court). We have posted the court’s memorandum and order in our “Shareholder Proposals” Practice Area.
Like Apache, KBR filed a lawsuit rather than attempt to exclude the proposal through the normal SEC channels (and thus challenging the Hain Celestial position of the Staff regarding the use of introductory letters from brokers as evidence of ownership under Rule 14a-8(b)).
Dodd-Frank: A Rulemaking Progress Report
Check out this nifty progress report from Davis Polk regarding all of the various agencies engaged in Dodd-Frank rulemaking. The charts help tell a story…
How Many Chiefs of Corp Fin’s Office of International Corporate Finance? Four
Last month, I posted a poll asking how many Chiefs of OICF have there been over the years. 14% guessed the correct number of four (23% guessed two; 23% guessed three; 22% guessed five; and 17% guessed 67). The four consist of Carl Bodolus (’73-’88), Sara Hanks (’88-’90), Rich Kosnik (’90-’93) and Paul Dudek (’93-current).
I received quite a few emails from folks remembering Carl, the founder of the office, including the fact that he was an incessant chain smoker that he literally lit one cigarette with the last vestiges of the prior cigarette (those were the days when smoking anywhere in the building was permitted).
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 1349 companies filing their proxies, 42% triennial; 4% biennial; 51% annual; and 4% no recommendation.
On Friday, Corp Fin updated its Financial Reporting Manual for issues related to combined periodic reporting, income averaging, changes in accountants, foreign private issuer financial statements, as well as other changes. Last revised in December (and October before that), Corp Fin has been updating the Manual much more frequently than in the past, deciding to do so a little bit at a time rather than major rewrites as in the past.
Mobile Phone Voting is Here!
In this podcast, Joe Vicari, VP-Business Strategy & Development of Broadridge, describes how Broadridge is facilitating voting by mobile devices, including:
– What is Broadridge’s new mobile voting platform, “Mobile Proxy Vote”?
– Do you have any sense of how often it being used by voters so far?
– Is there anything that companies need to do? Do they need to change their proxy cards or VIFs or their other descriptions of voting processes?
On Friday, as noted in this press release, Broadridge’s Rich Daly sent out letters to CEOs in an effort to increase the level of retail shareholders to vote. These levels have plummeted since e-proxy was adopted.
Webcast: “What the Top Compensation Consultants Are NOW Telling Compensation Committees”
Tune in tomorrow for the CompensationStandards.com webcast – “What the Top Compensation Consultants Are NOW Telling Compensation Committees” – to hear Ira Kay of Pay Governance, Mike Kesner of Deloitte Consulting and George Paulin of Frederic W. Cook & Co. discuss what every director and compensation committee member should be asking, and focusing upon, today as well as practical guidance, inside tips and red flags from those “in the know.”
Note: You need Windows Media to listen to the webcast. Since our webcast provider no longer supports it, Real Player will not work going forward.
Way back over the holidays, I busted a move and spent a few hours creating the world’s largest list of Flintstones characters. Seriously. Not an April Fool’s joke. Search online or in the Flintstones trivia books. You won’t find anything more comprehensive – 118 of them drawn from the original series. I now have a true legacy – something for the tombstone. Remember Gary Granite? Ann-Margrock? J.L. Gotrocks?
Crowdsourcing Poll: Who Is Your Favorite Flintstones Character?
I have included about 30 of the most well-known of the Flintstones characters in this crowdsourcing poll to determine which character is the most popular. Voting is anonymous and you simply click on which of the two characters presented is preferable – then continue doing so as two more choices are presented for as long as you like. Right now, the guy who said “yeah, yeah, I’m hip, I’m hip” is barely beating Bamm-Bamm and Dino for first place.
Proxy Access: Back in the News
After a refreshing hiatus from the news cycle, look for proxy access to be back “in the news” as oral argument is scheduled to take place next Thursday in the Business Roundtable and Chamber’s lawsuit against the SEC…
Our April Eminders is Posted!
We have posted the April issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Yesterday, as noted in this press release, the SEC unanimously proposed rules to implement Section 952 of Dodd-Frank that would direct the exchanges to adopt listing standards relating to compensation committees regarding their use of compensation consultants and other advisors as well as conflicts of interest. These rules ultimately will provide a more detailed definition of “independence” in the compensation context.
From scanning the proposing release that was posted last night, the proposed rules would not add much to Section 952, much to the chagrin of those who emailed me after the meeting and were expecting the SEC to come up with a rules package that the exchanges could just adopt. But even if the exchanges are charged with fleshing out the statute, the SEC surely will be heavily involved behind the scenes as often happens with new listing standards since the SEC must approve them.
Dodd-Frank requires that final rules in this area be adopted by July and the deadline for comments is April 29th. Even if final rules are adopted timely by the SEC, it’s still possible that listing standards may not be in place before the 2012 proxy season since I believe the July deadline doesn’t apply to the exchanges. Memos on the proposal are being posted in CompensationStandards.com’s “SEC Rules” Practice Area.
ISS Policy Change re: Section 162(m) Equity Plan Proposals
Here is something that Cooley’s Amy Muecke blogged a few days ago on CompensationStandards.com’s “The Advisors’ Blog“:
Recently, I learned that ISS has made a mid-proxy season policy change that may affect vote recommendations for equity plans submitted to stockholders solely for purposes of Section 162(m) approval. Historically, ISS has always supported these proposals agreeing that it is in the best interests of the stockholders for the company to be able to grant awards under a plan that satisfies the 162(m) requirements for performance-based compensation that is excludable from the $1M deductibility limitation.
Effective immediately, ISS will no longer automatically support Section 162(m) proposals submitted by “IPO companies” – that is, companies whose public company stockholders have not previously approved their equity plans. Instead, ISS will further analyze the plan and proposal to determine whether any problematic features are more detrimental than the potential loss of tax deductions and if so, ISS will recommend voting against the proposal.
Going forward, ISS signaled that it also may also further scrutinize Section 162(m) proposals submitted by non-IPO companies (i.e., companies whose public company stockholders have previously approved their plans), but it suggested that this year it is primarily concerned with Section 162(m) plans submitted by IPO companies.
Shareholder Proposals: Incentive Compensation & Risk Report Excludable If Too Broad
And here is something that I blogged last week on CompensationStandards.com’s “The Advisors’ Blog“:
Recently, Corp Fin posted this no-action response to Wells Fargo regarding a shareholder proposal that asked the company to prepare a report “to describe the board’s actions to ensure that employee compensation does not lead to excessive and unnecessary risk-taking that may jeopardize the sustainability of the company’s operations. It further states that the report must disclose specified information about the compensation paid to the 100 highest paid employees.”
The Corp Fin response is interesting. It notes that incentive compensation paid by a major financial institution to those that are in a position to cause the company to take inappropriate risks is a “significant policy issue” – but then the Staff goes on to note that the proposal relates to the compensation paid to a large number of employees, thus falling into the “general employee compensation” line of no-action letters since it was not limited to senior executive officers. As a result, the Staff allowed the company to exclude the proposal under (i)(7) as an ordinary business matter.
This letter is interesting also because it presented the Staff with the opportunity to take the position that the general compensation practices that lead to excessive and unnecessary risk taking (and board actions to avoid such risk taking) raise significant policy issues, which would arguably bring its no-action positions in line with the disclosures that the SEC recently concluded should be required in proxy materials. Even though some might disagree with the Staff’s position, it at least avoided yet another exception to the general rule that proposals relating to general employee compensation relate to ordinary business matters and may be excluded under (i)(7). Thanks to Keir Gumbs of Covington & Burling for pointing this letter out!
