Compensation « NACD Blog

Archive for the ‘Compensation’ Category

Five for Five

May 9th, 2013 | By Adam Lee

In the past five months, the NACD blog has received more than 15,000 views. Review the five most popular blog posts of the last five months to keep track of what directors find most important.

NACD Directorship 2020: Sustainability, Stakeholders, and Performance Metrics – Capitalism, and the role of the director, is changing–should the focus on “total shareholder return” shift to “total stakeholder return”?

Going Private? – In 2012, just 128 IPOs were made, a decrease from 154 IPOs in 2011. Last May, The Economist observed that this decline was part of a larger trend: the decline in popularity of the public company. Based on NACD surveys, see six key differences in the governance practices of public and private companies.

Discussion Topics for Compensation Committees in 2013 – Although numerous rules mandated by Dodd-Frank affecting the compensation committee have been implemented, directors still brace for those to come. As such, it is expected that compensation committees will maintain their focus on executive compensation in the coming year.

Alphabet Soup: A Director’s Guide to Financial Literacy and the ABCs of Accounting and Auditing – Can you keep track of accounting and auditing (A&A) acronyms? This handy guide provides tips for non-CPAs to achieve A&A literacy.

Investors Recommend Board Oversight of Trading Plans – New oversight responsibilities could be in store for directors. Although 10b5-1 trading plans have existed since 2000, a confluence of events has recently placed these plans in the regulatory spotlight.

Tags: 10b5-1, Alphabet soup, compensation committee, Directorship 2020, Going Private, NACD
Posted in Audit, Compensation, Corporate Governance, Inside NACD, Legislative & Regulatory | No Comments »

Discussion Topics for Compensation Committees in 2013

March 28th, 2013 | By Kate Iannelli

In 2012, the focus for those both inside and outside the boardroom was compensation. Although numerous rules mandated by Dodd-Frank affecting the compensation committee—say on pay and compensation committee and advisor independence—have been implemented, directors still brace for those to come: pay-for-performance disclosures, clawbacks, and median pay ratios. As such, it is expected that the focus on executive compensation will not shift dramatically in the coming year.

As boards head into proxy season, NACD has recently released a new white paper: Compensation Committee Priorities for 2013. With input from our National Compensation Committee Chair Advisory Council and partners Farient Advisors and Gibson Dunn, this report details the issues that the advisory council—and compensation committees across the nation—will discuss in 2013. The list includes:

Executive Compensation and Supplemental Disclosures. In recent years, investors, proxy advisory firms, regulators, and boards have significantly increased the level of attention paid to the compensation discussion and analysis, particularly as the source of whether pay matches performance. This year, the Securities and Exchange Commission is expected to issue proposed rules on Section 953 of Dodd-Frank entitled “Executive Compensation Disclosures.” Section (a) specifically addresses the disclosure of pay versus performance.
Realized and Realizable Pay. A significant issue underlies the provision in Section 953(a): a lack of standards surrounding the various terms referenced. Although Dodd-Frank requires that companies disclose “pay actually received” (generally referred to as “realized pay”), many companies choose to disclose “realizable” pay. Not only do companies use a range of definitions to calculate realizable pay, Institutional Shareholder Services has begun to use its own definition when assessing compensation.
Peer Group Selection. Selection of peer group continues to be a highly contested and critical action. If a company’s chosen peer group is incorrect in the eyes of shareholders or their advisors, all ensuing calculations based on this selection are incorrect. Furthermore, selections that raise red flags to investors or proxy advisors may lead to negative say-on-pay votes come proxy season.

For the rest of the issues likely to be discussed by compensation committees in 2013 and related resources, download Compensation Committee Priorities for 2013.

Tags: clawbacks, compensation, Dodd-Frank, executive compensation, Farient Advisors, Gibson Dunn, National Compensation Committee Chair Advisory Council, pay ratios, peer group selection, realizable pay, realized pay, Say on Pay, SEC, supplemental disclosures
Posted in Compensation, Investor Relations | No Comments »

An Update From the SEC

July 13th, 2012 | By Kate Iannelli

It is no secret that the Securities and Exchange Commission has been slow to fulfill the rules mandated by Dodd-Frank. As of July 1, the agency had missed over half of the deadlines—56 out of 95 required rulemakings—according to the Davis Polk Dodd-Frank Progress Report. Despite this general lack of news, in late June the SEC released final rules on matters related to the compensation committee to little fanfare.

The rules focus on independence for both compensation committees and their advisors. Companies will now be required to disclose the existence of compensation consultant conflicts of interest and how these conflicts are addressed. Additionally, each national listing exchange is now required to propose heightened standards for independence of compensation committee members and the evaluation of compensation advisor independence. While the style of these new listing standards will be similar to those already existing for the audit committee, the SEC has established that the standards must consider the following two factors:

The source of compensation of the director, including any consulting, advisory or other compensatory factors paid by the listed company to the director; and

Whether the director is affiliated with the listed company or any of its subsidiaries or their affiliates.

While these rules affect proxy statement disclosures, compensation committee composition and boardroom procedure, they have received little attention. There are many possible explanations for this, including the fact that both the New York Stock Exchange and NASDAQ already address compensation committee director independence to an extent. However, timing is also a factor. The required disclosures of compensation consultant conflicts of interest will be effective for the 2013 proxy season. With respect to the new standards on independence, NYSE and NASDAQ have until Sept. 25, 2012, to propose new guidelines, which the SEC does not have to approve until June 27, 2013.

At NACD’s Compensation Committee Chair Advisory Council meeting in June, SEC Chief Counsel and Associate Director of the Division of Corporate Finance Thomas Kim spoke to the delegation on the SEC’s current activity. In addition to the rules on compensation committee independence, the agency is currently in the process of drafting proposed rules on the required pay ratio disclosure, as well as the “clawback” of executive compensation provision. Similar to the recently released rules, the clawback rules must be proposed and finalized by the SEC, then adopted by the listing exchanges—therefore placing the rules on the horizon, but not in the near future.

At the Advisory Council meeting, a key theme of the discussion was the necessity for boards to create transparent and comprehensive compensation packages. To this end, it was announced that NACD will produce a guide that will help boards develop pay plans to effectively compensate executives and communication strategies that articulate how these plans create long-term shareholder value.

For more information about the guide and the Advisory Council meeting, click here.

Tags: Advisory Council, Clawback, compensation committee, compensation consultants, Davis Polk, Dodd-Frank, pay ratio, Proxy Statement, SEC, Thomas J. Kim
Posted in Compensation, Corporate Governance, Legislative & Regulatory | No Comments »