As we get deeper into the proxy season, more companies are addressing the effects of COVID-19 on their business, including in their proxy statement. Often the subject is coming up in the Compensation Discussion and Analysis. Sometimes, it might be just a single sentence noting that, as the pandemic and related economic turmoil affect their 2020 business and financial results (and, thus, 2020 compensation), the impacted pay decisions will be addressed more fully in next year’s proxy statement. Nonetheless, every situation is different and more often than not the compensation-related disclosure is being dictated by where the company is in closing out its 2019 pay actions and setting compensation for the current year.
In some instances, companies are supplementing the required compensation disclosure in their proxy statement with material from the SEC filings that they have made to date describing how they are responding to the pandemic and addressing the interests of their various stakeholders, including employees and customers. That’s what Best Buy, Co., Inc. did this week. In mid-April, the company filed a Form 8-K to provide a business update on COVID-19-related matters, which included, among other things, information about voluntary salary reductions for its executive officers and retainer fee reductions for the members of its board of directors.
Subsequently, the company filed its definitive proxy statement which includes several references to the pandemic, starting with the letter to shareholders from its Executive Chairman and Lead Independent Director and continuing with a report on the re-direction of its charitable giving to support the needs of its communities during the crisis in the ESG section of the proxy statement. From a compensation standpoint, the company devotes a portion of the Executive Summary to its Compensation Discussion and Analysis to sharing its prior disclosure about its senior executive and director compensation cutbacks:
On April 9, 2020, in response to the COVID-19 national emergency, the Compensation Committee approved temporary base salary reductions for Ms. Barry and her direct reports, including Mr. Bilunas, Mr. Mohan, Mr. Alexander and Ms. Scarlett, for the period from April 12, 2020 through September 1, 2020. The base salary for Ms. Barry was reduced by 50% and the base salaries of the other named executive officers were reduced by 20%. In addition, the Board also accepted an offer by Mr. Joly to reduce his base salary as Executive Chairman by 50% through the duration of his term on the Board, which will conclude following the Meeting. The Board also agreed to reduce its cash retainer fees for each individual board member by 50% for the same period. Additional details were disclosed in a Current Report on Form 8-K filed by the Company on April 15, 2020.
This is just one example of the type of disclosure that’s popping up in the Compensation Discussion and Analysis. Other companies are integrating their COVID-19-related information into their discussions as appropriate for the circumstances (for example, shifting the timing of their current year equity grants in response to the market volatility related to the crisis). If anything, this is probably just a preview of what’s coming next year when we will be able to develop a fuller picture of how the pandemic impacted compensation design and decisions for 2020.
Dick’s Sporting Goods’ Hedging Disclosure
For the second consecutive year, Dick’s Sporting Goods, Inc. has placed its expanded disclosure about its hedging policy outside of its Compensation Discussion and Analysis. In the Corporate Governance section of its proxy statement, the company sets out its policy as follows:
Our insider trading policy guidelines acknowledge that hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds, and may permit a holder to continue to own our common stock obtained through associate benefit plans or otherwise, but without the full risks and rewards of ownership. When that occurs, our directors, employees, contractors and consultants (collectively, our associates) to whom our policy applies, may no longer have the same objectives as our other stockholders. As such, the Company’s named executive officers and directors are strictly prohibited from engaging in such transactions, and the remaining associates subject to the policy are strongly discouraged from engaging in such transactions. Any associate not prohibited from entering into such an arrangement must first submit the proposed transaction for approval by our General Counsel at least two weeks prior to the proposed transaction.
The company’s policy is one of the few that I’ve seen that provides a limited exception for such transactions for its general employees (and, presumably, contractors and consultants). The absolute prohibition on hedging for executive officers and directors is, of course, set forth in the policy and underscored in its CD&A.
-Mark Borges, CompensationStandards.com May 1, 2020
