Proxy Season: Compensation Considerations

Here’s some pay-related proxy season recommendations from Hunton Andrews Kurth’s Tony Eppert:

1. Adopt an annual grant policy – this can act as an affirmative defense to any allegation that the company is timing the market
2. Consider a stock price forfeiture provision to avoid the drag of underwater stock options – but make sure such does not trigger the cancellation/regrant provisions of NYSE and NASDAQ listing rules
3. Adopt a separate equity plan for non-employee directors – since the ISS Equity Plan Scorecard doesn’t apply to a non-employee director equity plan, a separate plan would make it easier for the company to meet the minimum vesting requirements for its employee plan
4. Consider whether all or some of a non-employee directors’ compensation should be approved by the shareholders – e.g., annual fees, compensation caps/limits, fixed formulas, etc. – in order to help protect the decisions of the non-employee directors with respect to their own compensation
5. Consider bulking up your proxy’s “director pay” disclosure – the narrative that proceeds the non-employee director compensation table could discuss the pay philosophy, how pay is assessed, and benchmarking efforts
6. Consider revisiting “executive officer” determinations, implementing a deferral program, or restructuring severance payouts – to reduce the number of people subject to IRC Section 162(m) and thereby increase the deductibility of executive compensation
7. Consider whether to amend the equity incentive plan to allow for a higher net withholding rate – this might require shareholder approval (depending upon the design of the amendment), but the upside is that any equity plan with liberal recycling provisions should enjoy a longer life expectancy associated with the share reserve

-Liz Dunshee, CompensationStandards.com January 7, 2020