Stock Ownership Guidelines in Times of Market Volatility
For many companies, the precipitous drop in their stock price created situations where officers and directors subject to stock ownership guidelines, with which they easily complied before COVID-19, suddenly fell below the required thresholds. Although the overall stock market has rebounded nicely, many companies continue to face financial distress and uncertainty. In addition to all of the other problems and issues caused by the pandemic, the boards of directors at these companies may need to consider whether to amend, suspend, extend, or ignore their stock ownership guidelines.
Most companies seem to have chosen to consider the extraordinary circumstances triggered by the pandemic and adopt a lenient approach to enforcing their stock ownership guidelines. The precise language of stock ownership guidelines varies by company, of course, but most provide a period of time, often one year, for an officer or director who falls out of compliance with the guidelines (e.g., due to stock sale, stock price declines, etc.) to get back into compliance.
Additionally, the enforcement provisions of most companies’ guidelines allow the compensation committee (or such other committee as is responsible for monitoring compliance with the guidelines) to take such actions as it deems appropriate, proving flexibility, rather than a fixed remedy, if an officer or director fails to comply with the guidelines. If ever there was a time for flexibility, it is now.
-Mike Melbinger, ComepensationStandards.com June 4, 2020
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