Tag Archives: Dodd-Frank

compensation, Uncategorized

SEC Releases proposed compensation clawback rules

The Securities and Exchange Commission is considering new rules and regulations for compensation claw back policies. If the proposal is adopted, it will implement specific requirements from the Dodd-Frank Wall Street Reform and Consumer Protection Act, where companies listed with national securities exchanges and associations will have to develop and implement clawback policies.

In general, all listed companies must maintain a written claw back policy for the recoupment of certain compensation awarded to executive officers. Some of the specific terms of the executive summary include:

  • The claw back policy is triggered when an accounting restatement corrects a material error in a previous financial statement
  • The policy applies to incentive-based compensation granted within the preceding three years of the accounting restatement
  • Fault or lack thereof is irrelevant to the implementation of the clause

Under the proposal, the claw back clause must contain the following elements:

  • Description of the specific type of restatement that triggers the claw back clause;
  • Definition of what “incentive-based compensation” is subject to recovery under the claw back clause;
  • Statement of the specific time period covered in relation to when the compensation was received by the executive officer;
  • Explanation regarding who is covered under the clause;
  • Explanation about the amount of recovery authorized under the clause; and
  • Statement that recoupment is mandatory unless it is “impracticable.” meaning that the cost of recovering exceeds the total amount of recovered compensation.

For questions about this proposed regulation and possible implications for your company, contact our office to speak with an attorney.

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8 Things You Should Know About Executive Compensation

1)      Companies are shifting towards long term, multi-year goals, and executive compensation is following suit, often setting compensation based upon long term success metrics.2)      Executive Compensation is varied.  It often consists of a combination of salary, bonuses, equity, benefits, and other perks, and it typically based on company performance, length of employment, benchmark data, market practices, individual performance, and other factors.
3)      Phantom Stock and Stock Settled Appreciation Rights are compensation varieties that allows companies to offer executives the benefits of stock without actually owning real stock. If the actual stock increases in value, then the phantom stock held by the employee also increases in value. Similarly, stock settled appreciation rights are where an executive receives a payment based on the amount the stock has increased.  4)      Dodd-Frank reform allows shareholders of a public corporation vote on executive compensation and recommend whether executives are receiving a fair amount of compensation. However, for the moment at least, this vote remains non-binding. 5)      Executives are covered by the same laws as normal employees.  Just as employees must be paid all wages earned, that is no different for executives. This does not include minimum wage or overtime laws but does include executive compensation.
6)      It is always important to understand and often actually negotiate your package.  Do this to ensure you get what you deserve, but you also might do this to demonstrate you’re the type of executive they’re looking for. Make concessions and design the package how you would like it to be, but also design your efforts to convey your work style.

 7)      Know your value. Do some discovery work and try to find out what other executives at rival companies are worth. This will help you determine your value to your company.
8)      Consult an expert. We highly recommend talking to an attorney who has experience in executive advocacy. This will allow you to receive a fair and profitable package and avoid any messy situations that we see frequently, ranging from the taxation of equity to severance packages. If you have any other questions surrounding executive compensation, check out our FAQs page or contact us today.
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Dodd-Frank: A Rundown

The Dodd-Frank Wall Street Reform and Consumer Protection Act has been in place for nearly three years. We’ve provided a quick refresher of exactly how the Act works and how it affects you, the executive. 

The most relevant part of the act for executives is the “Say on Pay” proposal. Subtitle E focuses on executives and states that, at least once every three years, a public corporation is required to submit to shareholder vote the approval of executive compensation. Shareholders may also disapprove golden parachute payments.

“Say on Pay” is a term used to describe the process where a firm’s shareholders have the right to vote on compensation afforded to executives. It is intended to limit compensation by not awarding executives too much money. The shareholders review the CEO, CFO, and the next three highest paid executives.

How does this affect me?

Executive bonuses will be subjected to periodical reviews by the shareholders. Potentially they can block executive compensation if they deem it to be excessive or if the company is underpeforming, although the shareholder vote is non-binding. However, for the most part, executive compensation has been approved by shareholders and Dodd-Frank has proved to be a fair system for rewarding the work of executives.

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Executive Trends – 2011

As the first year of Dodd-Frank comes to a close, we recap the major trends in executive compensation from the previous year:

  • Focus on structure, design and stability of executive contracts as economy begins to pick up
  • Closer communication with shareholders
  • Significant concern with external governance and pay for performance
  • Emphasis on accurate goal-setting and formula to measure performance

Predictions for 2012 and beyond:

  • Pay for performance will continue to be the flavor of the day, taking up a higher percentage of overall compensation
  • Continuing efforts to streamline and improve formulas and metrics to measure performance
  • Deeper reliance on peer groups and focus on long-term incentives
  • Further attempts to eliminate inefficient pay practices
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