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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Uncategorized

Employment Agreements: A Rundown of the Top 10 Pointers

Executive contracts often include a range of options, clauses, benefits, restrictions and obligations.  We represent employees at all levels in the negotiation process, and this post will share our thoughts on some of those provisions.

The range is broad:  non-qualified stock, incentive stock, incentive bonuses, pay for performance, deferred compensation, retirement plans, benefit plans, business expenses, choice of laws, arbitration clauses, non-competes, non-solicitations, confidentiality clauses, termination provisions, residency requirements, and post-employment cooperation agreements…to name a few of the more common provisions.

Below, we outline some of the main parts of employment agreements and answer some of the most common questions that we get asked. Of course, feel free to contact us with any other questions you may have.

  1. The general trend in executive pay is moving towards a proportionally lower base salary and higher pay-for-performance rewards. Expect to see more incentive based clauses.
  2. A second general trend in employment agreements is an effort to lock employees into long term arrangements or lock them out of the industry.
  3. Severance packages are back, but frequently misunderstood. These provisions should be negotiated at the outset with particular care to definitions of cause and good reason, as well as cure periods, conditions to payouts and post-employment obligations.
  4. Change in control provisions protect employees in the event a company is sold or new management takes over.  These clauses often provide for acceleration in compensation and equity vesting, and should be considered whether or not the prospect of such an event is immediate.
  5. Incentive Stock Options (ISOs) are agreements providing an employee the right to buy stock, ie. exercising the option. This also comes with a tax benefit, but there are several important limitations including the amount of stock that can be granted this way.
  6. Non-Qualified Stock Options (NSOs) are similar to ISOs, but they do not qualify for the same preferential tax treatment and the have fewer restrictions.
  7. Restricted stock is an actual share of stock owned by an individual, but subject to certain company mandated restrictions and repurchase rights. These restrictions usually lapse over time, with the employee’s rights in the stock vesting at each milestone.
  8. Phantom stock is not actual equity, per se, but it gives the executive the benefits of stock without owning it. For example, if the actual stock value increases, so will the phantom stock.
  9. Stock Appreciation Rights (SARs) are not actual stock, either, but these contracts typically result in a bonus or other payment equivalent to the increase in the price of an actual share.
  10. Employment at will is often the rule, but there are many rights depending on the contracts, if any, but there are also rights under laws protecting against discrimination, retaliation and whistleblowing, all of which merit a view.

If you’re negotiating an employment relationship, or termination, contact us today.

Call us today at 800-403-7755 to schedule a free consultation with our team of talented attorneys.

Click here to view Gordon Law Groups FAQs on executive compensation.

 

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Median CEO pay passes $10 million

For the first time ever, median CEO pay among the Standard & Poor’s 500 topped $10 million annually, marking the fourth straight year that CEO compensation rose.

The rise in CEO pay can largely be attributed to the strong performance of stocks in the past 12 months. Because executive compensation is increasingly tied to company performance, the success of the S&P index resulted in the stock component of executive compensation packages propelling median CEO pay above the $10 million threshold.

With bigger money on the table via stock options grants and performance rewards, it is becoming increasingly important to keep up with and understand the labyrinth of CEO pay. If you have any questions about how your executive compensation works, or are negotiating a new deal, contact us at Gordon Law Group.

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Uncategorized

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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5 Major Executive Comp Trends for 2013

Pay for Performance…

…Most companies now use pay-for-performance looking at an executive’s performance over a three year period.

Say on Pay…

…Shareholders overwhelmingly support say on pay.

Annual Incentives…

…These appear down slightly versus 2012, with new financial and non-financial metrics used to measure performance.

Long-Term Incentives…

… Restricted Stock Units, Stock Appreciation Rights and performance awards continue to dominate executive incentive pay.

2013 Merit Increase Budget…

…Incremental growth continues consistent with previous years.

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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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