Tag Archives: say-on-pay

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Taking the Long-Term Approach: How and Why More Companies Are Linking Long-Term Performance to Compensation

With large companies facing ever-increasing scrutiny over how much they pay executives, but with overall executive pay still rising in the Say-on-Pay era, many companies are looking to the long-term.

But why are they doing so? Clearly, long-term evaluation can be beneficial for both employer and employee: the employer is locking up precious talent, while ensuring that what they pay their executives is commensurate to the company’s overall success; the employee is still handsomely rewarded for his position, and with the added desire of wanting to see the company succeed.

There are, however, some important things to consider if you are negotiating a long-term performance compensation package:

1) Make sure the company shares the same goals as you.

2) Is the compensation package fair and achievable? Are some of the targets unattainable?

3) Consider the business model and life cycle and determine what the exact length of the “long-term” package should be.

4) Can you envisage yourself still working at the company in 5, 10 or even 15 years?

So, while a long-term deal can be beneficial for both parties, make sure you understand the terms and ramifications when agreeing a long-term compensation package. If you have any questions, you can contact us at Gordon Law Group.

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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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Shares Explained

We are now firmly entrenched in the Say on Pay era and this means more varied forms of compensation than ever before. Companies will frequently offer their executives a variety of stock options – whether it’s a form of wages, give the executive a vested interest in the company or to reward management for meeting certain targets.

The type of shares issued becomes more varied and convoluted each year. An executive will have to not only understand the type of share or shares that they are receiving, but the conditions that come with these shares. From acceleration provisions to exercise dates and from strike prices to the benefits, there is a great deal to look out for and understand.

Here is a quick rundown of the 6 most common types of equity:

1) Incentive stock options (ISOs) can only be granted to employees and is the only equity option that offers favorable tax treatment. Usually, an employee is given the option to purchase stock at a predetermined price. This is the most common form of equity offered to employees.

2) Non-qualified stock options (NQSOs) are similar to ISOs but without favorable tax deductions. This means the employee is taxed on any profit made when purchasing the stock at its cheaper, predetermined price.

3) Stock Settled Appreciation Rights (SSARs) grants an employee payment in stock. The payment is equal to the amount which the value of stock has increased since the employer-employee agreement was made.

4) Phantom Stock is similar to SSARs, but the employee is paid in cash instead of stock. The payment is still equal to the amount which the value of the stock has increased, but the employee receives no actual stock.

5) Restricted Stock Grants are a fixed amount of shares that are given to the employee that are subject to a right of forfeiture or repurchase by the company.

6) Restricted Stock Units (RSUs) is when an employee is granted stock to be paid at a specified date in the future. These are also subject to forfeiture or repurchase by the company. RSUs are usually used by newer companies that are looking to grow.

Once again, it is necessary to stress the importance of understanding different types of stock. Too often, when an executive leaves a company for whatever reason, there is a messy and complicated severance package that is usually complicated by the shares owned by the executive. Clearly, it is beneficial to avoid a messy process!

If you have any questions about equity compensation, feel free to contact us today. Also, check out our FAQs by clicking on the link at the top of the page or at Gordon Law Group.

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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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