Public Companies Should Immediately Review Their Peer Groups Used in Executive Compensation Decisions Based on ISS's New Peer Group Selection Guidance and Notify ISS of Any Changes by December 21
Public companies should immediately review their peer group and Global Industry Classification Standard (“GICS”) codes, for purposes of executive compensation in light of the new Institutional Shareholder Services (“ISS”) guidance. If the peer group your company plans to use in the upcoming proxy for assessing and determining executive compensation is different than the peer group used in your company’s last proxy, you should contact ISS before December 21 with your new peer group list.
Emerging Growth Company IPO Filings Initially Embrace JOBS Act's Reduced Executive Compensation Disclosure Requirements
On April 5, 2012, the President signed into law the “Jumpstart Our Business Startups Act” (JOBS Act). The JOBS Act also allows small businesses to harness “crowdfunding,” expands “mini-public offerings,” and streamlines the process for going public for “emerging growth companies”. For a discussion of general provisions in the JOBS Act, please see our April 5, 2012 blog entitled “President Obama Signs JOBS Act: Landmark Reform for Small and Emerging Growth Companies Now Law”.
SEC Adopts New Rules Calling For Greater Independence Standards For Compensation Committees And Their Advisers
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) for adopting regulations required by section 952 of the Reform Act, the Securities and Exchange Commission (the “SEC”) on June 20, 2012 issued a press release and published final rules (Release No. 33-9330) (the “Final Rules”) for compensation committee and compensation adviser independence requirements.
SEC Proposes New Rules Calling For Greater Independence Standards for Compensation Committees and Their Advisors
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) and its own timetable for proposing regulations required by section 952 of the Reform Act, the Securities and Exchange Commission (the “SEC”) on March 30, 2011 issued a press release and published proposed rules (Release No. 33-9199) (the “Proposed Rules”) for compensation committee and compensation advisor independence requirements.
Companies Should Not Take Lightly the Need for Full Compliance with the SEC's Executive Compensation Disclosure Rules
As calendar year companies work on preparing their 2011 proxy statement materials, we wanted to report on a recent development that highlights the importance of a company's full disclosure of, and compliance with, the SEC's executive compensation disclosure rules.
On July 21, 2010, the President signed into law (Public Law 111-203) the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Reform Act"). The Reform Act implements a sweeping regulatory overhaul of the financial, banking and mortgage industries and also addresses consumer protection. Included in the Reform Act, and which is the subject of this blog, are numerous new laws affecting executive compensation and corporate governance at publicly-held companies.
Proxy Season Heats Up as New Executive Compensation Rules are Effective and SEC Provides New Disclosure Guidance
With Spring just a few weeks away, it also means that the annual proxy statement season for calendar year public companies is in full swing. February 28th marked the effective date for the SEC's expanded executive compensation and corporate governance disclosure rules which we have previously reported on (see our December 18, 2009 blog).
SEC Provides Guidance on Effective Dates of Expanded Executive Compensation and Corporate Governance Rules
As we recently reported in our December 18, 2009 blog article, the SEC adopted substantial amendments on December 16, 2009 that significantly expand the executive compensation and corporate governance disclosure requirements for publicly held companies. These new rules were presumably adopted now in order to become effective for the 2010 proxy season but, as we noted in our blog, the SEC's adopting release did not provide much guidance regarding the effective dates of the new rules.
Just in Time for 2010 Proxy Season - SEC Adopts Significant Expansion of Executive Compensation and Corporate Governance Rules
As anticipated, on December 16, 2009, the Securities and Exchange Commission ("SEC") presented investors and corporate governance reform advocates with a holiday gift by adopting substantial amendments to the executive compensation and corporate governance disclosure requirements for publicly held companies. The amendments reflect the SEC's efforts to increase investor awareness of companies' executive compensation practices and provide shareholders with a greater voice in their companies.
The federal government’s extraordinary multi-pronged attack against executive compensation practices took another step forward, this time with the Federal Reserve Board of Governors (“FRB”) taking aim. On October 22, 2009, the FRB proposed new guidance that will dramatically affect incentive compensation arrangements for the banking industry. The proposed guidance is consistent with and largely patterned after the multi-national Financial Stability Board’s September 25, 2009 report titled “FSB Principles for Sound Compensation Practices.” Not to be left out of the headlines, on the same day, the Special Master for the government’s Troubled Asset Relief Program (“TARP”) Executive Compensation also announced significant reductions in compensation for the top executives and employees at companies receiving exceptional TARP assistance along with various other mandated reforms to compensation practices.
Acting in rapid fashion, on July 31, 2009, the House of Representatives passed legislation that, if enacted, would further advance the federal government's efforts to realign executive compensation practices. As we reported in our July 22, 2009 blog, the Treasury Department released draft legislation just two weeks earlier to require (i) an annual shareholder vote to approve named executive officer compensation, (ii) a shareholder vote to approve golden parachute arrangements and (iii) enhanced compensation committee independence and authority. The House-approved legislation, which now has been referred to the Senate's Committee on Banking, Housing, and Urban Affairs, in some respects goes even further than what was originally contemplated by Treasury.
As a part of the federal government's on-going efforts to reform executive compensation practices and to rein in excessive compensation, the Treasury Department drafted and released new legislation (known as the "Investor Protection Act of 2009") on July 16, 2009 concerning shareholder Say-on-Pay and the independence of compensation committees (see also the Treasury's fact sheets on Say-on-Pay and compensation committee independence). This legislation was expected given recent Treasury pronouncements on executive compensation (see our June 18, 2009 and July 17, 2009 blogs). Representative Barney Frank (D-MA), House Financial Services Chairman, declared his support for the legislation and circulated it to other members of the committee with the near-term objective of marking up the legislation this week.
Changes in Store for 2010 Proxy Season as SEC Proposes Significant Expansion of Executive Compensation and Corporate Governance Rules and Treasury Releases Draft New Legislation
As anticipated and in response to the “turmoil in the markets during the past 18 months”, on July 10, 2009 the Securities and Exchange Commission ("SEC") proposed substantial amendments to the executive compensation and corporate governance disclosure requirements for publicly held companies.
New TARP Executive Compensation Guidance and a Call for Further Reform in Executive Compensation Practices
June 10,2009 marked an extraordinary day of announcements affecting executive compensation for both recipients of financial assistance from the Troubled Asset Relief Program (“TARP”) and other publicly held companies, including:
- The U.S. Department of the Treasury (“Treasury”) issued a statement outlining the Administration’s expectations and planned legislative proposals for executive compensation reform for publicly held companies.
- The Securities and Exchange Commission (“SEC”) announced it will soon be proposing new expanded compensation disclosure rules that could take effect in time for the 2010 proxy season.
- The Treasury issued regulations providing its much anticipated guidance on standards for executive compensation and corporate governance for TARP recipients.
- The Treasury established an Office of the Special Master for TARP Executive Compensation (the “Special Master”).
The Emergency Economic Stabilization Act of 2008 ("EESA"), which President Bush signed into law on October 3, 2008, created the Troubled Asset Relief Program ("TARP") under which the United States Treasury (the "Treasury") is generally authorized to purchase troubled assets from certain financial institutions. EESA establishes different sets of restrictions for financial institutions based on whether they sell troubled assets directly to the Treasury or whether they sell troubled assets through an auction process. EESA also modified certain tax code provisions that placed limitations on the deductibility of compensation paid to certain executives. This blog provides a brief overview of EESA provisions that address the executive compensation practices of financial institutions participating in TARP.