Total Articles: 25
2012 Minimum Compensation Rates
Employers should review compensation rates for both exempt and nonexempt employees, to ensure compliance with current legal thresholds. Set forth below are rates at the federal level, and for the states and localities that exceed federal levels for the most common job categories.
SEC Obtains $2.8 Million Faultless Clawback from CEO Under Sarbanes-Oxley Section 304
On November 15, 2011, the Securities and Exchange Commission ("SEC") announced that the former CEO of CSK Auto Corporation ("CSK") agreed to return $2.8 million in compensation to the company, pursuant to a settlement with the SEC. The SEC sued the former CEO in 2009 seeking an order compelling him to reimburse the company for his bonuses, incentive-based compensation and stock sale profits pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 ("SOX"). Section 304 of SOX requires a CEO or CFO of an issuer to pay back certain types of bonus, incentive and equity-based compensation if the issuer materially restates its financial statements as a result of misconduct.
Say On Pay Makes its Debut in the 2011 Proxy Season
Did the first year of say on pay reveal that stockholders are mad as hell and not going to take it anymore? Or did it reveal that, frankly, stockholders don't give a damn about executive compensation? If you kept up with the media headlines, you saw an almost continuous flow of articles and columns that expressed dismay at excessive executive compensation, conveyed alarm at the increasing disparity in pay between executives and the rest of the work force and lamented times past when it would have been almost unseemly for executives to accept such enormous hikes in pay. However, the vote tallies from this proxy season seem to belie those headlines: to date, less than 2% of say-on-pay proposals have failed. So what have we learned from the debut of say on pay?
SEC Proposes New Rules for Compensation Committees and Compensation Consultants
The SEC has just proposed new rules that would require the national securities exchanges to adopt new listing standards designed to promote the independence of compensation committee members, consultants and advisers. The proposed new rule and rule amendments implement Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, codified in Section 10C of the Securities Exchange Act of 1934, and closely track its provisions without significant expansion. Because the proposal is, for the most part, no more prescriptive than Section 10C itself, it provides the exchanges with substantial discretion and also leaves to the exchanges any heavy lifting that might be required in formulating definitions or other requirements. No new or modified proxy statement disclosure will be required as result of the new proposal during the current proxy season.
Final Say-On-Pay Rules Delay Requirements for Smaller Reporting Companies and TARP Participants
On January 25, 2011, the Securities and Exchange Commission (the “SEC”) released its final rules relating to shareholder approval of executive compensation arrangements. These rules implement Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). While these new rules apply to all public companies, smaller reporting companies are exempt from compliance until 2013, and companies that received financial assistance under the Troubled Asset Relief Program (“TARP”) are exempt from compliance until the outstanding TARP funds are repaid.
SEC Adopts Final Rules on Say on Pay
On January 25, 2011, the SEC issued final rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding proxy disclosure of shareholder advisory votes on say-on-pay proposals and the frequency of those proposals, as well as advisory votes on golden parachute compensation arrangements. This Alert discusses those final rules.
SEC Adopts Final "Say-On-Pay" Rules
On January 25, 2011, the Securities and Exchange Commission (“SEC”) adopted final rules (“Final Rules”) on non-binding shareholder advisory votes on a company’s executive compensation and golden parachute compensation arrangements (“Say-on-Pay” or “SOP”) implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The basic SOP rules are effective January 21, 2011 and thus will apply to most proxy statements filed this year; the golden parachute SOP rules are effective April 25, 2011. The Final Rules are fairly consistent with the SOP rules proposed by the SEC on October 18, 2010 (“Proposed Rules”). Below is a brief summary of the Final Rules, including some of the changes made to the Proposed Rules.
Frequency of Say-on-Pay Votes: Eleven Factors to Consider.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, public companies will need to ask their shareholders at least once every six years whether say-on-pay votes (i.e., shareholder votes to approve the compensation of executives) should occur every one, two or three years. Although this "say-on-frequency" vote is non-binding, under proposed SEC rules, each company will need to disclose how frequently it will conduct say-on-pay votes in light of the results of the shareholder vote.
SEC Proposes New Rules for Shareholder Advisory Votes on Executive Compensation.
Shareholder "say on pay" has long been touted as a key tool for reining in runaway executive compensation. As a result of the recent Dodd-Frank Wall Street Reform and Consumer Protection Act, we will now be able to test the efficacy of that tool. Under Dodd-Frank, issuers will be required to include in their proxy statements separate shareholder advisory votes on say on pay and frequency of say on pay. These new votes are required for proxy statements that relate to annual meetings of shareholders occurring on or after January 21, 2011, whether or not the SEC has adopted implementing rules. Just barely in time to have its own say on how these matters should appear in proxy statements, the SEC has proposed new rules regarding proxy disclosure of say-on-pay proposals and the frequency of those proposals, as well as new rules regarding shareholder advisory votes on, and related disclosure concerning, golden parachute compensation arrangements, also required under Dodd-Frank.
SEC Uses Section 304 to Claw Back Incentive-Based Compensation from "Innocent" Executives.
The U.S. Securities and Exchange Commission (SEC)
is ramping up its use of Section 304 of the Sarbanes-
Oxley Act as an independent cause of action in order
to obtain reimbursement of bonuses and other
incentive-based and equity-based compensation from
CEOs and CFOs, regardless of the executives
involvement in their companies alleged accounting
improprieties.
Financial Reform Package Affects Incentive-Based Compensation.
One of the provisions of the "Dodd-Frank Wall Street Reform and Consumer Protection Act" (the so-called financial reform act) is a requirement that public companies implement a "clawback" policy for their incentive-based compensation. This policy must provide that if the company is required to restate its financial statements because of material noncompliance with any financial reporting requirements under the Securities laws, the company will recover from any current or former executive officer who receives inventive-based compensation (including stock options) during the three-year period preceding the date of the restatement any amount in excess of the amount that would have been paid to the executive under the restated financial statements.
Dodd-Frank Act Raises Major Executive Compensation Issues.
On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Although Dodd-Frank focuses primarily on the financial services industry, it contains a number of new requirements generally applicable to executive compensation paid by public companies.
The Dodd-Frank Wall Street Reform and Consumer Protection Act: Provisions Related to Corporate Governance and Executive Compensation.
On July 15, 2010, the Senate approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, following House approval on June 30, 2010. President Obama is expected to sign the Act into law the week of July 19th. The Act broadly targets many of the perceived root causes of the near collapse of the financial system that began in 2007 through a combination of financial regulatory reform, consumer and investor protection measures and regulation of the derivatives markets. The corporate governance and executive compensation-related provisions of the Act were adopted against the same backdrop of financial crisis, largely in reaction to the public's railing against the levels of compensation paid to some corporate executives despite poor performance by their firms, especially where those firms were viewed as contributors to the crisis itself. Although these provisions received relatively little media focus and public attention in the debate surrounding adoption of the Act, they address a number of highly controversial issues, such as say on pay and proxy access, that have been the center of battles among business interests, shareholder activists, legislators and regulators for almost a decade. Much like the Sarbanes-Oxley Act of 2002, many of these provisions promise to have a significant impact on public companies in all industries.
Ninth Circuit Upholds Arm's-Length Standard, Rejects Cost-Sharing of Stock-Based Compensation.
In a stunning reversal of its previous opinion in Xilinx, Inc. v. Commissioner, the U.S. Court of Appeals for the Ninth Circuit held on March 22, 2010 that stock option compensation costs need not be shared by participants in a cost sharing arrangement where such costs would not be shared at arm's length between unrelated parties. In its highly controversial prior opinion, the Ninth Circuit had held on May 27, 2009, that Xilinx's stock option compensation was subject to cost sharing, even if such costs would not be shared at arm's length. The Ninth Circuit withdrew that prior opinion on January 10, 2010, and has now reversed its position, affirming that the arm's-length standard is paramount in cost-sharing, as in other areas of transfer pricing.
SEC Adopts New Rules for Enhanced Compensation and Corporate Governance Disclosure.
On December 16, 2009, in response to the recent demand by investors for increased transparency and corporate accountability, the Securities and Exchange Commission approved new rules requiring enhanced proxy disclosure.
Reminder: Publicly Held Corporations Should Evaluate Bonus Compensation Arrangements Before 2010.
Under Section 162(m) of the Internal Revenue Code, a publicly held corporation may not deduct in a taxable year more than $1 million of compensation for any key executive officer who is considered a "covered employee,"[1] unless the compensation qualifies as performance-based. As discussed in our prior Alert, on February 21, 2008, the IRS issued Revenue Ruling 2008-13, which provided that compensation will no longer qualify as "performance-based" under Section 162(m) if it may be paid upon a termination of service without cause or a resignation for good reason, or upon a voluntary retirement, and without regard to actual performance. The Revenue Ruling represented a reversal of the IRS' previous position on this issue, but the IRS offered some transition relief by providing that its new position would not apply to either (1) compensation for which the performance period begins on or before January 1, 2009; or (2) compensation that is payable pursuant to the terms of an employment contract as in effect on February 21, 2008 (without respect to future renewals or extensions of such contract, whether automatic or by agreement).
TARP and Executive Compensation: Decisions and Next Steps.
Tom Desmond, Shareholder and Co-Chair, Executive Compensation Practice Group of Vedder Price, joined Todd Leone, President & Founder of Amalfi Consulting, Inc. to discuss TARP and Executive Compensation: Decisions and Next Steps
TARP and Executive Compensation Limits.
Tom Desmond, Shareholder and Co-Chair, Executive Compensation Practice Group of Vedder Price, joined Todd Leone, President & Founder of Amalfi Consulting, Inc. to discuss TARP & Executive Compensation Limits.
TARP Companies Must "Stop, Look and Listen" Before Making Executive Compensation Decisions (pdf).
The American Recovery and Reinvestment Act of 2009 (the Act), enacted today, provides the following rules applicable to any company
receiving past or future TARP funds (TARP Companies) for certain employees (usually the Top 5 Executive Offi cers, but also, in some
cases, other highly paid employees and not just executives) during the period the federal government holds preferred stock of the TARP
Company. There are many issues and questions to address over the next few weeks. We highlight below the Acts most signifi cant
provisions requiring TARP Companies to stop the operation of their executive compensation programs, to look at how the Act
impacts those programs, and to listen for expected guidance from the Treasury Department implementing this new law.
Executive Compensation under the Emergency Economic Stabilization Act of 2008 - Executive Summary.
Financial institutions electing to participate in Congress's recently enacted efforts to stabilize this industry, the Troubled Asset Relief Program (TARP), must agree to four specific restrictions on executive compensation.
Executive Compensation Rules Under EESA (pdf).
The Emergency Economic Stabilization Act of 2008 includes important requirements
with respect to the executive compensation and corporate governance practices of
participating financial institutions. The U.S. Department of the Treasury issued additional
guidance with respect to these requirements. We have included links in the summary
below to the newly issued Treasury guidance.
SEC Adopts Amendments to Comp. Disclosure Rules-Cos. Should Prepare Now for Upcoming Proxy Season (pdf).
At an open meeting yesterday, the SEC unanimously adopted new rules relating to executive compensation and related party transaction disclosure. The new rules will be effective for the upcoming proxy season. The actual text of the final rules is not yet available. Based on the statements made during the open meeting and the SECs press release, it appears the SEC has adopted the rules substantially as proposed in January, with some notable exceptions:
What Happens When the Press Blasts Your CEO for Excess Compensation? Apparently Not Much.
Springtime, in addition to bringing back flowers and birds, also brings forth many companies' proxy statements, including information on CEO compensation. It's a signal for the business press to get to work reporting the details of what appear to be the highest executive pay packages.
Executive Compensation Disclosure: A Roadmap (pdf).
The SECs interest in the area of executive
compensation disclosure is evidenced by enforcement
actions against The Walt Disney
Company and General Electric Company, a
settlement with Tyson Foods, and noteworthy
comments from SEC Commissioners and staff.
Each of these developments highlights how
important it is for public companies to develop
and maintain sound practices and processes to
ensure full compliance with the SECs executive
compensation disclosure requirements.
Six Degrees of Separation: Examining Back Door Links between Directors and CEO Pay.
Yes, it pays to be friends of those who pay you, or even to be friends of their friends. That, roughly speaking, is the conclusion of a study analyzing the impact of director relationships on the compensation of chief executive officers.
