Preparing for the 2017 Proxy Season

Preparing for the 2017 Proxy Season

November 10, 2016Presented by: Michael Falk & Mike Melbinger

Brought to you by Winston & Strawn’s Employee Benefits andExecutive Compensation Practice

Today’s eLunch Presenters

Michael MelbingerEmployee Benefits and Executive

Compensation PracticeChicago

[email protected]

Michael FalkEmployee Benefits and Executive


[email protected]

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Overview: Preparing for the 2017 Proxy Season

1. Shareholder Approval Needed2. Non-Employee Director Compensation Best Practices and Limits3. Review ISS/Glass Lewis Report and SSOP Voting Results From

20164. Shareholder Say On Pay5. Shareholder Say On Pay Frequency6. Performance Measure Issues7. Defensive Proxy Statement Drafting 8. Shareholder Proposals on Compensation9. Preparing for CEO Pay Ratio Disclosure10. General Annual Compensation Committee Review

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Shareholder Approval of LTIP/Stock or Cash Incentive Plan Needed?

Shareholder Approval Needed?

• Determine whether the company needs to amend its LTIP/Stock or Cash Incentive Plans to satisfy the periodic shareholder approval requirements (generally, every five years) of Code Section 162(m) or to add shares to the authorized share pool• Note: as SSOP approval has become routine, proxy advisory firms

and institutional shareholders seem to have shifted their attention back to votes on stock plans

• However, in 2015 and 2016, only one equity plan failed to achieve majority shareholder approval in each year, among S&P 1500 companies*

*Source: edwardhauder.com

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Shareholder Approval

• How many shares will the company seek to add? What is the ISSshare value transfer (SVT) calculation? (discuss with compensation consultant)

• Analyze the stock plan under ISS’s Equity Plan Scorecard • Review plan document for protective provisions and best

practices• Register on ISS Data Verification Portal to review ISS’s data on

the new or amended incentive stock plan

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Non-Employee Director Compensation

Non-Employee Director Compensation Issues

• Litigation Surge• Committee Best Practices• October study reported that total board compensation increased

6%, which is the largest single-year increase seen in director pay in the past four years • Median total direct compensation increased from $265,000 to

$282,000 among the 100 largest companies based on 2016 proxy statements

*Source: Compensation Advisory Partners8

Director Pay Litigation: How Lawsuits Arise

• Shareholder derivative suits: plaintiffs sue a company “on behalf of shareholders”

• Demand requirement under Delaware law • The demand requirement is excused if:

• A majority of the board was “interested” in the allegedly wrong decision or lacked independence, or

• The decision was not the product of a valid exercise of business judgment

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Director Pay Litigation: Significant Cases

• 2014• Seinfeld v. Slager [Republic Services]*

• 2015• Calma v. Templeton et al. [Citrix Systems]

• Binning v. Ogunlesi [Goldman Sachs]• Friedman v. Dolan [Cablevision]• In re Cornerstone Therapeutics Inc.

• 2016• Espinoza v. Zuckerberg et al. [Facebook]*• Cambridge Retirement Sys. v. Bosnjak [Unilife]*• Skorski v. Chipotle Mexican Grill, Inc.

*Year refers to settlement date 10

How Can Boards Address These Issues Proactively?• There are at least three relatively simple ways that a board can

reduce the risk of a lawsuit over director pay: 1. Place limits on both the cash and the equity components of its

compensation–or an aggregate limit–and have these limits approved by shareholders, generally as part of the larger stock incentive plan

2. Submit the board’s compensation package to shareholders for approval, either separately or as part of the larger stock incentive plan

3. Embrace the new best practices in board compensation and gain some protection that way

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Non-Employee Director Compensation Issues

• Committee Best Practicesa. Independent compensation consultant review, including

benchmarking board members’ compensation against the company’s peer group

b. Enhance the compensation committee charter (or equivalent document)

c. Enhance proxy statement disclosure on the process for setting board compensation

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Review ISS/Glass Lewis Report and SSOPVoting Results From 2016

Proxy Advisors – Overview

• Review reports and SSOP voting results from 2016 • ISS Policies – Overview

• Proxy Voting Policies (expected mid-November)• Equity Plan Scorecard (potential tweaks for 2017)• Corporate Governance Ratings – QualityScore (formerly QuickScore)

• Glass Lewis (http://www.glasslewis.com/wp-content/uploads/2016/01/2016_Guidelines_United_States.pdf)

• Clarification of factors analyzing “one-off” awards• Clarification of factors analyzing equity compensation plans

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http://www.glasslewis.com/wp-content/uploads/2016/01/2016_Guidelines_United_States.pdf

Proxy Advisors – ISS Updates – QualityScore

• ISS QuickScore 3.0 is now ISS QualityScore• QualityScore Data Verification window open until

November 11th at 7 pm CST• ISS selectively updated QualityScore factor weighting and

answer scoring• ISS announced one new compensation factor for the

QualityScore*• Does the company employ at least one metric that compares its

performance to a benchmark or peer group (relative performance)?

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Other Changes to QualityScoreBoard Structure:

• What proportion of non-executive directors has been on the board less than six years?• Does the board have any mechanisms to encourage director refreshment? (non-scored)• Does the company disclose the existence of a formal CEO and key executive officer succession

plan?• What is the proportion of women on the board?• Has the board adequately responded to low support for a management proposal?

Shareholder Rights and Takeover Defenses:• Does the company have a fee shifting provision?• Does the company have an exclusive venue/forum provision?• Does the company have a representative claim limitation or other significant litigation rights

limitations?• Can the board materially modify the company’s capital structure without shareholder approval?• What is the ownership threshold for proxy access? (now scored, previously incorporated in non-

scored proxy access factor)• What is the ownership duration threshold for proxy access? (now scored, previously incorporated in

non-scored proxy access factor)• What is the cap on shareholder nominees to fill board seats from proxy access? (now scored,

previously incorporated in non-scored proxy access factor)• What is the aggregation limit on shareholders to form a nominating group for proxy access? (now

scored, previously incorporated in non-scored proxy access factor)

Audit and Risk Oversight:• What is the tenure of the external auditor?

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ISS Updates to 2017 Pay-for-Performance Methodology – November 8, 2016• Generally, the changes apply to proxy advisory reports for annual

meetings on or after February 1, 2017. However, the potentially most significant change will not fully apply in 2017.

• For companies subject to ISS’s quantitative pay-for-performance screens, ISS will display three-year performance not only on TSRbut also on six financial metrics relative to its ISS peer group: • Return on equity • Return on assets• Return on invested capital• Revenue growth• Growth in earnings before interest, taxes, depreciation, and

amortization• Growth in cash flow from operations

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ISS Updates to 2017 Pay-for-Performance Methodology – November 8, 2016• ISS will compute relative three-year measures for each of the

metrics, compared to the ISS selected peer group, compare performance on these metrics with relative compensation levels, and present the results, including an overall weighted financial performance metric, in a new standardized table• The weight for each metric will vary by industry• Using data from S&P Compustat

• However, this new assessment will not be a component of ISS’squantitative pay-for-performance screening for 2017

• ISS states that it “may” use the new relative financial performance information in its qualitative assessment of a company’s pay-for-performance alignment in 2017, and its consideration may mitigate or heighten identified pay-for-performance concerns

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ISS Updates to 2017 Pay-for-Performance Methodology (cont.)• ISS welcomes companies to submit the peer groups they used in

setting compensation for the most recently completed fiscal year (this means the 2016 peer group, not the 2017 peer group) • Provides opportunity for companies that have made changes to their

compensation peer group in 2016 to update ISS

• The window for submitting these peer groups to ISS is November 28 – December 9• Peer submissions must be made through ICS’s Governance Analytics

platform • Only representatives of the company may log into the Governance

Analytics platform and complete the peer submission process

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Proxy Advisors – ISS Equity Plan Scorecard

1Maximum total score of 100 (53 is passing score for 2016, subject to override for problematic features like repricing or

liberal CiC definition)2

Non-Russell 3000 model only includes Burn Rate and Duration factors3Special Cases (Russell 3000/S&P 500) include all Grant Practices factors except Burn Rate and Duration

4Special Cases (Non-Russell) does not include any Grant Practices factors

*Formerly IPO/Bankruptcy

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EPSC Model Plan Cost Plan Features Grant PracticesS&P 500 45 20 35

Russell 3000 (excludingS&P 500)

45 20 35

Non-Russell 3000 45 30 252

Special Cases (Russell 3000/S&P 500)*

50 35 153

Special Cases (Non-Russell)*

60 40 04

Maximum scores by EPSC Model and Pillars1


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Plan Cost(45 pts)

Plan Features (20/30 pts) Grant Practices (35/25 pts)

SVT – new & available shares

Automatic CiC vesting 3-yr average burn rate

SVT – new & available shares & outstanding grants

Liberal share recycling (FVand/or options)

Estimated plan duration

Board discretion to accelerate vesting

% CEO equity with performance conditions

Minimum 1-yr vesting for one award type

CEO’s most recent grant vesting periodClawback policy for equity awardsPost vesting/exercise holdingreq.

General Factors in Each Pillar


• In 2016, 662 of the 953 equity plans received a “FOR” vote recommendation from ISS*

• 291 plans failed to meet the threshold score and received an “AGAINST” recommendation:• 196 had excessive plan cost

• 84 failed due to excessive plan cost and an overriding factor

• 8% of plans permitted repricing**

• 8% of plans permitted cash buyouts**

• 4% of plans had a liberal change in control risk**

• 12 had independence issues with the compensation committee**

• 5 had a pay-for-performance disconnect***Reflects S&P 500, Russell 300, and Non-Russell companies

**Source: ISS 2016: Proxy Season Review – Compensation, issued through September 22, 2016

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Proxy Advisors – Glass Lewis Policies (2016)• Review of “one-off” and “transitional” incentive grants on a case-by-case basis

• Thorough description required in proxy

• Explanation of necessity of awards

• Subject to future service and/or performance

• Clearly disclose and explain sign-on arrangements or “make-whole” payments

• Problematic features affecting say on pay vote recommendation:

• Inappropriate peer group and/or benchmarking issues

• Inadequate or no rationale for changes to peer groups

• Egregious/excessive bonuses, equity awards or severance, incl. golden handshakes/parachutes

• Problematic contractual payments, such as guaranteed bonuses

• Targeting overall levels of compensation at higher than median without adequate justification

• Performance targets not sufficiently challenging, and/or providing for high potential payouts

• Performance targets lowered without justification

• Discretionary bonuses paid when short- or long-term incentive plan targets were not met

• Executive pay high relative to peers not justified by outstanding company performance

• Terms of long-term incentive plans are inappropriate

• Insufficient disclosure of compensation policies23

Shareholder Say on Pay


• Depending on SSOP frequency (annual, biennial, or triennial) –remember to include SSOP proposal in 2017 (as applicable)

• Disclose in the CD&A the extent to which the Compensation Committee considered the results of previous SSOP votes (if only to state that “we believe that the overwhelming shareholder approval in 2016 further validates our executive compensation program”). Determine whether the result of last year’s SSOPresolution suggests or requires action. If a low SSOP vote results, what changes can/did the company make, and which best practices can the company adopt, to improve the likelihood of shareholder approval this year?

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• Disclose the current frequency of shareholder advisory votes on executive compensation

• How was last year’s stock price performance? Are there other performance metrics that may be useful to show? As noted above, pay-for-performance “alignment” (in reality, stock price performance) is becoming the leading area of scrutiny for proxy advisory firms in SSOP voting

• What was last year’s CEO compensation compared to stock price (may be unnecessary if stock price has gone up)?

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• Review ISS 2016 Proxy Report. What is the Governance QualityScore? Is ISS correctly summarizing the company’s governance and compensation practices?• Were there any changes to compensation plans or program that could

lead to ISS disapproval, e.g., addition of tax gross-ups of any kind or single trigger change in control provisions

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Say on Pay Results* and Strategies

• Overall passage rate for Say on Pay remains high (average support of 91% in 2016)

• So far in 2016, 31 Russell 3000 companies failed to obtain majority approval of their Say on Pay proposals

• 76% of companies have passed with over 90% approval in 2016• ISS recommended a vote AGAINST Say on Pay at approximately

12% of companies it reviewed in 2016• ISS effect?

• Average approval with ISS “for”: 94%• Average approval with ISS “against”: 66%

*Data from Semler Brossy October 12, 2016 Say on Pay Report

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Say on Pay Results and Strategies (cont.)

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Voting Manager Followed GL Against Rec on SoP

Followed ISS Against Rec on SoP

BlackRock 15.30% 27.00%

Vanguard 20.10% 36.80%

State Street 24.20% 44.40%

FMR 26.00% 43.00%

Fidelity SelectCo 24.60% 43.00%

Proxy Advisor Influence Over Largest Fund Managers (2012-2016)*

*Proxy Insight, Measuring the Influence of Proxy Advisors—October 26, 2016


• Usual reasons for failed Say on Pay votes:• Pay and performance disconnect• Rigor of performance goals• Special awards or mega-grants

• Solid TSR and financial performance don’t insulate companies from scrutiny (Chipotle)

• Non-performance-based equity• Problematic pay practices• Benchmarking practices

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• Typical company changes in response to Say on Pay challenges:*• Improving proxy disclosure• Ensuring incentive plan goals are sufficiently challenging• Shifting pay mix to performance-based• Changing severance plan• Increasing weight of performance shares

*NYSE Governance Services / Corporate Board Member / Pay Governance Fall 2013 Survey

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• Ensure that required and “best practices” disclosure and procedures are included and followed• Supporting statement for Say on Pay proposal (include current

frequency and when next vote will occur)• Proxy statement and proxy card language – SEC guidance• CD&A disclosure re: consideration of Say on Pay result• Executive summary in CD&A• Pay for performance emphasis in disclosure• Proxy summaries• “Good governance” highlights• User-friendly format• Telling your story

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Shareholder Say on Pay Frequency

Shareholder Say on Pay Frequency

• Proxy must include a separate resolution subject to a non-binding shareholder vote to determine whether future SSOP votes will occur every one, two, or three years—no later than the annual meeting of shareholders held in the sixth calendar year after the immediately preceding vote on this matter (also sometimes referred to as “Say When on Pay”) • Companies that last provided this voting opportunity to shareholders in

2011 (which, in our experience, is most companies) must include the advisory vote in their 2017 proxy

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Performance Measure Issues

Non-GAAP

• On May 17, 2016, SEC published updated Non-GAAP Financial Measures Compliance and Disclosure Interpretations (“CDIs”) that present new and updated interpretations of the rules regarding non-GAAP financial measures

• Regulation G requires extensive additional disclosure when non-GAAP figures are used in filings

• Exception: In CD&A, disclosure of target levels that are non-GAAP financial measures will not be subject to Regulation G -but disclosure must be provided as to how the number is calculated from the company’s audited financial statements [reference to definition in Form 10-K]

• Use of or reference to non-GAAP financial measures in areas of the proxy other than the CD&A may not qualify for this exemption

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Accounting Rule Changes

• Amend LTIP/Stock Incentive Plan for accounting rules changes:• elimination of “extraordinary items”

• to provide more flexibility as to tax withholding on vesting or exercise of awards

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Performance-Based Compensation Issues

• The SEC’s proposed Pay Versus Performance Disclosure rules rely on relative TSR as the basis for reporting the relationship between executive compensation and financial performance

• The rules likely will require companies to report their TSR and compare it in easy-to-read chart form against the average TSR of their peers. Committees that do not currently use relative TSR as a metric in executive pay will need to explain in the CD&A why the performance metric the Committee uses to determine executive pay is preferable

• Committees should discuss this issue and at least consider switching to TSR as a performance measure, despite its many flaws

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Defensive Proxy Statement Drafting

Defensive Proxy Statement Drafting

• Apply defensive proxy statement drafting to reduce risk of strike suits

• Litigation “hot buttons” include:• Section 162(m) disclosure and compliance, including new and

proposed regulations• Item 405 disclosure as to late Form 4 filings• Proposals requesting additional stock plan shares without adequate

disclosure of the dilutive effect

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Compensation Litigation Update

• Stock Plan Proposal Litigation – don’t be a target• Incentive Plan “Oops” Litigation – do your diligence

• Are your 162(m) performance goals due for SH approval? (every five years)

• Dust off the plan document to review plan and award limits• Review 162(m) disclosure in proxy statement• Corporate formalities• Monitor form S-8 share usage in all plans

• Section 16 – Review Filing Procedures, Approach, and Disclosures

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Proxy Disclosure Tools and Tips

• Do Your Homework • Review company’s performance and model P4P connection• Read prior year’s proxy advisor reports

• User Friendly Format • Most institutional investors skip to specific sections of proxy when

reviewing it (CD&A executive summary and proxy statement summary, especially) and no one reviews a hard copy

• Director independence, pay for performance alignment and disclosure of performance measures ranked as most important subject matters

• Proxy Summaries (in CD&A and Proxy Introduction)

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Proxy Disclosure Tools and Tips (cont.)

• “Good Governance” Highlights and, if applicable, Shareholder Engagement Efforts• Disclosure targeted to impact QualityScore and proxy advisory firm

reports and recommendations

• Telling Your Story Consistently, including “Pay for Performance”• "Anticipate” P4P disclosure rules?• But remember “non-GAAP” rules (Reg S-K C&DI 118.08 and 118.09)

• Follow-Through on Commitments Made in Prior Disclosure• SEC comment letter responses• Say on Pay proposal disclosure

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Shareholder Proposals on Compensation

Shareholder Proposals on Compensation

• Did shareholders make or threaten any proposals in 2015 or 2016?

• Does the company have vulnerability with respect to frequent challenges?

• Consider whether to deploy (or adopt) shareholder engagement policy

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Shareholder Proposal Trends

• There were 57 compensation-related stockholder proposals in 2016,* with the most common being:• Pro-rata Vesting of Equity Awards (n=15)• Stock Retention/Holding Period (n=13)• Adjust Metrics for Share Buybacks (n=6)• Clawback of Incentive Payments (n=6)

• Average Support of Proposals, 2016• Pro-Rata Vesting of Equity Awards (31.3%)• Stock Retention/Holding Period (17.6%)• Adjust Metrics for Share Buybacks (18.9%)• Clawback of Incentive Payments (14.3%)

*Source: ISS United States 2016 Proxy Season Review – Compensation, September 22, 201647

Apple Shareholder Proposal for Multiple Compensation Consultants• The SEC’s Division of Corporation Finance issued a no-action response

to Apple regarding a shareholder proposal that the company sought to exclude under Rule 14a, arguing that:• The proposal was inherently vague (rule 14a-8(i)(3))

• The company lacked the power to implement (rule 14a-8(i)(6))

• The proposal relates to hiring—an ordinary business matter (rule 14a-8(i)(7))

• The proposal recommended that the company engage multiple outside independent experts or resources from the general public to reform its executive compensation principles and practices

• Corporation Finance found that (i) the proposal was not vague, (ii) the company was capable of implementing the proposal, and (iii) a proposal for multiple compensation consultants focuses on senior executive compensation and should not be excluded

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Preparing for CEO Pay Ratio Disclosure

Dodd-Frank Implementation Overview

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Provision Proposed Final Effective Applicable To

Clawback July 1, 2015 TBD SEC – TBD; exchanges have one year to adopt rules following effectiveness of SEC rule; companies then have 60 days to adopt policy

All issuers listed on a national exchange. Covers compensationbased on financial info for periods ending on and after SEC effectiveness

Pay forPerformance Disclosure

April 29, 2015 TBD TBD; phase-in for number of covered years in the new table

Reporting companies other than emerging growth companies and foreign private issuers

HedgingDisclosure

February 9,2015

TBD TBD Reporting companies other than foreign private issuers

CEO Pay Ratio

• The Dodd-Frank Act requires the SEC to adopt rules requiring companies to disclose:a. The median of the annual total compensation of all employees of

the company, excluding the CEOb. The annual total compensation of the CEO of the companyc. The ratio of (a) to (b)

• In August 2015, the SEC issued final rules on the CEO pay ratio rules

• Applies to compensation in fiscal years beginning on or after January 1, 2017 (reported in 2018 proxy statement)

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CEO Pay Ratio

• The new disclosure requirements do not apply to: • Smaller reporting companies • Foreign private issuers• Multi-jurisdictional filers • Emerging growth companies• Registered investment companies

• Transition rule for newly public companies

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CEO Pay Ratio – Final Rule

• Executives, board members, and the company’s HR and legal functions should begin to study these rules

• The information the company will be required to collect for compliance with the rules is extensive and the calculations are likely to be complicated. Most companies will require a combination of services from internal functions, such as HR and legal, and external providers, including counsel, compensation consultants, and accountants

• Some institutional investors and pension funds have expressed the desire to see this disclosure before 2018

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Calculating the Ratio: Suggested Action Steps• Briefing the Board and/or Compensation Committee on the pending

requirements of the final rules• Organizing a team of internal professionals to comply with the rules• Develop an action plan for compliance. Implementation of the new

rule will require certain decisions1. Evaluate Alternative Methodologies for Identifying the Median

Employee. Each company may select a methodology to identify its median employee based on the company’s facts and circumstances, including total employee population, a statistical sampling of that population, or other reasonable methods. For example, a company could identify the median of its population or sample using any consistently applied compensation measure from compensation amounts reported in its payroll or tax records

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Action Steps (cont.)

2. Consider Cost-of-Living Adjustments. The rules explicitly allow a company to apply a cost-of-living adjustment to the compensation measure it uses to identify the median employeea) SEC acknowledged that differences in the underlying economic conditions of

certain countries in which companies operate would have an effect on the compensation paid to employees in those jurisdictions, resulting in a statistic that does not appropriately reflect the value of the compensation paid to individuals in those countries

b) The rules give companies the option to adjust for these differences

c) The rules allow a company to make cost-of-living adjustments to the compensation of its employees in jurisdictions other than that in which the CEO resides

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3. Determination of Total Compensation. Assess your ability to calculate precisely all items of compensation or whether reasonable estimates may be appropriate for some elements. Companies may use reasonable estimates when calculating any elements of the annual total compensation for employees other than the CEO (with disclosure)

4. Select a Testing Date. The rules allow a company to select a date within the last three months of its last completed fiscal year on which to determine the employee population for purposes of identifying the median employeea) The company would not need to count any individual who is not employed on

that date

b) Companies that employ temporary or seasonal workers should pay particular attention to this rule

c) The rules permit the company to identify its median employee once every three years

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5. Non-US Employees. The rules allow a company to exclude non-U.S. employees from the determination of its median employee in two circumstances:a) Non-U.S. employees that are employed in a jurisdiction with data privacy laws

that make the company unable to comply with the rule without violating those laws. The rules require a company to obtain a legal opinion on this issue

b) Up to 5% of the company’s non-U.S. employees, including any non-U.S. employees excluded using the data privacy exemption. Under this exception, if a company excludes any non-U.S. employee in a particular jurisdiction, it must exclude all non-U.S. employees in that jurisdiction

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6. New Employees. The rules allow a company to exclude certain new employees from its calculationa) A company can exclude any employees obtained in a business combination or

acquisition for the fiscal year in which the transaction becomes effective

b) Companies may annualize the total compensation for a permanent employee who did not work for the entire year, such as a new hire or an employee on an unpaid leave of absence

c) Companies may not annualize the compensation of part-time, temporary, or seasonal workers when calculating the required pay ratio

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7. Independent Contractors. Individuals employed by unaffiliated third parties or independent contractors would not be considered employees of the company. However, the rules do not appear to allow companies to exclude many of the individuals that other areas of the law would recognize as independent contractorsa) Companies should re-examine the workers they currently characterize as

independent contractors

8. Other Benefits Provided to Employees. The rules allow a company to include personal benefits that aggregate less than $10,000 and compensation under non-discriminatory benefit plans such as health and retirement plans in calculating the annual total compensation of the median employee as long as these items are also included in calculating the CEO’s annual total compensation

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Action Steps

9. Consider Tweaking the Structure of the Company’s Work Force. The excluded employee rules, together with the ability to (i) select a test date within the last three months of the last completed fiscal year, and (ii) to identify the median employee once every three years, appear to present a planning opportunity for many companies

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General Annual Compensation Committee Review

Preparing for the 2017 Proxy Season

• Did the company or Board commit itself to any disclosure actions for the next proxy, e.g., pursuant to SEC comments (tri-annual review) or ISS badgering?

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Compensation Risk Assessment

• Item 402(s) of Regulation S-K, issued by the SEC in December 2009, requires a company to assess whether its compensation policies and practices for all employees, including non-executive officers, are reasonably likely to have a material adverse effect on the company

• In light of the recent media and political focus on incentive-based compensation, this year might be a good time to review your compensation risk assessment process and disclosure

• Most Compensation Committee Charters make that Committee responsible for reviewing employee compensation programs as they relate to risk management and risk-taking incentives

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General Annual Compensation Committee Review1. Verify that the Compensation Committee has updated its

Committee Charter for changes in the law (Dodd-Frank Act and new SEC rules), new NYSE and NASDAQ rules, and/or best practices

2. Is the Committee actually performing all the duties listed under its Charter? Does the Charter include all of the Committee’s duties? Do the listed duties unnecessarily create fiduciary liability risk?

3. Has the Committee added a Compensation Clawback Policy?4. Has the Company provided any recent training or education for

the Committee members?

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Other Hot Button Issues and Actions

• Review Section 16(a) reporting procedures and compliance in light of SEC Enforcement Actions

• Review the non-disclosure, non-disparagement, and release language in employment, severance, and change in control agreements and plans in light of SEC Enforcement Actions

• Review Rule 10b5-1 Trading Plans• Consider review and update of indemnification provisions and D&O

coverage for officers and directors• Review whether Form S-8 and Prospectus are up-to-date and have

enough registered shares remaining for all plans (including 401(k) and non-qualified retirement plans with company stock fund)?

[These are not requirements for the proxy, but matters that companies should review annually]

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Questions?

Thank You.

Michael MelbingerEmployee Benefits and Executive


[email protected]

Michael FalkEmployee Benefits and Executive


[email protected]

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