August 25, 2010 EXEQUITY Independent Board and Management Advisors High Performance Equity Compensation Dodd-Frank Wall Street Reform and Consumer Protection Act Action Steps for Executive Compensation and Corporate Governance Provisions (sections 951-957 and 971-972)
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Wall Street Reform: Action Items for Compensation (Dodd Frank Act)
This presentation discusses the things that companies should be doing to address compensation issues resulting from the Dodd-Frank Wall Street Reforms and Consumer Protection Act.
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August 25, 2010EXEQUITY
Independent Board and Management Advisors High Performance Equity Compensation
Dodd-Frank Wall Street Reform
and Consumer Protection Act
Action Steps for Executive Compensation
and Corporate Governance Provisions
(sections 951-957 and 971-972)
The following presentation walks through the highlights of the executive compensation provisions contained in the Dodd-Frank
Wall Street Reform and Consumer Protection Act. This presentation is based on the final version of the bill dated July 16, 2010 and
posted on the Government Printing Office’s Web page: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4173enr.txt.pdf
(under Title IX—Investor Protections and Improvements to the Regulation of Securities Sections 951–957 and 971–972).
President Obama signed the Dodd-Frank Act into law on July 21, 2010
To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the prior consent of Exequity LLP and
Senior advisor and practical thought leader: Ed is known industry-wide as a leading advisor on executive compensation matters. He maintains long-term relationships with numerous companies, serves on the CompensationStandards.com Executive Compensation Task Force, maintains his acclaimed Equity Compensation Blog, edwardhauder.com, and is a practical thought leader on compensation matters.
Experience across a range of industries: Ed has consulted with hundreds of companies in multiple industries on all aspects of executive and director compensation. Ed focuses on helping companies design compensation programs that help them achieve their strategic goals and objectives, while at the same time keeping them out of the penalty box with shareholders and the media. Ed also helps companies understand and find practical solutions for technical matters impacting compensation, e.g., financial accounting, securities, tax, and corporate governance issues. His expertise includes RiskMetrics Group (a.k.a. ISS) compensation modeling and policies, which enabled him to create the Flexible Share Authorization to maximize equity plan flexibility.
Articles and quotes on compensation issues: Ed has recently written articles that have appeared in The Corporate Board, workspan Weekly, BNA’s Executive Compensation Library, and Tax Management Compensation Planning Journal. He has been quoted in such publications as BNA’s Pension & Benefits Daily, Business Finance, Forbes, HR Magazine, and The NASPP Advisor.
Background and education: Before joining Exequity, Ed was employed as a Principal at Buck Consultants where he managed the Technical Solutions and Innovation Team. Prior to that, Ed was a member of Hewitt Associates’ Executive Compensation Center of Technical Excellence. Ed received a B.A. in International Relations from Juniata College, a J.D., cum laude, from Seattle University School of Law, and an LL.M. (Tax), with honors, from IIT-Chicago-Kent College of Law.
Contact information: [email protected] or (847) 996-3990Ed’s Equity Compensation Plan Blog: www.edwardhauder.com Twitter: www.twitter.com/ExeCompAdvisor
Broad experience: Dan has more than 15 years of experience assisting companies with both executive and broad-based compensation programs. He provides end-to-end solutions for private and public companies in both the United States and abroad. His clients have ranged from entrepreneurial start-ups to established Fortune 100 companies providing him with a unique perspective on compensation issues.
Incentive compensation futurist: Dan is frequently recognized for being an industry leader in compensation design, philosophy, and execution. He provides solutions that start with your corporate culture and end with your corporate success. Performensation’s solutions also include GEMS, the only tool designed to automate the tracking of complex goals against equity plans.
Deep expertise: Dan’s expertise includes equity compensation, executive programs, performance-based pay, and talent management issues. His experience with these programs includes diagnosis, design, communication, administration, and reporting. Dan has experience with all forms of equity, including stock options, restricted shares and units, and stock purchase and performance-based programs. Dan’s past clients include: Yahoo, Google, IBM, Microsoft, JDSU, ION Geophysical, Redback Networks, BGI (now BlackRock), and others.
Industry educator: Dan is currently writing a book on performance-based equity and contributing to another. He is a frequently requested speaker at compensation, stock administration, human resources, and accounting events, covering a wide range of topics. Dan is the founder of Equity Compensation Experts, the largest networking group for professionals who touch equity compensation, a regular contributor to the Compensation Café blog (rated one the top 10 talent management blogs on the web), and a co-producer of the ShareComp 2010 virtual conference
Determine current golden parachute liability assuming a CIC event in the next 12 months; use different deal price assumptions to get a feel for the sensitivity of your golden parachutes to the deal price
Determine Top 5 NEO golden parachute liability as a percentage of deal price and premium over current and 200-day average stock price
Perform same calculations for your peers
Review compensation arrangements that may be subject to a separate shareholder vote if a transaction were to occur; ensure the terms are consistent with intent, and disclosure is covered by a management say on pay vote
ACTION ITEM: GOLDEN PARACHUTE VOTES
How an experienced compensation consultant can help:
As part of say on pay review and philosophy, document relationship between pay and performance
Determine the tools, time, and budget required to calculate employee annual compensation in the same manner as required for the Summary Compensation Table (SCT)
Provide input to the SEC now [http://www.sec.gov/spotlight/regreformcomments.shtml]
Evaluate whether a historical look at pay versus performance of your company and its peers would assist the development of disclosure and/or message to shareholders
Utilizing Exequity’s ROX methodology
Determine current ratio of CEO pay to employee pay
Determine if any other pay ratios should be considered for disclosure purposes, i.e., CEO to other NEOs, CEO as a % of total compensation expense, etc.
Review peer group ratios, using compensation survey data as a guideline
Evaluate if your ratio is “media worthy”—will news outlets report on your ratio as a positive or negative?
ACTION ITEM: EXECUTIVE COMPENSATION DISCLOSURES
How an experienced compensation consultant can help:
ACTION ITEM: ENHANCED COMPENSATION STRUCTURE REPORTING FOR FINANCIAL COMPANIES
What you can do:
If you are not a financial company, disregard for now, but keep an eye on this so you know what some shareholders might ask you to adopt if the changes are viewed as beneficial by shareholders
If you are a covered financial company with more than $1 billion in assets:
Start evaluating your compensation programs now
Determine how you will communicate the structure of these arrangements to determine:
Possibility of providing excessive compensation fees or benefits
Risk profile and association with possible material loss to the company
Prepare initial approach to modifications such as:
Mandatory holding periods and stock ownership guidelines
A significant portion of compensation to be deferred
Introducing an absolute metric governing payouts of any performance-based compensation subject to relative performance measures, e.g., relative total shareholder returns
ACTION ITEM: ENHANCED COMPENSATION STRUCTURE REPORTING FOR FINANCIAL COMPANIES
How an experienced compensation consultant can help: