Executive Compensation

Readers know that I have blogged many times on the SEC's compensation risk assessment requirement for public companies. And on that subject, last spring, I posted a blog entitled "PCAOB Butts in on Executive Compensation?", commenting (unfavorably) on the Public Company Accounting Oversight Board's proposed amendments to auditing standards for identifying and assessing excessive risk in executive compensat . . .

Michael S. Melbinger

I have been blogging on this issue for two years now, but as the July 1 deadline approaches everyone seems to be talking about it. Many public compensation committees apparently are still in the process of completing the required independence assessment for their advisers. This seems especially true for legal counsel, as to which these requirements are completely new. 

Inquiring minds want to know: "Mike, how is Winston figuring out how to test for a 'business or p . . .

Michael S. Melbinger

Last month I blogged on the proposed regulations under new Code Section 162(m)(6) "IRS Issues Proposed Regulations under Code Section 162(m)(6), Applicable to Covered Health Insurance Providers". Although this blog generated more feedback than I expected, proxy season duties (and topics) interv . . .

Michael S. Melbinger

With the annual meeting approaching for most of you, I wanted to remind you of the July 1st deadline to have the Compensation Committee Charter comply with the new stock exchange rules on independent advisers. Obviously, there is still time before the July 1, 2013 deadline. However, a change to the Charter, if necessary, would require Board/Committee action and there are a limited number of Board meetings before July.

Every Compensation Committee Chair with whom I h . . .

Michael S. Melbinger

"Regulators Get Banks to Rein In Bonus Pay" read the headline on an article on page 1 of The Wall Street Journal last Tuesday. This article is among the first to shed light on a significant problem that has been developing behind the scenes for companies in the financial services area and their advisers.*

Dodd-Frank Act Section 956 "Enhanced Disclosure and Reporting of Compensation Arrangements" has been overlooked by much of corporate America (and all o . . .

Michael S. Melbinger

Yesterday morning, The Wall Street Journal ran another page one story critical of Rule 10b5-1 trading plans ("Directors Take Shelter in Trading Plans"). This article at least had a different focus than the previous ones: trading plans by directors who are also large shareholders – either individually or through investment funds they control.

As readers know, I have blogged on the issues surrounding 10b5-1 trading plans several times in the last six months, as the media . . .

Michael S. Melbinger

Last September, I blogged on a "Securities Law Trap for 401(k) Plan Fiduciaries" that we have seen lead to litigation against 401(k) Plan fiduciaries – who often are corporate executives – from time to time (that month it was a Sixth Circuit case finding a potential breach of ERISA fiduciary duty where a company's summary plan description (SPD) incorporated by reference certain SEC filings, which filings were . . .

Michael S. Melbinger

In Sposato v. First Mariner Bank, 2013 WL 1308582 (D. Md. March 29, 2013), a federal district court allowed the creditor (First Mariner Bank) of a former executive (Sposato) to garnish the Top-Hat plan (the Cecil Bank Supplemental Executive Retirement Plan) benefits of the former executive even though the company (Cecil Bank) was not in bankruptcy. (I spotted this first in a Womble Car . . .

Michael S. Melbinger

I have been blogging my darn fool head off about the (i) need for companies to take actions to ensure that they will be able to enforce their clawback provisions when Dodd-Frank Section 954 finally becomes effective, and (ii) desirability of stating in the proxy statement that the company has adopted a compensation clawback policy.

One of our guiding principles to date has been that companies should not put too much effort into fine-tuning a clawback policy at this point, since (i) th . . .

Michael S. Melbinger

Regardless of what your opinion may be of the Patient Protection and Affordable Care Act ("ACA"), certainly one of the most unnecessary and insidious provisions of ACA (Public Law 111-148, 124 Stat. 119, 868 (2010)) was the addition of a new Section 162(m)(6) to the Internal Revenue Code. Section 162(m)(6) limits to $500,000 the allowable deduction for the "aggregate applicable individual remuneration" and "deferred deduction remuneration" attributable to services performed by an "applic . . .

Michael S. Melbinger

The result in the case Sutardja v. U.S., decided by the United States Court of Federal Claims last month is not surprising. We all understood the stock options issued at a discount are subject to Code Section 409A. What is alarming, however, is that the IRS chose to enforce the penalty tax of 409A under the facts of this case in the first place. Here are the undisputed facts:

• The Board approved a grant of up to two million stock options to Mr. Sutardja o . . .
  
  Michael S. Melbinger

As readers know, I have been blogging on the new form of lawsuit over companies' executive compensation disclosures that has appeared in the last year since the first two cases (Martha Stewart and Brocade). Although the plaintiffs' lawyers have not had much success in court (2 wins, 8 losses at the preliminary injunction stage), they continue to announce "investigations" (trolling for a plaintiff/shareholder) and send threatening letters. Calendar year companies (approximate . . .

Michael S. Melbinger

I have been blogging about the sudden spike in litigation against public companies over their proxy statement disclosure. Defending corporations have won more cases than they have lost, but we are far from "out of the woods" yet as the 2013 proxy season kicks-off.

My group will be presenting a webcast – or eLunch Briefing, as we like to call them – next week on this topic. Ironically, I now need to be out of town on another matter. However, three of my partners who are smarter than me . . .

Michael S. Melbinger

"Restrained from suing over securities fraud, lawyers are starting to prey on dodgy disclosure in corporate elections ... Starved of other business, attorneys' hunger for these suits can only grow." – Thomson Reuters News & Insight

When I first blogged last year on the new type of lawsuits being brought over executive compensation disclosure in companies' proxy statements, no one else was talking about it. Now everyone is talking about it – and with . . .

Michael S. Melbinger

You probably read articles expressing outrage over the purported "$78 million dollar severance package" to be paid by Novartis AG to its retiring Board Chair and former CEO. The agreement was to take effect after Dr. Daniel Vasella stepped down as Chairman of the Board at the Novartis Annual Meeting on February 22, 2013. Yesterday Novartis announced that the Board of Directors and Dr. Vasella had agreed to can . . .

Michael S. Melbinger

I am an executive compensation specialist – and I presume that most readers are too. However, since I have been writing about "Key Action Items for 2013" lately, and some readers also may have responsibility for their companies' group health plan, I thought I would send around this note about one of the most daunting "Action Items for 2013" – compliance with the new Health Care Reform law.

Hopefully many of you have listened to our eLunch briefings before and found them useful.&n . . .

Michael S. Melbinger

I have been blogging a lot lately on compensation disclosure-related shareholder suits, but I want to be sure that companies don't ignore the other key action items for the compensation committee for this year. I have blogged on each of these previously, but the importance of these item makes it worth repeating:

1. Conduct the independence assessment of any consultants, legal counsel or other advisers used by the Committee – even if they were not selected or hired by . . .
   
   Michael S. Melbinger

It seems that everyone is now talking about the wave* of executive compensation disclosure-related shareholder suits being filed.** See, The Wall Street Journal, "Anxiety Stalks Proxy Season."*** These lawsuits, filed in the weeks leading up to public companies' annual shareholders meetings, attempt to gain leverage for an early settlement by seeking to enjoin or postpone the shareholders mee . . .

Michael S. Melbinger

Two weeks ago, I blogged on the fact that the SEC finalized the amended NYSE & Nasdaq listing standards as to compensation committee (and adviser) independence standards. Now it is time for Compensation Committees to act. 

In the regard, my fellow blogger, Mark Borges, had an excellent discussion and example of one company's/committee's handling of the issues in his Compensation Disclosure Blog today. Because I could not say it any better, I quote . . .

Michael S. Melbinger

As most of you know, ISS recently changed its governance rating service from "GRId" to "QuickScore." More importantly, however, as Broc Blogged this morning, ISS began giving all companies free access to ISS' free data verification site beginning yesterday, January 28. Effective now, companies can review the data ISS has collected on their ISS Governance QuickScore factors. This is a no-brainer. Every company shoul . . .

Michael S. Melbinger

Two stories about executive compensation being reported everywhere over the last two days.

• "Dimon Takes a 'Whale' of a Pay Cut"
• "Morgan Stanley defers executive bonuses"

Underlying the first one, the Compensation Committee of the Board of J.P. Morgan apparently cut CEO James Dimon's compensation by 50% (more than $11 million) for last year due (at least in part) to the London Whale debacle.

In the second story, a . . .

Michael S. Melbinger

Last Friday, the NYSE & Nasdaq amended their listing standards one last time to comply with the compensation committee (and adviser) independence standards of Securities Exchange Act Rule 10C-1, added by Dodd-Frank Act Section 952, and yesterday the SEC finalized the amended NYSE & Nasdaq listing standards (NYSE order and Nasdaq order), all as first not . . .

Michael S. Melbinger

Last Thursday I made a prediction as to the top executive compensation issues of 2013, which I view as nearly a sure thing. I also promised to predict the second most important issue of 2013, which is much less obvious. I got a little flack about the "I feel it in my bones" comment. However, after 30 years of executive compensation practice and dozens of "scandals over the years, I feel like I can se . . .

Michael S. Melbinger

The New Year is still young but I am going on record with my prediction for the two top executive compensation issues of 2013; one that is a sure thing and one that I just feel in my bones.

Today, the sure thing.  By now everyone who reads this Blog is aware of the recent litigation wave against publicly traded companies. When I first Blogged on this in October, I hoped the strike suit lawyers would lose a few of these and give up. Bad news. The strike suit lawyers . . .

Michael S. Melbinger

In keeping with my policy of avoided too many heavy topics in the last two weeks, because of the year-end deadlines facing most of us, this Blog refers to an interesting Stanford Graduate School of Business article on the Ten Myths of "Say on Pay" (everyone likes top ten lists). According to this article, the Ten Myths are as follows:

1. There is only one approach to "say on pay."
2. All . . .
   
   Michael S. Melbinger

I have blogged on this before, but I am blogging again because I know not everyone can read every blog post and some of these items are too important to miss. Given the holidays, if you cannot get items 1 through 5 done in the next week, I understand. However, we should talk about getting them done before you file your proxy statement for 2012/2013, perhaps in January or February 2013.

The following is a list of the key action items for Year End 2012:

After my blog on this topic two months ago, everyone seemed to tune in to the frightful and potentially disastrous developments in California state courts. (We previously discussed it on a webcast with our litigation partners who are handling some of these lawsuits.) As a reminder, these lawsuits ask the courts to issue an injunction against the upcomin . . .

Michael S. Melbinger

Executive compensation professionals should read the lead story on the front page of today's The Wall Street Journal, "Executives' Good Luck in Trading Own Stock." The authors claim to have examined SEC filings since 2004 and found that "of the 20,237 executives who traded their own company's stock during the week before their companies made news, 1,418 executives recorded average stock gains of 10% (or avoided 10% losses) within a week after their trades." The article goes . . .

Michael S. Melbinger

Last Friday, ISS released its Policy Updates for 2013. That morning, I blogged on ISS’ announced new approach to share pledging arrangements. Today, I will cover two other significant policy changes: Voting on Golden Parachutes and ISS potential consideration of Realizable Pay.

Realizable Pay. The Policy Updates announce that ISS may incorporate into its research report a comparison of realizable pay to grant date pay as part of the qualitative eva . . .

Michael S. Melbinger

This morning, ISS released its 2013 Policy Updates. This blog will describe the 2013 Updates in more detail next week, but today we will take partial credit for a small "victory for the good guys." Share pledging by officers and directors is certainly not the most important issue facing corporate America – and it is definitely not the most important issue covered in the 2013 Policy Updates. However, as . . .

Michael S. Melbinger

We held our annual webcast "Year-End Action Items for Executive Compensation" today. I saw many of your names on the sign-up list, but for those who missed it (or who just like short lists), the following is a list of the key action items:

1. Amend stock incentive plans to impose a meaningful annual limit on awards to non-employee directors – or adopt a separate plan for them.
2. Compensation Committees should apply the . . .
   
   Michael S. Melbinger

As always, and as I have been blogging on for a couple months now, there are a few key matters that executive compensation professionals and Compensation Committees need to address by year end in 2012. And, as always, Winston & Strawn is hosting a webcast on these items next week. In the future, executive compensation professionals may look back on 2012 as the year that litigation first became a major factor in our area of specialty. The Say on Pay Lawsuits filed last year . . .

Michael S. Melbinger

Readers will know that I have blogged on the desirability of the QSERP (or SERP-swap) strategy a few times previously. The market crash and the resulting increase in underfunded pension plans meant that this strategy may not have been viable for many companies for the last few years. However, a law passed this summer known as MAP-21 should revive the availability of the strategy, particularly in light of ISS's (and other investment advisors') continued dislike of SERPs.

As a . . .

Michael S. Melbinger

I don't always see eye-to-eye with the folks at GMI Ratings* because they sometimes delve into social and other issues rather than focusing on shareholders' interests in corporate performance and share price. However, their blog today has some interesting nuggets – especially for those of us who devote countless hours sweating over whether a particular payment or benefit could be deemed "excessive" and tryi . . .

Michael S. Melbinger

I have blogged a couple times already on ISS' release of its 2013 Draft Policies for Comment earlier this month. One of the proposed changes that many seem to have overlooked is under the section "Management Say-On-Pay Proposals (U.S.)," one of the "Key Changes Under Consideration" is:

3. Add pledging of shares as a factor that may lead to negative recommendations und . . .

Michael S. Melbinger

Imagine a lawsuit brought in the weeks leading up to your company's annual shareholders' meeting, which seeks to postpone that meeting based on inadequate proxy disclosures on executive compensation matters up for a shareholder vote. Now imagine that the lawsuit is successful – and you are forced to decide between (a) paying the class action lawyers hundreds of thousands of dollars of attorneys' fees and issuing enhanced disclosures or (b) fighting the matter through a p . . .

Michael S. Melbinger

Live! From Boca Raton at the Conference of Consulting Actuaries Annual Meeting! Last week I blogged on ISS' release of its draft policy positions for 2013. And the week before that I blogged on companies' increasing use of "realizable pay" figures in their proxy statements. Today I combine the threads.

ISS has proposed to add a "realizable pay" calculation as part of its qualitative analysis for large cap companies that it . . .

Michael S. Melbinger

In Kramer v. Trans-Lux Corp., No. 3:11-cv-01424-SRU, 2012 WL 4444820 (D. Conn. Sept. 25, 2012), Kramer sued his former employer for retaliatory discharge under the Sarbanes-Oxley and Dodd-Frank Acts, alleging that his repeated complaints to his supervisor, the CFO, and the board audit committee, followed by complaints to the SEC and PBGC about the actions of his fellow pension committee member and sole trustee of the pension plan, led to his termination of employment. And a fede . . .

Michael S. Melbinger

Live! From the NAREIT Conference in Tysons Corner, VA! I'm on the executive compensation panel here with Peter Kimball of ISS (and Cimi Silverberg of Fred Cook & Co.) at the National Association of Real Estate Investment Trusts. The big news is that ISS released its 2013 Draft Policies for Comment this morning. The attached chart highlights some of the significant c . . .

Michael S. Melbinger

I had skipped this important potential cost-saving issue to focus on SEC and other developments for proxy season. However, I have begun to see notes and articles on it in other sources, so I decided to address it for readers. (See, for example, "Sixth Circuit Affirms Quality Stores Decision on FICA Taxation of Severance Pay – Billions of Dollars in Refund Claims Are at Issue"). Last month, the Sixth Circuit Court o . . .

Michael S. Melbinger

At the Compensation Disclosure Conference yesterday, Meredith Cross, director of the SEC's Division of Corporation Finance, discussed Dodd-Frank rulemaking and other issues. Unfortunately, she had little to add on the timing of the issuance of future rules.

However, she made two other important points. First, she observed that corporations must make 402(s) disclosure regarding their compensation risk assessment every year and, without naming names, apparently some companies stil . . .

Michael S. Melbinger

Following up on my blog posts from last week, the NYSE has already issued an amendment to its listing standards covering the independence of compensation committees and compensation advisers to "correct an error" it made last week, as pointed out to me this morning by my associate Matt Wright.

The amendment accelerates the effectiveness of the requirements relating only to compensation committee oversight, which were or . . .

Michael S. Melbinger

As I noted yesterday, both the NYSE and Nasdaq have issued proposed rules on the independence of compensation committees and their advisers, as required by Dodd-Frank Act Section 952 and the SEC’s final rule from June 2012. As promised, this post will elaborate . . .

Michael S. Melbinger

In the last two days, both the NYSE and Nasdaq have issued proposed rules on the independence of compensation committees and their advisers, as required by Dodd-Frank Act Section 952 and the SEC’s final rule from June 2012. As we expected, the p . . .

Michael S. Melbinger

Two recent whistleblower bounties made news.

The SEC paid $50,000 to a whistleblower who helped it "stop a multi-million dollar fraud." This is the first payout from the SEC's new whistleblower program to reward people who provide evidence of securities fraud. The award represents 30% of the amount collected in an SEC enforcement action against the perpetrators of the scheme, the maximum percentage payout allowed by t . . .

Michael S. Melbinger

The IRS changed the rules and regulations under Code Sec. 409A in 2010 (IRS Notice 2010-80). This change may require a minor revision to employment, severance and change in control plans and agreements that require an employee to execute and deliver to the employer a release of claims before receiving payments. According to Notice 2010-80, employers and employees have until December 31, 2012 to make this change.

The reason IRS is requiring this change is its paranoia o . . .

Michael S. Melbinger

In a decision published on my birthday earlier this month, the Sixth Circuit Court of Appeals found the potential for a breach of ERISA fiduciary duty where a company's summary plan description (SPD), which ERISA requires all companies to distribute to participants in their qualified retirement and 401(k) plans, incorporated by reference certain SEC filings, which filings were alleged to be inaccurate. Thus, the plaintiff's lawyers were able to add ERISA fiduciary duty claims to a la . . .

Michael S. Melbinger

I want to give Executive Compensation Blog readers a heads up on some negative developments in litigation over stock incentive plans, which we think suggest an amendment to companies’ stock plans before year end to protect board members and executives. Other changes to directors’ compensation plans should be considered. I have written about this topic previously, but now that we are all back from vacation I wa . . .

Michael S. Melbinger

Mercer recently released a “Financial Services Executive Compensation Snapshot Survey” finding that in 2011, “14% of global banking organizations have ‘clawed back’ compensation payments made to employees while a further 3% of organizations have reclaimed the payments but have yet to receive the pay back.” The Survey looked at compensation structures in 63 global fin . . .

Michael S. Melbinger

Last week's blog suggested that companies review and update their compensation committee charters to reflect changes required by the Dodd-Frank Act and other best practices. Today I want to highlight the most frequently recurring problem we see in committee charters. This problem is also potentially the most dangerous, as it could cause committee members (and executives) to LOSE their hard-earned com . . .

Michael S. Melbinger

The level of specificity in drafting a Compensation Committee Charter can be the subject of debate (well, among those obsessed with compensation and governance like me, anyway). In drafting or updating a Compensation Committee Charter, we generally try to balance two potentially competing objectives. First, we like to list all of the Committee's duties and responsibilities. This is primarily to clarify the allocation of responsibilities among the board and its committees, but also serves as a . . .

Michael S. Melbinger

As this blog has been discussing, the past four years have seen an explosion in litigation against corporations, boards and officers over executive compensation matters, including claims over:

• Failed shareholder say on pay votes,
• Failure to qualify for 162(m) deductibility,
• Code Section 162(m) disclosures,
• Say on parachute pay disclosures,
• Stock plan approval, and 
• Clawbacks under SOX §304.

Today, I want to note two changes – one good, one not so good – that will begin to apply for the upcoming 2013 proxy season.

Glass Lewis Injects a Dose of Sanity into Relative Performance Peer Selection Process

Many (most?) companies and executive compensation professionals have complained in recent years about the seeming randomness of the peer selection process used by ISS and Glass Lewis. Well, this year, Glass Lewis decided to address this issue, which . . .

Michael S. Melbinger

I have been meeting with Compensation Committees this month to explain and discuss the SEC's new rules on Independence of Comp Committee members and their advisers. Also walking them through the required assessment of MY OWN INDEPENDENCE as legal counsel using the SEC's six independence factors. Every Compensation Committee should conduct this assessment of its legal counsel's independence before year end (although I wonder how many lawyers who advise Committees will neglect to ment . . .

Michael S. Melbinger

We have been closely following the recent explosion of litigation against executives and officers. Last month, in a closely-watched case not specifically related to executive compensation, well-respected Judge Lewis A. Kaplan of the Southern District of New York approved the settlement of the lawsuit against the officers and directors of Lehman Brothers. The case . . .

Michael S. Melbinger

Another day another compensation clawback story! Last Monday (July 2, 2012), the U.S. Department of Justice announced the largest health care fraud settlement in U.S. history, an agreement with GlaxoSmithKline to plead guilty and pay $3 billion to resolve fraud allegations and failure to report safety data. As part of the settlement, GSK executed a five-year, 123 page . . .

Michael S. Melbinger

In June, another significant development occurred with respect to executive compensation at financial institutions, which I previous noted in a very short blog. The Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation jointly issued proposed rules that would require all financial institutions to comply with the co . . .

Michael S. Melbinger

Before I continue with more on the SEC’s new rules on the independence of Compensation Committee members and advisers, I wanted to highlight a Revenue Ruling issued by IRS last week on Code Sec. 162(m), RSUs, dividends and dividend equivalents, brought to my attention by my associate John Arendshorst. In Rev. Rul. 2012-19, the IRS ruled on whether dividends and dividend equivalents related to restricted stock and RSUs can be treated as performance-based compensation for purposes of §16 . . .

Michael S. Melbinger

The SEC's new Final Rule on Compensation Committee Independence and Outside Advisers, which I have been blogging about for the last week, also add new reporting requirements applicable to compensation consultants, as required by Dodd-Frank Act Section 952(c)(2). 

The final rule adds a new subparagraph (iv) to Item 407(e)(3), which provides that "with regard to any compensation consultant identified in response to Item . . .

Michael S. Melbinger

Today I will follow-up on my previous blogs on the SEC's Final Rule on Compensation Committee Independence and Outside Advisers, issued last week, with four other observations on implications of the rule for legal counsel. The SEC rule provides that aCompensation Committee is required to conduct the independence assessment using the six independence factors set forth in Rule 10C-1(b)(4) with respect to any compensation con . . .

Michael S. Melbinger

As I discussed last week, on June 20th the SEC issued its Final Rule on Compensation Committee Independence under Dodd-Frank Act Section 952, which includes rules on the independence of advisers. The SEC’s final rules do not require a Compensation Committee to retain independent legal counsel. However, the SEC rule provides that a Compensatio . . .

Michael S. Melbinger

One of the most interesting points we mentioned in our webcast today on Clawbacks and Litigation Over Executive Compensation was a bit of strategic advice that is contrary to the overwhelming trend in stock plan design over the last 15 years. Specifically, the court decisions in recent lawsuits over executive compensation, particularly those involving Code Section 162(m), were more favorable to companies that maintained a separate incentive . . .

Michael S. Melbinger

Today, the SEC issued its Final Rule on Compensation Committee Independence under Dodd-Frank Act Section 952, which includes rules on the independence of advisers. Section 952 added Section 10C to the Securities Exchange Act of 1934, which requires the SEC to adopt rules directing the national securities exchanges and national securities associations to prohibit the listing of any equity security of an issuer that is not in complia . . .

Michael S. Melbinger

More companies seem to be expanding their compliance efforts related to their executive compensation disclosure in the area of potential risks created by compensation plans. Item 402(s) of Regulation S-K, issued by the U.S. Securities and Exchange Commission 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. Item . . .

Michael S. Melbinger

Today’s Blog has two purposes: (i) to add another case to the growing list of recent litigation over executive compensation, and (ii) to invite readers to an eLunch on the topic next week.

I. Shareholder Say on Pay – and the litigation resulting from “failed” SSOP votes - has garnered nearly all of the headlines since the Dodd-Frank Act was passed and became effective for proxy statements in 2011. However, readers will recall that Dodd-Frank Act Section 951, also added a “Sharehold . . .

Michael S. Melbinger

At the very end of last week, two significant events occurred which could have major repercussions for compensation professionals. First, the shareholders of Chesapeake Energy Corporation overwhelmingly rejected the company's shareholder say on pay resolution – by an 80% vote, one of the highest rejection rates to date. Perhaps more significantly, however, the shareholders also voiced their displeasure with compensation (among other) issues by voting against two sitting director . . .

Michael S. Melbinger

Ever since I blogged on the availability of insurance to protect executives from compensation clawbacks, reporters, seminar attendees and others ask me for more information on these policies. Until this week, there was no new information. Well, apparently Congress was listening too, because on Wednesday, Barney Frank introduced legislation that would prevent officers, directors and employees of financial f . . .

Michael S. Melbinger

Today, the Internal Revenue Service and Treasury Department issued new proposed regulations under Code Sec. 83 affecting taxpayers who receive property transferred in connection with the performance of services, subject to a substantial risk of forfeiture, such as restricted stock awards. Code Sec. 83(a) provides that if, in connection with the performance of services, property is transferred to any person, the excess of (1) the fair market value of the property (determined without regard to . . .

Michael S. Melbinger

Live! From Orlando! I am here speaking at the World at Work Conference on – what else – Compensation Clawbacks, with Irv Becker and Dan Moynihan from Hay Group. Lots of interest in this session since last week the possibility of compensation clawback seemed to become the BIGGEST STORY ON THE PLANET!

For reasons that my fellow lawyers will understand, I have avoided commenting on the current headlines. However, I have been speaking a lot all over the country on best prac . . .

Michael S. Melbinger

In Freedman v. Adams, a "shareholder" brought derivative claims against the board of directors of XTO Energy alleging breaches of fiduciary duty and waste due to the board's alleged failure to structure over $40 million of executive bonuses over a three-year period in a manner that would have made them deductible under Code Sec. 162(m). Apparently, the board get religion after the lawsuit was filed and approved a Section 162(m) plan for cash bonuses shortly thereafter. Howe . . .

Michael S. Melbinger

I have blogged on this issue previously, so I wanted to update readers on a two more lawsuits recently filed by the SEC under SOX Section 304 - both by the SEC’s Fort Worth, Texas office. In SEC v. Michael A. Baker and Michal T. Gluk, the SEC sued to recover the bonuses and stock profits earned by two former executives during a period that an accounting fraud was taking place at their company, despite the fact that the exec . . .

Michael S. Melbinger

An alert reader passed along some helpful information on my March 29, 2012, blog, "ISS Proxy Statement: Do as I Say, Not as I Do?," pointing out that a review of the annual proxy statement filed by the parent company of ISS (MSCI, Inc) revealed an assortment of pay practices that ISS routinely criticizes, including the combined role of CEO and chairman, discretionary annual bonus determinations, long-term . . .

Michael S. Melbinger

I want to highlight a very interesting post by fellow blogger Steve Seelig of Towers Watson found here or here. Courts all over the country are dismissing strike suit lawyers' lawsuits against companies – and their directors and officers – who failed to achieve . . .

Michael S. Melbinger

It took only four days after approximately 55% of voting stockholders voted against Citigroup’s Shareholder Say on Pay resolution last week for the strike suit lawyers to file a lawsuit against Citigroup's board of directors and certain current and former executive officers and directors. As with most of the other strike suits filed against companies that failed to achieve a majority vote in favor of their SSOP resolutions, the lawyers here ask the court to ignore the clear and explicit langu . . .

Michael S. Melbinger

As reported in the Pittsburgh Post-Gazette, the annual shareholders meeting for EQT Corp. in downtown Pittsburgh had to be adjourned for more than an hour Wednesday morning after protesters began shouting questions at the CEO about Fracking, executive compensation, and Obama's proposed tax on "millionaires."

Anti-drilling activists had gathered outside the Downt . . .

Michael S. Melbinger

Another front-page headline on an article in The Wall Street Journal yesterday. The article "For Feds, ‘Lying’ Is a Handy Charge," illustrates the alarming increase in cases of prosecutorial abuse against executives. These are not clawback cases - yet. However, they show why executives are rightfully concerned about the existence of unchecked clawback power in the hands of the board of directors or anyone else.

I have blogged on this issue a few times before with Hard Choices . . .

Michael S. Melbinger

A recent Client Alert from friends at Cooley LLP contained a very useful reminder that I wish I would have written myself and want to pass on to readers:

As you finalize your Form 10-K and annual report and possibly make annual refresh grants, now is a good time to review the S-8 and the related prospectuses for your stock plans and ESPP. Determine whether you have a sufficient number of shares r . . .

Michael S. Melbinger

Yesterday afternoon, President Obama signed the Jumpstart Our Business Startups Act (H.R. 3606), known as the JOBS Act. Among the JOBS Acts provisions is a new exception to the proxy statement disclosure requirements for “emerging growth companies,” including the:

• Shareholder Say on Pay,
• Shareholder Say on Parachute Pay, and
• Disclosure of Pay Versus Performance requirements
  

The JOBS Act amends the 1933 Act and the 1934 Act to add the followi . . .

Michael S. Melbinger

FATCA, the Foreign Account Tax Compliance Act, may impose significant penalties on U.S. taxpayers holding "foreign financial assets" with an aggregate value exceeding $50,000 who fail to file a Form 8938 with the IRS by April 17, 2012. FATCA's reach is broader than you might think, as "foreign financial assets" include:

• Foreign equity awards, and/or
• An interest under a foreign pension or deferred compensation plan.

An affected indivi . . .

Michael S. Melbinger

By now, I suppose that nearly everyone has read about the Jumpstart Our Business Startups Act (H.R. 3606), known as the JOBS Act, which Congress sent to President Obama for signature (President Obama has said he will sign it Thursday). I write on it because if effects an issue I previously have blogged several times – the danger of a private company inadvertently becoming subject to the registration requirements of the 1934 Act (that is, becoming a public company) because its employee st . . .

Michael S. Melbinger

In a message entitled "Their Own Proxy Sheds Light on a 'Do as I Say, Not as I Do' Approach," Ross Zimmerman of Exequity LLP commented on the recently filed proxy for ISS:

The parent company of ISS (MSCI, Inc) filed its annual proxy statement yesterday, and it contains an assortment of pay practices that ISS routinely pillories. Among the executive pay practices that are excoriated by ISS, but that are embraced by ISS's parent, are: . . .

Michael S. Melbinger

No sooner had I left the country on vacation then the IRS seemed to renew its enforcement initiative against certain executive compensation provisions, most notably, Code Sec. 162(m) (for more information, see here and here). The IRS continues to perceive a lack of compliance by . . .

Michael S. Melbinger

An article, "How to Fix Executive Compensation," in last week's The Wall Street Journal (section R), caught my eye as another entry into the short but growing list proponents of the view that executives – especially those at financial institutions – should be paid partly in debt ("Don't Ignore Debt"). During my testimony before the Senate Banking Committee on executive compensation last month, . . .

Michael S. Melbinger

The early leader for this year’s “Shocking Development of the Year Award” has to be last week’s Public Company Accounting Oversight Board proposed amendments to auditing standards for identifying and assessing excessive risk in executive compensation programs (PCAOB Release No. 2012-001). If this proposal becomes a reality then it might be possible that an auditor could tell a company that its com . . .

Michael S. Melbinger

As noted in last month’s edition of The Corporate Counsel, the filing deadline for foreign private issuers that file annual reports on Form 20-F has been reduced to four months after the end of the issuer's fiscal year, effective in 2012. The deadline was previously from six months after the end of the issuer's fiscal year. This new four-month deadline is effective for reports filed with respect to fiscal years ending on or after December 15, 2011.

On Mar . . .

Michael S. Melbinger

Two articles in The Wall Street Journal in the last two weeks with essentially the same headline: "'Say on Pay' Changes Ways," February 21, 2012 (See also, "Pressure Reshapes Corporate Pay Policies" March 2, 2012, B3) show that everyone seems to have recognized the significance of the [relatively] new Dodd-Frank Act Shareholder Say on Pay provisions. Additionally, yesterday, . . .

Michael S. Melbinger

I previously blogged on the inclusion of a Shareholder Say on Director Pay proposal in the Apple, Inc. proxy statement. Well, Apple held its 2012 Annual Meeting of Shareholders last week, and reported the voting results from the meeting's agenda earlier this week.

The Shareholder Say on Director . . .

Michael S. Melbinger

Under the SEC’s executive compensation disclosure rules, a public company must disclose whether or not it has adopted a compensation committee charter, and generally must make available the charter, and any amendments to it, on the company’s website. The company also must make available a printed copy of the charter to any stockholder who requests it. The NYSE requires its listed companies to adopt a written compensation committee charter that includes provisions specified by the NYSE listing . . .

Michael S. Melbinger

Participating in your company’s non-qualified deferred compensation plan can be an excellent way to defer taxes and save for retirement, among other benefits. However, employees and executives need to recognize a few of the key differences between the company’s non-qualified deferred compensation plan and its tax-qualified retirement plan. Additionally, employees and executives considering participation in the plan should review the plan document, other documents, all communications relating . . .

Michael S. Melbinger

Today, I testified before the Senate Banking Committee, Subcommittee on Financial Institutions and Consumer Protection, on executive compensation at financial institutions. The topic of the hearing was "Pay for Performance: Incentive Compensation at Large Financial Institutions." My oral testimony attempted to highlight three key points on the topic.

The first and most important point that I made was that . . .

Michael S. Melbinger

As highlighted in Broc’s Blog this morning, yesterday the SEC Division of Corporation Finance published a new “Compliance and Disclosure Interpretation” (CDI) regarding the proper wording of Say on Pay proposals on the proxy card, which reads as set forth below. Please note this change.

Question 169.07

. . .

Michael S. Melbinger

I know that many of us are in the middle of intense proxy drafting, but we are also in award season, so I wanted to highlight a recurring issue. Already in 2012, at least two federal court cases have considered issues of unexercised options that expired. I have blogged and spoken on (See: "NASPP - 25 Stock Plan Drafting Tips") this issue before, but it never goes away.

In Rawat v. Navistar International (N.D. Ill., No. 1:08-cv-04305, 1/4/12) the court held that . . .

Michael S. Melbinger

Since performance-based equity awards have become extremely popular, and now is the time for setting performance goals and making awards, I wanted to follow up on an issue that arose just after the beginning of the new year and may have been overlooked by some. In a . . .

Michael S. Melbinger

Today I led a webcast as part of the Knowledge Congress Webcast Series. The presentation, "Understanding Ethics for the Employee Benefits and Executive Compensation Attorney," addressed:

• Handling the inherent conflict of interest for employee benefits and executive compensation counsel
• Independent legal counsel provisions of the Dodd-Frank Act
• The fiduciary exception to attorney-client privilege
• . . .
  
  Michael S. Melbinger

We will be hosting another one of our eLunches next week on the current proxy season, again covering executive compensation developments and strategy, as well as other corporate governance issues (e.g., proxy access, disclosure of political contributions, fracking, etc.).

If you would like to register for the eLunch, please click . . .

Michael S. Melbinger

Last week, the U.S. District Court for the Southern District of California granted defendants' motion to dismiss another one of the shareholder say on pay lawsuits (Dennis v. Hart, S.D. Cal., Case No. 11cv2271 WQH (WVG), 1/6/12). The plaintiff had sued Pico Holding, Inc. ("PICO") and eight members of its board of directors, alleging that PICO maint . . .

Michael S. Melbinger

According to the CorpGov.net, author James McRitchie's Shareholder Say on Director Pay proposal will be on the Apple, Inc. proxy statement (please note that I could not find this on the Apple website or EDGAR, so maybe this is a gag). Is this the next step in investor micromanagement?

6 – Shareholder Say on Director Pay

Resolved: Shareholders request that our Board of Directors adopt a . . .

Michael S. Melbinger

First, I did not see an announcement, but the SEC updated the Dodd-Frank Implementation section of its website to delay the "planned" issuance date for the remaining rules required by the executive compensation provisions of the Act, which now appear as follows:

January - June 2012 (planned)

§951: Adopt rules . . .

Michael S. Melbinger

This will be my last blog for 2011, and what better way to finish off this year of continuing political mischief with a push into the area of compensation clawbacks? Last week the New York City Comptroller John C. Liu and certain union pension funds issued a press release announcing that they had filed shareholder proposals at three of the largest financial institu . . .

Michael S. Melbinger

In celebration of the holidays, the Winston & Strawn Foundation has made a donation in honor of our clients to Doctors Without Borders/Medecins Sans Frontières.

For more information on the important work done by this organization, click the following link:  Doctors Without Borders/Medecins Sans Frontières

On December 20, 1915, the last ANZAC troops completed their withdrawal from the Gallipoli campaign (I visited th . . .

Michael S. Melbinger

Tax planning opportunities – and traps – exist for foreign executives transferred to work in the U.S., especially those foreign executives who do not become citizens or green card holders (whether or not the company is headquartered or incorporated in the U.S.). Significant tax planning opportunities – and traps – also exist for these foreign executives upon their departure from the U.S. Under U.S. income tax rules, taxpayers are generally subject to U.S. income tax on . . .

Michael S. Melbinger

Some folks (like Corporate Counsel editor Jesse Brill) have been talking about compensation equity for years. For most folks, however, new Dodd-Frank Act Section 953(b), blandly titled "Executive Compensation Disclosures," pushed this issue into the limelight. 

Section 953(b), which is still not effective – pending proposed and final rules from the SEC, requires the SEC to amend the proxy statement disclosure rules to require each public company to disclose the rat . . .

Michael S. Melbinger

Readers will recall that in September, I Blogged on an unexpected and disturbing development in one of the Shareholder Say on Pay lawsuits. Despite my confident predictions in several previous Blogs that these lawsuits would go nowhere, a federal district judge in Cincinnati rejected Cincinnati Bell's motion to dismiss and allowed the lawsuit filed by a union pension fund over the company's executive compensation and failed SSOP vote to proceed. 

The new twist is good new . . .

Michael S. Melbinger

Wednesday, Winston partners Chris Edwards, Oscar David and I hosted Pat McGurn, the Executive Director of ISS, in an eLunch webinar titled "Understanding ISS Policies for the 2012 Proxy Season." This was the third in our series on "Strategies for the 2012 Proxy Season," designed to assist clients and friends in navigating the changing governance landscape for the 2012 Proxy Season.
< . . .

Michael S. Melbinger

There have been two interesting developments in the area of compensation clawbacks in the last month:

First, the SEC announced that the former Chairman and CEO of CSK Auto Corporation has agreed to return $2.8 million in bonus compensation and stock profits that he received while the company was committing accounting fraud to O’Reilly Automotive, which has since acquired CSK Auto. The SEC never alleged that CSK former CEO . . .

Michael S. Melbinger

In case you did not receive an invitation to the November 30 eLunch directly, consider joining this very timely eLunch featuring Pat McGurn of ISS. We will discuss many of the ISS voting positions, not just those relating to executive compensation.

This practical eLunch briefing is the third in Winston & Strawn's three–part series designed to help Corporate Counsel, Investor Relations, and other company advisors navigate the ch . . .

Michael S. Melbinger

I wanted to point out to readers a company that recently incorporated its stock ownership guidelines into its stock incentive plan document, which I had not seen previously. The amended Motricity, Inc. 2010 Long Term Incentive Plan, approved by stockholders on October 28, 2011, contains the following paragraph:

(p)       Executive Ownership Representation. Executives participating in the Plan must (i) . . .

Michael S. Melbinger

As I blogged yesterday, ISS has published its Proxy Voting Policy Updates for 2012. Yesterday's blog addressed three key executive compensation topics from the 2012 Policy Updates, and today's blog will address three other critical executive compensation topics

4.  The 2012 Policy Updates do not add any new payment . . .

Michael S. Melbinger

ISS published its Proxy Voting Policy Updates for 2012 today. The final version does not appear to be dramatically different from the proposed version released in October. Today, I will blog on three key issues relating to executive compensation – and save two others (including the controversial peer group selection issue) for tomorrow:

1. Under extraordinary circumstances, ISS will recommend a vote AGAINST or WITHHOLD from individual d . . .
   
   Michael S. Melbinger

Institutional Shareholder Services is scheduled to issue its 2012 Proxy Voting Policies this week. We have scheduled an interactive webcast for November 30, featuring Patrick McGurn, Executive Director of ISS, and Winston & Strawn partners Oscar David, Chris Edwards and myself to analyze and discuss the new policies and practices.

This practical eLunch briefing is the third . . .

Michael S. Melbinger

In its 10-Q filing last week, Nabors Industries Ltd. Announced that: "On September 21, 2011, we received an informal inquiry from the SEC related to perquisites and personal benefits received by the officers and directors of Nabors, including their use of non-comme . . .

Michael S. Melbinger

Readers will know that I have blogged on the proper timing of employers' deduction of annual bonus payments several times over the last eight years. Code Sec. 461 generally allows an employer to deduct in its Year 1 tax year bonuses that it pays to employees within the first 2 ½ months of Year 2 (for example, for a calendar-year employer, payment by March 15, 2012, for a deduction in 2011) and the employees are not taxed until Year 2. However, that grace period only applies if "all events" fi . . .

Michael S. Melbinger

As promised, today I have more information from our Compensation Clawbacks presentation at NASPP's 19th Annual Conference last week. Readers know that I previously have discussed issues and problems related to compensation clawbacks. In our presentation last week, co-panelist Rosina Barker explained how a clawback could create difficult tax problems for the affected executive, which quickly become intractable tax problems (and liability ris . . .

Michael S. Melbinger

For some reason I have seen a series of issues recently involving foreign executives transferring to the United States to work on a temporary (or at least a non-permanent basis). In our global economy, multi-national corporations frequently transfer citizens and residents of foreign countries to the U.S. to work. 

After a little research and a lot of in-person, practical advice, I have come to recognize that some very significant tax and estate planning opportunitie . . .

Michael S. Melbinger

On Wednesday of this week, my colleagues and I held a webinar "Shareholder Engagement Strategies for the 2012 Proxy Season." The purpose of this eLunch was to assist participants in navigating the changing governance landscape for the 2012 Proxy Season – with a specific focus on shareholder engagement issues, and the latest tripwires for publicly-traded companies, including financial institutions.

If you were unable to attend the . . .

Michael S. Melbinger

Yesterday my colleagues led the webinar Shareholder Engagement Strategies for the 2012 Proxy Season. The purpose of this eLunch was to assist participants in navigating the changing governance landscape for the 2012 Proxy Season – with a specific focus on shareholder engagement issues, and the latest tripwires for publicly-traded companies, including financial institutions.

If you were unable to attend the October 19 session or hav . . .

Michael S. Melbinger

Clients and readers know that one of the key parts of our strategy for companies and compensation committees to maximize the likelihood of receiving a majority vote "For" their SSOP resolution is a careful comparison of the company's/committee's compensation programs and policies with the guidelines and policies of ISS, Glass Lewis, Fidelity and other shareholders and shareholder advisers – and with known best practices. (It is probably best to compile a long list, as we have an . . .

Michael S. Melbinger

At first, I was not going to blog on the initial draft of ISS' proxy voting policies for 2012. This is only step one of a three step process toward releasing the final policies at the end of November (when we will have a webinar on the subject). However, I know that many of you have (appropriately) already started 2012 proxy preparation, so I thought I would highlight three key p . . .

Michael S. Melbinger

Last week, the Board of Governors of the Federal Reserve System published a white paper, titled "Incentive Compensation Practices: A Report on the Horizontal Review of Practices at Large Banking Organizations." Often, government reports like this are not useful because they are theoretical and not legally binding in any way. In fact, some press reports have focused o . . .

Michael S. Melbinger

A follow-up to yesterday's blog. A reader wrote:  "I thought SSOP was an opportunity to vote on executive compensation – not the financial and stock price performance of the company. Do you think shareholders could use SSOP to express dissatisfaction with performance, independent of executive compensation matters?"*

My answer was: SSOP is not supposed to be about dissatisfaction with the company's stock performance, but when you have poor performanc . . .

Michael S. Melbinger

At first I tried to ignore them – like a bad dream. However, now I have seen several articles and blogs suggesting that the few dozen no votes last year were just an opening salvo and this year investors are really gearing up to make their views known to executives, so I thought I had to report it. The latest story is "More Shareholders Planning to Vote No on Pay in 2012. . . .

Michael S. Melbinger

Just a short blog today to highlight a single small point I recently saw referenced in a Veritas executive compensation newsletter. For stock options, the wild volatility of the past 3 years may mean a higher FAS/ASC compensation expense than in previous years, thus decreasing their attractiveness to the company.

Compensation Committees frequently ask me about the differences among, and advantages and disadvantages of stock options vs. restricted stock vs. RSUs (and sometimes . . .

Michael S. Melbinger

In all the "excitement" over the recent epidemic of lawsuits over say on pay, I want to be sure that companies and their advisers do not overlook another type of shareholder derivative lawsuit being filed based on executive compensation and company performance. Like the Shareholder Say on Pay suits, the merits of these suits are highly questionable. However, fighting them can cost firms significant time and money, to say nothing of the embarrassment and bad publicity stemming from a firm . . .

Michael S. Melbinger

I have blogged on this matter before, but another recent case out of the influential federal district court for the Southern District of New York reinforces and confirms my suggestion from that prior blog entry. In Quigley v. Citigroup Supplemental Plan, 51 EBC 1065 (S.D.N.Y. 2011), the court held that 47 former employees must exhaust their administrative remedies befo . . .

Michael S. Melbinger

Today, ISS released the results of its 2011-12 Policy Survey. Every year, ISS seeks input from both its institutional investor clients and the corporate issuer community, "in order to get a better understanding of the breadth of financial market views on a range of topics including boards of directors, shareholder rights, and executive compensation/remuneration." Issuers and investors complete the same survey . . .

Michael S. Melbinger

I am out of town today, but I had to blog on an unexpected (to me anyway) development in one of the Shareholder Say on Pay lawsuits. On Tuesday, a federal district judge in Cincinnati rejected Cincinnati Bell's motion to dismiss and allowed the lawsuit filed by a union pension fund over the company's executive compensation and failed SSOP vote to proceed. Two good summaries can be found . . .

Michael S. Melbinger

Clearly Dodd-Frank Act Sec. 952(b) does not require a Compensation Committee to retain separate legal counsel. Yesterday's blog began with a discussion of whether a Compensation Committee should retain separate, independent legal counsel as a best practice, and concluded: Generally, no. Yesterday's blog also promised to discuss some special circumstances where using independe . . .

Michael S. Melbinger

Section 952(b) of the Dodd-Frank Act, "Independence of Compensation Consultants and Other Compensation Committee Advisers," added a new Section 10C to the Securities and Exchange Act of 1934, which provides that:

• The compensation committee may only select a compensation consultant or legal counsel after taking into consideration factors identified by the SEC; and
• The company must provide for appropriate funding, as determined by the compensation committee, for payment . . .
  
  Michael S. Melbinger

I will get back to Dodd-Frank the rest of this week, but first I wanted report my siting of another blog post on the benefits of QSERPs (recall that I discussed this topic last month in "The GAO Looks at QSERPs (You Should Too)."

Below, I quote at length from John Lowell's blog: "A New Look at an Old Friend."

In response (apparently) to my blogs this week arguing that preparing for SSOP in 2012 is just as critical as it was it 2011, a dear client of mine wrote in to say, essentially: “A pox on you, Melbinger. We don’t even have a Say on Pay vote in 2012 because you helped us achieve a shareholder vote in favor of biennial [SSOP].” To which I replied with an old Johnny Carson line: “Wrong again buzzard breath.”

You may think that the heat is off for 2012, but that it is no . . .

Michael S. Melbinger

As promised, today I give five more reasons (in addition to avoiding a lawsuit, which I discussed on Monday) why preparing for SSOP is just as critical in 2012 as it was it 2011 and, despite the fact that the vast majority of companies received a significant majority vote “For” their Shareholder Say on Pay (SSOP) resolutions in 2011, we need to again focus on SSOP for the 2012 proxy season.

1.  The . . .

Michael S. Melbinger

We interrupt our regular blogging for this message. As many readers know, I am an inveterate networker, including for compensation (and other) professionals interested in a new position. (Be warned, however, that my fee for this assistance can be as high as a dry martini and/or a good book recommendation!) In this regard, I recently came across this interesting article . . .

Michael S. Melbinger

The biggest story in executive compensation over the last 12-months was the promulgation and implementation of the new rules on Shareholder Say on Pay (SSOP), including Frequency of SSOP. Despite the fact that the vast majority of companies receive a significant majority vote "For" their SSOP resolutions in 2011, in Fall and Winter 2011 we need to again focus on SSOP for the 2012 proxy season.

First the good news: As of September 12, only 38 companies – maybe 41, dependi . . .

Michael S. Melbinger

I am re-running this Blog for all of those readers who weren’t tuned in during August but now are back to the grindstone. We all wish that summer would last forever, but September means beginning more serious preparation for the 2012 proxy season. Dodd-Frank is still one of the main topics for Compensation Committees this season – both in terms of (1) still pending requirements and (2) lessons learned from last season (e.g., losing the Shareholder Say on . . .

Michael S. Melbinger

Restricted stock awards and RSUs continue to grow in popularity.  To both achieve deductibility under Code Section 162(m) and avoid the stigma of “pay for pulse,” many companies cause these awards to vest based on performance criteria.  I recently spotted an interesting article by a couple of PhD.s  http://www.grgeta.com/edi/GT_SFEA2011.pdf on a methodology they call:  “self-funded equity awards” (SFEA).  SFEA is . . .

Michael S. Melbinger

We all wish that summer would last forever, but September means football kickoffs and beginning more serious preparation for 2012 proxy season. Dodd-Frank is still one of the main topics for Compensation Committees this season, both in terms of (1) still pending requirements and (2) lessons learned from last season (e.g., losing the Shareholder Say on Pay vote is not just unfortunate or embarrassing; it also may trigger a lawsuit against the company and its board members).& . . .

Michael S. Melbinger

In an interesting response to the FDIC rules I blogged on two weeks ago ("FDIC Finalizes Rules for the Recoupment of Compensation from Executives of Failed Financial Institutions"), I read last week that a major insurance broker plans to begin offering "policies that would cover financial firms against both their legal costs in the event that they underwent investigation by the FDIC and any compensation tha . . .

Michael S. Melbinger

Last week, I blogged "The GAO Looks at QSERPs (You Should Too)." Several readers asked to be reminded about just exactly what is a "QSERP." Good question. Sorry I wasn't clearer in last week's blog.

A QSERP is one of the names given to a perfectly legal strategy of shifting accrued or future benefits from a non-qualified retirement plan – where contributions are not immediately deductible, cannot accumu . . .

Michael S. Melbinger

On Friday, the SEC modified its schedule for adopting rules relating to the Dodd-Frank Act, including the key provisions applicable to executive compensation, as follows:

August - December 2011 (planned)
§951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation

§952: Adopt exchange listing standards regarding compens . . .

Michael S. Melbinger

Back in May, the Government Accountability Office issued a report entitled: Private Pensions: Little Information Available on Qualified Supplemental Executive Retirement Plans. As a practical matter, companies used QSERPs (which we will use, like the report, as a generic term to describe a variety of similar plan design and funding strategies) more frequently before the economic downturn, when they had surplus funds available in . . .

Michael S. Melbinger

Today is the one-year anniversary of President Obama's signature of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Obviously, things are much better now than they were in 2010 before Dodd-Frank.*  

You probably have it in the back of your mind that several provisions of Dodd-Frank automatically become effective on the July 21, 2011 one-year anniversary. This is true. However, fortunately, none of the executive compensation pr . . .

Michael S. Melbinger

I previously blogged on the FDIC's proposed rules on March 16, 2011, so I wanted to follow-up on the final rules, which the FDIC published in Federal Register, Friday, July 15, 2011.

Section 210(s)(3) of the Dodd-Frank Act directed the FDIC to promulgate regulations with respect to recoupment of compensa . . .

Michael S. Melbinger

Earlier this month, the U.S. District Court for the District of Delaware allowed a shareholder derivative ("strike") lawsuit to continue against the officers and directors of Qualcomm, alleging that they issued a false or misleading proxy statement regarding the 162(m) tax-deductible status of executives' compensation (Hoch v. Alexander). I have not seen a lawsuit like this in the last several years (see " . . .

Michael S. Melbinger

At the end of May, the SEC voted 3-2 to adopt Final Rules on the Dodd-Frank Whistleblower Bounties. The final rules made modest changes in response to some business community concerns, but expressly declined to require whistleblowers to report violations or concerns under the company's internal policies first in order to be eligible to receive a bounty, which was the primary concern of the business community.*

So, why is this relevant to the Executive Compens . . .

Michael S. Melbinger

On Thursday, June 23, 2011, the IRS/Treasury Department issued new proposed regulations on the performance-based compensation exception for certain stock awards under Code Sec. 162(m). The proposed regulations would not make any dramatic changes. However, they do emphasize a few subtle drafting and disclosure points.

The proposed regulations reaffirm the requirement of the current regulations §1.162-27(e)(2)(vi), which states that the plan under which the option or right is . . .

Michael S. Melbinger

On Wednesday, June 22, the House Financial Services Committee voted to recommend H.R. 1062, the "Burdensome Data Collection Relief Act," a bill that would eliminate the requirement in Dodd-Frank Act Section 953, that public companies calculate and disclose the ratio of the median of the annual total compensation of all employees of the company, except the CEO (including employees outside the US) to the annual total compensation of the company's CEO. Everyone recognized that this is a . . .

Michael S. Melbinger

A few readers of yesterday's Blog asked for clarification of our statement: "We are tracking informal SEC guidance indicating that the Frequency decision might be able to be disclosed in a 10-Q, in lieu of an 8-K/A." Specifically, these inquiring minds want to know: "Is the disclosure in a 10-Q as an alternative to an 8-K/A – or not? [Don't leave us hanging.]" Sorry about that folks. Here is what we know so far, according to my partner . . .

Michael S. Melbinger

We want to remind readers of the obligation to disclose in an 8-K/A the company's decision regarding how frequently it will offer the advisory Say on Pay vote, unless the company has already disclosed that decision in the initial 8-K filed after the annual meeting. 

Even if the voting results were consistent with the board's recommendation, there is still an obligation to report the company's decision regarding that frequency. The technical language of the rule requires an . . .

Michael S. Melbinger

Winston & Strawn will be hosting an interactive teleconference briefing today, June 20, to address the class action litigation implications from the Wal-Mart Stores, Inc. v. Dukes case decision. The call will be held at 3:00 pm (CDT) and will feature appellate partner . . .

Michael S. Melbinger

Yesterday, Erik Lundgren and I did a webcast on "2011 Proxy Season Recap – Lessons Learned and Forecast for 2012." I thought it might be useful to post excerpts from the presentation for readers who were unable to listen. The following is a rough list of some of the "lessons learned:"

1.     A little extra effort paid off for companies in improving their Shareholder Say on Pay ("SSOP") voting totals . . .

Michael S. Melbinger

And now, a plug for Bruce Brumberg, a good friend of many of us in the executive compensation field, and one of his web sites. To help financial professionals, stock plan participants, and investors stay out of trouble with the SEC and criminal prosecutors, myStockOptions.com has developed a new course, exam, and podcast on SEC law. These materials are based on the extensive articles and FAQs in the SEC Law section of www.myStockOptions.com. . . .

Michael S. Melbinger

The Employee Benefits & Executive Compensation Group of Winston & Strawn will be hosting a webinar on June 16th at 12:15 pm (Central) that will address, "2011 Proxy Season Recap – Lessons Learned and Forecast for 2012." Together with my Winston & Strawn colleague Erik Lundgren, we will provide a practical and interactive presentation that will highlight trends from the recent proxy season and tips in dealing with the pendi . . .

Michael S. Melbinger

I previously blogged on the unfortunate development of strike lawsuits being filed against firms that failed to earn a majority vote in favor of their Shareholder Say on Pay Resolutions ("Lawsuits Following Failed Say on Pay"). At the end of a relatively quiet month of May, a fifth lawsuit was filed in Portland, Oregon, against Umpqua Holdings Corporation and its board members, by those long-time friends o . . .

Michael S. Melbinger

All proxies have been filed and we are well into the annual meeting stage of the first year of shareholder say on pay (SSOP). As you might expect, I have attended the annual meeting of several clients this month. Those of you who attend many of these meeting know that, despite the similarities (mostly legal requirements), each company's approach is slightly different. So far all of ours have received a majority vote in favor of their SSOP resolutions, and all but one has received a . . .

Michael S. Melbinger

On Monday, May 16, the U.S. Supreme Court released its decision in CIGNA Corporation v. Amara, holding that a summary plan description (SPD) does not constitute the enforceable "terms" of an ERISA plan, and that employees must show that a pension plan change caused "actual harm," rather than "likely harm," in order to recover under ERISA. This is not technically an executive compensation matter, but I know that many readers also work in the ERISA plan area (and it is . . .

Michael S. Melbinger

I encourage readers to take a look at the suggestion and examples in this article, "Communicating executive pay information on the web," by Dominic Jones, on the IR Web Report. The author suggests that companies add an "Executive Compensation" link to the "Corporate Governance" page on their websites. However, what drives home the author's point are his examples. You should take a l . . .

Michael S. Melbinger

In recent years, the percentage of personal income going toward state taxes has grown dramatically. For example, Illinois raised the individual income tax rate by 66% this year!  Federal income tax rates have actually remained relatively constant. Because of their thirst for revenue, however, states also have been growing increasingly aggressive toward grabbing a share of an executive's compensation when he or she changes jobs and/or moves from one state to another. Af . . .

Michael S. Melbinger

Front-page headline on an article in The Wall Street Journal last week: "U.S. Effort to Remove Drug CEO Jolts Firms." Well, the article jolted me too – and it could jolt many more of us in the future. The article begins: "A government attempt to oust a long-time drug company chief executive over his company's marketing violations is raising alarms in that industry and beyond about a potential expansion of federal involvement in the business world." Apparently, the . . .

Michael S. Melbinger

I have had several requests for follow up on last Wednesday's blog "Say on Pay - Now Come the Lawsuits." Essentially, they ask: "How in God's name could that be the basis for a lawsuit? I didn't say they were meritorious lawsuits; they are not. They are strike suits, designed to earn a settlement and legal fees for the lawyers. However, clearly the stakes of this game have been raised.

Below are t . . .

Michael S. Melbinger

Most companies have already filed their proxy statements – or at least sent them to the printer – so most of us are in a waiting game now. However, as reported in fellow blogger Mark Borges’ Blog, as of Friday evening, April 22:

1.  Two more companies received a majority “Against” vote on their SSOP resolutions: Umpqua Holdings Corporation (65% to 35%) and Stanley Black & Decker, Inc. . . .

Michael S. Melbinger

"Live" from our Houston Office -- An unfortunate development in the new world of Shareholder Say on Pay, which I hope does not become a trend, is the filing of a shareholder derivative strike lawsuits against members of the Board, the Compensation Committee, and even the compensation consultants of the companies that receive a majority "Against" vote on their Say on Pay resolution (that is, they lose the vote).   

Jacobs Engineering lost its Say on Pay vote on January 28 . . .

Michael S. Melbinger

As promised on Wednesday, today I will talk about a March 2011 decision from the Eleventh Circuit Court of Appeals, which upheld the forum selection clause in an employment agreement against the [former] employee's attempt to sue in her state of residence. In Slater v. ESG International, Inc. (No. 09-13794, March 8, 2011), a former employee appealed the federal district court's dismissal of her Civil Rights Act and Whistleblower Act claims for improper venue based on a forum-sel . . .

Michael S. Melbinger

For years, we have been recommending that clients include a forum selection clause in their employment and other agreements as part of our habit of drafting agreement to provide the maximum possible protection against aggrieved or miscreant employees. We also have made numerous presentations - often to NASPP - on topics such as "Best Practices in the Design and Drafting of Employment Agreements" and "(More Than) 25 Ways to Improve Stock Plan Documents" [currently up to 50!].

In so . . .

Michael S. Melbinger

This blog entry relates to an article featured on the front page of the WSJ yesterday, subtitled "Regulators Move Toward Relaxing Limits on Shareholders in Private Companies." Apparently, the SEC is considering revisions to the rules regarding the exemption of compensatory employee stock options from registration under Section 12(g) of the 1934 Act, which requires every issuer meeting the jurisdictional requirements of the 1934 Act and having total assets of more than $ . . .

Michael S. Melbinger

Last week (I think), Fidelity Investments published its Proxy Voting Guidelines for 2011, on which Ed Hauder also blogged in the Advisor’s Blog. These would have been useful to Compensation Committees working through governance issues and counsel drafting incentive stock plans had they been issued in December 2010 or even January 2011. Instead, most companies have already filed their pro . . .

Michael S. Melbinger

Most companies have already filed their proxy statements – or at least sent them to the printer – so we are all in a waiting game now. However, as reported in Mark Borges' Blog, as of Friday evening, April 1st, the breakdown of company recommendations for the "Say on Pay" frequency vote in definitive and preliminary proxy statements that had been filed for the 2011 proxy season was as follows:

< . . .

Michael S. Melbinger

As I blogged last week, the SEC has proposed a new rule and rule amendments to implement Section 952 of the Dodd-Frank Act, the independence of Compensation Committees advisers. These are critical issues to nearly all readers. However, the Proposed Rule provides very little guidance or elaboration on the statutory terms. Instead, as I noted last week, the Proposed Rule mainly repeats the provisions set forth in Sections 10C(c), (d) and (e) (added by Dodd-Frank Act Section 952) regard . . .

Michael S. Melbinger

Today, April 1, Fred Whittlesey of the Hay Group brought to my attention a landmark academic study that provides convincing evidence of the true factors that create sustainable shareholder value and a culture of good corporate governance, and draws into question a generation of research pointing the finger at executive pay practices. Due to the proprietary nature of the findings and the extreme value that this information will hold for all public companies once the academics fully commer . . .

Michael S. Melbinger

At an open meeting this morning, the SEC approved, by a unanimous vote [in contrast to the series of 3-2 votes over other Dodd-Frank implementing rules], proposed a new rule and rule amendments to implement Section 952 of the Dodd-Frank Act, which requires the SEC to:

• Direct the national securities exchanges and associations to adopt listing standards with respect to compensation committees and compensation advisers, and
• Adopt new disclosure rules concerning the use o . . .
  
  Michael S. Melbinger

Most companies have sent their proxy statements to the printer, and we expect the SEC to publish the next round of Dodd-Frank rules on Wednesday, so I thought I would talk about another topic today. Everyone knows that stock options, restricted stock and other forms of equity compensation are not subject to the many and various provisions of the Employee Retirement Income Security Act of 1974 (ERISA*), right? Wrong. Some creative plaintiffs' lawyers seem to have convinced a federal . . .

Michael S. Melbinger

I hope this does not apply to any of you, but on Tuesday, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved a Notice of Proposed Rulemaking (NPR) to clarify application of the orderly liquidation authority contained in Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, "Orderly Liquidation Authority" (OLA). The NPR clarifies issues important to the implementation of the OLA, including how compensation will be recouped from senior . . .

Michael S. Melbinger

Tuesday, I blogged on the unhappy result for former executives of once-renowned mapmaker Rand McNally & Co., in the recent case of Feinberg v. RM Acquisition LLC, under which participants in the Rand McNally SERP lost their benefits after a sale of the company's assets. As promised, today I will make some suggestions as to how SERP and non-qualified plan participants can attempt to protect the . . .

Michael S. Melbinger

One of the best ways to learn about new drafting and design strategies for plans and agreements is to read a lot of court cases – and learn from the mistakes of others. In Feinberg v. RM Acquisition LLC, the plan drafter did not make a mistake, but we can still learn a few lesson that improve our drafting strategy. In Feinberg v. RM Acquisition LLC, decided by the U.S. Appellate Court of Appeals for the Seventh Circuit (based in Chicago) in January 2011, the plaint . . .

Michael S. Melbinger

At an open meeting this morning, the SEC approved, by a 3-2 vote, proposed rules on incentive compensation under Section 956 of the Dodd-Frank Act, following up on proposed rules jointly issued by the FDIC, the Fed, OCC, OTS and other agencies in February. As of this moment, the SEC has not yet published the proposed rules. Generally, today's proposed rules only apply to registered broker dealers and investment advisers with assets of at least $1 billion.

Like the rules proposed for " . . .

Michael S. Melbinger

Winston & Strawn was recognized by corporate counsel for its long-standing commitment to service in the 2011 BTI Client Service All-Stars report, an annual report published by the BTI Consulting Group. Winston earned top honors as one of the elite eight firms that has made the list in each of the 10 years the report has been published. Mike Melbinger and Jeffrey Lederman, partners based in the firm's Chicago and San Francisco offices, respectively, were identified as "Client Serv . . .

Michael S. Melbinger

Adding to the list of reasons why most companies seem to be deciding against including a shareholder say-on-parachute payments resolution in their 2011 proxy statements (see my Blogs from December 2010), is this new Compliance and Disclosure Interpretation related to Item 402(t) "Golden Parachute Compensation< . . .

Michael S. Melbinger

A few items to note as the first proxy season with Shareholder Say on Pay and Frequency of SSOP continues to unfold.

First, the results of the shareholder vote on Say on Pay continue to be mixed, but most companies are succeeding in achieving a favorable vote from more than 50% of their shareholders voting. However, a few have lost the vote, so please don't take success for granted.

Second, the results of the shareholder vote on Frequency of SSOP Say are also mixed, but app . . .

Michael S. Melbinger

On Monday, February 7, 2011, the Office of the Comptroller of the Currency, Treasury (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision, Treasury (OTS), National Credit Union Administration (NCUA), U.S. Securities and Exchange Commission (SEC), and Federal Housing Finance Agency (FHFA) (collectively, the "Agencies") jointly issued proposed rules pursuant to Section 956 of the Dodd-Frank Wall Street Reform . . .

Michael S. Melbinger

As I promised last Friday, here is part two of the focus on the Shareholder Say on Golden Parachute Pay Rules, from the Final Rules adopted and published by the SEC last week.  Last Friday, I listed six important points. Today, I list another eight:

7.  The Rules do not permit companies to exclude de minimis perquisite . . .

Michael S. Melbinger

As first reported in Broc's Blog, late Friday, in the very first week of annual shareholder meetings under Dodd-Frank's mandatory say-on-pay regime, the first company reported a 54% "against" vote and a 45% "for" vote (Form 8-K). I hate to say . . .

Michael S. Melbinger

As you all know by now, on Tuesday morning the SEC adopted and published the Final Rules on Shareholder Say on Pay, Frequency of SSOP and Shareholder Say on Parachute Payments. After focusing on the SSOP and Frequency of SSOP votes in my previous Blogs, this one will focus on the Shareholder Say on Golden Parachute Pay Rules. 

Most important, the Final Rules clarify that the advisory vote "Golden Parachute" payme . . .

Michael S. Melbinger

As I Blogged previously, on Tuesday morning, the SEC adopted the Final Rules on Shareholder Say on Pay, Frequency of SSOP and Shareholder Say on Parachute Payments in a 3-2 vote, and Tuesday evening SEC published the Final Rules. The Rules technically are not effective until 60 days after publication in the Federal Register (March 26, 2010). However, we expect that most companies that have not already printed their proxy state . . .

Michael S. Melbinger

As I Blogged yesterday morning, the SEC adopted the Final Rules on Shareholder Say on Pay, Frequency of SSOP and Shareholder Say on Parachute Payments on a 3-2 vote, and, as I promised, today I will begin filling in the details on the Final Rules, which the SEC published late yesterday afternoon. [Part 3 tomorrow]

The Final Rules made no earth shattering changes from the proposed rules, but the following issues bear sp . . .

Michael S. Melbinger