SEC Issues Interpretative Guidance on Pay Ratio Rules, Reinforcing Flexibility and Providing Relief

As companies are coming to grips with the reality that the pay ratio rules will not be delayed, the SEC yesterday issued interpretative guidance that went a long way toward reassuring companies that they have sufficient flexibility and can exercise their best judgment in determining the median employee and the resulting pay ratio, thereby reducing compliance costs.

This came in the form of a brief Commission guidance and separate Staff interpretations.  In addition, although no mention was made in the press release touting these SEC actions, the Staff also updated and in one case withdrew its prior pay ratio guidance in the Division of Corporation Finance compliance and disclosure interpretations (CDIs) from last year (see Section 128C). Continue Reading

For the First Time, Delaware Loses Number One Spot in Survey on Lawsuit Climate

The state of Delaware fell from the top-ranked position to number 11 in the most recent survey on the business-friendly environment for lawsuits in state courts, ceding ground to the state of South Dakota.  Delaware had been in the highest perch for the last ten surveys, going back to 2002 (the surveys were not conducted every year).

The 2017 Lawsuit Climate Survey:  Ranking the States, was conducted for the U.S. Chamber Institute for Legal Reform to explore how U.S. businesses perceive the fairness and reasonableness of the states’ liability systems.  More than 1,300 in-house general counsel, senior litigators or attorneys and other senior executives at companies with at least $100 million in annual revenues who indicated they had firsthand, recent litigation experience in the states they evaluated and were knowledgeable about litigation matters participated in the survey. Continue Reading

The Drivers that Continue to Dog Say-on-Pay

Although the failure rate for 2017 say-on pay results achieved an all-time low of just 1.3%, the number belies the fact that more than 2,000 say-on pay proposals have either received negative recommendations from ISS or less than 70% support, or both, since say-on-pay resolutions started in 2011.

Approximately 12% to 14% of companies run into problems every year.  As companies have become more proactive with shareholder engagement, the number of companies that received “against” recommendations from ISS and still achieved more than 70% support has increased in the last three years, while the number of companies with those negative recommendations that received less than 70% favorable votes have fallen.  Continue Reading

Board Gender Diversity and Climate Risk Inform Vanguard’s Investor Stewardship

Vanguard cast more than 171,000 individual votes at nearly 13,000 companies in 68 countries for the 12-month period ending June 30th, making the firm one of the most influential investors in public companies.  Its recent Investor Stewardship Report and letter to CEOs highlights two key governance priorities. 

Engagement is a vital component of Vanguard’s approach, as it held 954 engagements with 680 companies.  Companies should be aware when talking with Vanguard that the topics discussed more than half of those times include the composition of boards, governance structures and executive compensation.  While board diversity has long been an important focus, the report states that companies should be prepared to discuss, in their public disclosure as well, their plans to incorporate diversity over time into their board composition.  Continue Reading

Activism at Public Companies Leads to Less Diverse Boards

Shareholder activism decreases the number of women and minority directors on target company boards, an impact seen even after activism ends, according to a new ISS study commissioned by the Investor Responsibility Research Center Institute (IRRCi).

The study examined 380 board seats filled at S&P 1500 companies as a result of activist campaigns from 2011 through the end of 2015, including directors nominated by dissidents, directors who joined boards as a result of company settlements with activists and those added by corporate boards themselves immediately before or during activism.  The changes to board composition resulted in younger, more independent and less diverse directors who tended to have financial backgrounds and no prior board experience about half the time. Continue Reading

EEOC Reports Seeking Employer Pay Data Stayed

New EEOC regulations seeking pay data will not go into effect in March 2018 as planned.  According to the EEOC, the Office of Management and Budget (OMB) informed the Commission that it is initiating a review and instituting an immediate stay of the effectiveness of the pay data collection aspects of the revised form that was adopted in September 2016, in accordance with its authority under the Paperwork Reduction Act (PRA).

While the acting chair of the EEOC had opposed the revised form at the time it was approved, the EEOC reportedly lacked sufficient votes to reverse course.  Some groups had asked congressional lawmakers to pass laws to prohibit the EEOC from enforcing the rule.  Continue Reading

NYSE Delays Implementation of New Rule Changing the Timing of Advance Notice of Dividend and Distributions Announcements

The NYSE has asked the SEC to delay the effectiveness of its recently approved rule requiring listed companies to provide notice to the Exchange at least 10 minutes before making a public announcement about a dividend or stock distribution.

On August 14, when the rule change was approved by the SEC that would require listed companies to provide the Exchange with advance notice, including outside of the hours in which the Exchange’s immediate release policy operates, many assumed that the rule was immediately effective since nothing in the rule filing indicated otherwise.

In its proposal to the SEC, NYSE states that it is asking for the delay to provide listed companies with additional time to prepare and for the Exchange’s new technology systems to provide the necessary support to Exchange staff in reviewing notifications.  Continue Reading

How Does Your Audit Committee Disclosure Compare?

Deloitte and EY both recently published studies about audit committee disclosure in the proxy statements of the largest companies.  Deloitte examined the S&P 100 while EY concentrated on the Fortune 100.  This time of post-season review for most companies provides an opportunity to benchmark and consider additional audit committee disclosures for next year.

Disclosure about the audit committee.  Audit committees are increasingly providing information about their composition and responsibilities.  The vast majority of large companies have more than one audit committee financial expert, with 86% at S&P 100 companies and 83% at Fortune 100 companies (35% name two experts and 48% have three or more).  Continue Reading

SEC Staff Examines Impact of Regulation on Capital Formation and Market Liquidity

In response to a statutory requirement, the SEC Staff of the Division of Economic and Risk Analysis (DERA) has issued a lengthy report to Congress on the combined impacts of the Dodd-Frank Act and other financial regulations on access to capital for consumers, investors and businesses and market liquidity.  DERA studied (a) capital raising in the primary markets by analyzing evidence on the evolution of the issuance of debt, equity and asset-backed securities across registered and exempt offerings and (b) secondary market liquidity by analyzing market activity and liquidity in corporate bonds and US treasuries, along with funds and investment companies that invest in those securities. Continue Reading

ISS Detailed Benchmark Survey Focuses on Governance Debates Largely Surrounding Pay Topics – Part II

For US companies, the detailed portion of the ISS benchmark survey targets compensation matters, along with one question on poison pills:

Short-Term Poison Pills. ISS asks whether it should continue its approach of examining poison pills with less than a one-year term on a case-by-case basis when voting on director elections or whether they are generally acceptable.

Using Realizable Pay for Say-on-Pay Analysis. For several years ISS has calculated and presented a realizable pay metric as part of its qualitative say-on-pay analysis. ISS believes the measure helps show the difference between target bonus/non-equity incentive and what is actually paid in short term programs and for long term programs, the actual payouts and forfeitures as well as the impact of stock price movements. Continue Reading