Executive Compensation

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Glass Lewis Makes an Attempt at Transparency, and Studies Try to Evaluate Proxy Advisory Services’ Influence

Glass Lewis released a brief overview that it calls a “Primer for Issuers.” Glass Lewis reiterates that it does not engage in discussions with companies during the proxy solicitation period because of concerns about the possibility of receiving material, nonpublic information. However, it will sometimes host a Proxy Talk conference call during which a company’s management or board can speak directly to Glass Lewis’ clients.

Board Matters. It is not always clear when a director will run afoul of Glass Lewis’ voting recommendations. The Issuer FAQ provides some information about related person transactions, noting that a director who controls more than 20% of voting stock would be deemed an affiliate. 
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Glass Lewis Makes an Attempt at Transparency, and Studies Try to Evaluate Proxy Advisory Services’ Influence

Glass Lewis released a brief overview that it calls a “Primer for Issuers.” Glass Lewis reiterates that it does not engage in discussions with companies during the proxy solicitation period because of concerns about the possibility of receiving material, non-public information. However, it will in some cases host a Proxy Talk conference call where a company’s management or a board can speak directly to Glass Lewis clients.

Board Matters. It is not always clear when a director will run afoul of Glass Lewis’ voting recommendations. The Issuer FAQ provides some information about related person transactions, noting that a director who controls more than 20% of voting stock would be deemed an affiliate. 
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SEC Sues to Clawback Compensation of Executives

Yesterday, the SEC sued two former executives of Arthrocare Corporation, a manufacturer of medical devices, to recover bonuses and stock profits they had received after the company had filed false financial statements. In doing so, the SEC continued its policy of seeking to apply Section 304 of Sarbanes-Oxley to executives who have not been personally charged with the fraudulent financial statements.

Under Section 304, if “an issuer is required to prepare an accounting restatement due to the material noncompliance of the issuer, as a result of misconduct,” then its CEO and CFO is required to reimburse the issuer for certain compensation received or profits made from the sale of the issuer’s stock during the 12-month period after the fraudulent financial statement was filed.
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Coming Soon to a Bank Near You: Expanded Compensation Disclosure

On October 19, we posted about the Federal Reserve’s recently released report detailing its horizontal review of incentive compensation practices at 25 large banking organizations.  The report notes that the Fed intends to implement the Pillar 3 compensation disclosure requirements adopted in July by the Basel Committee on Banking Supervision.  The required disclosures are quite extensive (e.g., compared to the disclosures currently required for U.S. public companies).  As the disclosures will be public, banks may be criticized for their compensation practices.  On the plus side, banks will have a window into their peers’ practices.

The Pillar 3 requirements are limited to disclosure and do not mandate particular forms or amounts of compensation. 
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Federal Reserve’s Report on Incentive Compensation Practices – A Progress Report?

The Federal Reserve recently released a report detailing its horizontal review of incentive compensation practices at 25 large banking organizations.  The findings and recommendations are expressed in highly general terms, and set forth the Fed’s views on what financial institutions are and should be doing to identify practices effective in balancing incentive compensation arrangements and risk and formulate next steps in developing these practices.  Because the interagency rule on incentive compensation in the financial sector may provide a roadmap for future regulation in this area extending beyond financial institutions, the insight offered by the report may be helpful in structuring incentive compensation policies at any company.
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Another Win for Goldman

On October 4, 2011, we blogged about the dismissal of a series of lawsuits filed in New York by Goldman Sachs shareholders.  We noted that a similar shareholder suit against Goldman Sachs was pending in the Delaware Chancery Court.  Last week, that suit was dismissed.

With respect to executive compensation issues, the shareholders in the Delaware case claimed that Goldman’s directors breached their fiduciary duties by (1) failing to properly analyze and rationally set compensation levels for Goldman’s employees and (2) committing waste by “approving a compensation ratio to Goldman employees in an amount so disproportionally large to the contribution of management, as opposed to capital as to be unconscionable.”
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A Win, of Sorts, for Goldman – What is Next?

As revealed in court documents filed last week, a series of lawsuits filed in New York by shareholders who claimed that bonuses paid to Goldman Sachs employees resulted in corporate waste were dismissed on September 21, 2011.  Security Police & Fire Professionals of America Retirement Fund and Judith A. Miller sued the investment bank in December 2009, accusing directors and executives of breaching their fiduciary duties by reserving half of the company’s net revenue for employee compensation.  Shareholders Ken Brown and Central Laborers Pension Fund filed similar suits the following month, and the two actions were consolidated.

The consolidated case was subsequently dismissed by mutual agreement; however, in connection with dismissal, the plaintiffs requested attorneys’ fees. 
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