This post is a roundup of recent and impending activity in the world of executive compensation. Normally, this is the time of the year where we see the hand wringing and tearing of clothes that have come as a result of annual Say On Pay voting. But, let’s be honest, each year only 2% of companies fail and about 7 out of 10 companies receive support from at least 90% of their shareholders. Until something changes, Say On Pay is mostly interesting to the few companies who fail or are at the margins. Most of you probably breezed through (again.)
However, the last month or two have been a whirlwind of activity for executive compensation professionals. New regulations, clarifications and details have hit some of the major forces in the world of executive compensation. We all know that ASC 718 (FAS 123R), IRC 409A, Sarbanes Oxley and Dodd Frank have fundamentally changed how we account for tax, regulate and report executive compensation. April through June of 2015, we have seen new clarifications and proposals for nearly all of these.
This month also included receiving clarifications on accounting for equity compensation under ASC 718.This 105-page document is meant to simplify some common issues. It includes a new approach to windfalls and shortfalls associated with the APIC pool, a loosening of the restrictions on withholding shares to cover taxes due, more flexibility in handling forfeiture rates and some new approaches for privately-held companies. PWC provides an excellent summary here.
409A also had a recent touch-up. Audit guidelines were updated and/or clarified. These involved when to include non-qualified deferred compensation in gross income, when employers can take a tax deduction and the proper timing of employment tax calculations. Michael Melbinger of Winston Straw sums it up nicely here.
And, one of the most anxiously awaited rules, the link between CEO pay and company performance, came even closer to reality in April. The SEC proposed new rules under Dodd Frank Section 953(a). These rules provide details on how companies must calculate and disclose the link between executive pay and corporate performance. You can read my recent post here.
Wait! We aren't done yet. There are apparently impending new rules under Dodd Frank sections 954 and 956. Section 954 covers the topic of clawbacks. Section 956 includes compensation reporting and prohibition rules for financial institutions. It has also been reported that we may see the final pay ratiorules this fall. You can read about a bit more about these topics here.
If you are reading this post, you’re already ahead of the game. Your insight is critical in shaping these rules to work well for companies, shareholders and participants in your compensation programs. You should take the time to provide comments to whatever body is requesting them (current the SEC for Dodd Frank Section 953(a)). If you think something will be a problem or can be improved, let people know. If you think things look great, let them know. Either way, it beats “them” operating in the relative darkness provided by a small number of pundits and experts who often have little idea of what really happens in the day-to-day world of executive compensation.
Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. A book AND project plan for communication? “Everything You Do in COMPENSATION IS COMMUNICATION”, by Comp Café writers, Dan Walter, Ann Bares and Margaret O’Hanlon, lays out a practical approach to communications (with helpful worksheets for each step). Dan’s new Issue Brief on Performance Equity will be available July 2015. Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.