Our Insights

Dodd-Frank Act, Section 956

U.S. financial regulators have recently re-proposed rules for Section 956 of the Dodd-Frank Act that would apply to incentive-based compensation at certain financial institutions. In addition to the rules that would apply to all with $1 billion or more, under the proposed rules, financial institutions with $50 billion or more in total consolidated assets would be required to subject incentive-based compensation for certain executives and significant risk-takers to: deferral of payment, risk of downward adjustment and forfeiture, and clawback. Semler Brossy has prepared an overview of the proposed rules and regulations. Read more

2016 Executive Stock Ownership Guidelines

Public companies are beholden to align long-term interests of executive officers with those of their shareholders, and this balance often manifests in how executives are paid in relation to company performance. Many companies address this through use of equity packages, but because executives can still sell or hedge these shares, their incentives to make long-term decisions for the company are not always clear. To avoid this, many companies implement stock ownership guidelines, requiring executives to own a certain amount of equity in the company. Read more

2016 Director Stock Ownership Guidelines

Since boards of directors are responsible for aligning company affairs with shareholder interests, companies often implement director stock ownership guidelines to ensure that board members are invested in the company’s current and future performance. These guidelines typically require that directors own at least some specified amount of company equity and that they hold equity granted as compensation for a minimum period before selling those shares. In recent years, investor activism has brought increasing attention to director ownership guidelines and compliance, and shareholders increasingly want to see that directors have an incentive to ensure the company is performing well, both in the short-term and the long-term. Read more

A Compelling Alternative to Stock Options

Today, compensation committees seem to have fewer tools in their arsenal to directly incentivize a company’s stock price growth. Increasingly since 2007, stock options have been replaced by various performance-based vehicles. As a result, long-term incentive plans (LTIPs) may be paying for achievement of operational or financial performance goals while shareholders fail to benefit from a similar growth in share value. Read more

Executive Pay: Creating Real Alignment With Shareholders

Nobody really likes total shareholder return (TSR) as an incentive plan metric. Nobody, that is, except the major shareholders of publicly traded companies. Boards feel pressured to adopt TSR as a metric because it is easy to explain to shareholders, but they don’t really embrace TSR due to the lack of transparency and understanding among executives. Shareholders, on the other hand, have strongly supported TSR as a key metric of success. This is the new reality to which board members and executives need to be sensitive when designing incentive plans. Read more

Say on Golden Parachute: A Look at Say on Pay’s Lesser-Known Cousin

Golden parachutes became common in the hostile takeover years of the 1980s, when executives worried about losing their jobs to corporate raiders. The golden parachutes provided executives with lump sum payments, immediate vesting of equity awards and continued participation in benefits following a change in control. Media reports and debacles about failed financial service companies in the 2000s raised public ire over these arrangements. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 advanced a mandate for shareholders to review these parachute arrangements prior to completion of a corporate merger or change in control. The mandate became known as say on golden parachutes and complemented say on pay, a mandate for routine shareholder pay program reviews. Both mandates are advisory and nonbinding. Read more