PAST EVENTS

Fast Break Briefing: Executive Compensation in Uncertain Times (San Diego)

August 19, 2009

The ongoing turmoil in the equity and credit markets and the continuing anxiety over the near-term prospects for the nation’s economy has many technology and life sciences companies confronting significant challenges in their executive compensation programs. At many companies, the changed environment has created challenges in designing effective annual incentive plans, leading to difficult decisions about relaxing performance conditions or simply paying discretionary bonuses. Further, with the precipitous decline in equity values, companies are often faced with stagnant long-term incentive programs, leading to concerns about the potential loss of key talent and the need for a workable retention strategy.

In recent months, compensation committees have been re-evaluating their compensation programs from top to bottom; particularly their equity strategies, as they look at the award mix, timing considerations, and dilution concerns. In these trying times, understanding compensation trends and directions is more important than ever as directors try to balance the often divergent interests of management and shareholders while ensuring that their company’s key employees remain properly motivated and incented.

The Fast Break Briefing explored the impact of the current economic downturn on compensation practices and decisions. We will take an in-depth look at current market practices and examine several of the key issues confronting companies as they look to ensure that their compensation programs remain viable and effective.

Topics covered in this session included:

• Developing, interpreting, and adjusting peer group market data in a volatile environment
• Incentive compensation in a down market:
  — Selecting performance metrics and target levels in an uncertain environment
  — How to account for performance shortfalls
• Equity compensation triage in a down market:
  — Balancing target award values with dilution constraints
  — Performance-based equity – is it the best way to ensure pay for performance?
  — The shifting award mix – are stock options the answer?
  — Award timing – accelerating annual grants
  — The case for retention awards
  — Stock option exchanges – are they still viable?
  — “Burn rate” and dilution considerations
• The questions your compensation committee should be asking
• The potential impact of regulatory developments – Say on Pay, enhanced disclosure, and governance reform

The session was conducted by a panel of experts

• Mark Edwards, Chairman, Compensia, Inc.
• Michael Benkowitz, Principal, Compensia, Inc.
• Anna-Lisa Espinoza, Principal, Compensia, Inc.
• Matt Quarles, Senior Consultant, Compensia, Inc.

Fast Break Briefing: Executive Compensation – Looking Beyond the Recession

May 21, 2009

Download a copy of the presentation materials »

With signs that the United States economy is coming out of the doldrums still sparse, technology and life sciences companies are finding it necessary to adjust to the new reality – an environment of opaque market conditions, volatile stock prices, anxiety over consumer (and investor) confidence, and the absence of certainty about short-term and long-term performance.  All of the factors, exacerbated by public outrage over corporate pay practices, are putting increased pressure on board compensation committees to develop compensation programs that are both innovative and effective, and, at the same time, fiscally and shareholder-responsible.

The recent economic downturn exposed many vulnerabilities in current compensation programs, forcing compensation committees to scramble to respond to the shortcomings in their existing short-term and long-term incentive plans, and to re-evaluate their equity award strategies and practices.  While many companies are implementing “stop gap” measures, such as special retention awards, to make it through year-end, it’s unlikely that these strategies can be continued long-term.  And while the proxy advisory firms and many of the larger institutional investors have been relatively flexible in responding to the decisions companies made to address their most acute problems, it’s also unclear whether they will show such restraint next year; particularly now that companies have had a chance to adjust to the new environment.

Yet, while the current downturn has presented challenges, it’s also presented opportunities.  Companies and board compensation committees need to re-examine the fundamental design and effectiveness of existing pay programs: to ensure that they’re properly aligned with current business strategies, encourage appropriate behaviors, and result in reasonable reward levels.  They also should be re-assessing the compensation vehicles at their disposal, and selecting ones that best match their pay objectives and risk tolerance.  Now, more than ever, they need to be able to “thread the needle” as they balance the often divergent interests of management and shareholders while ensuring that their key employees remain properly motivated and incented.

We looked at the future of executive compensation design and practice in these uncertain times. We took an in-depth look at a number of key issues confronting companies as they seek to ensure that their compensation programs remain relevant and effective.

Topics covered in this session included:

• Re-evaluating your compensation philosophy – are your objectives appropriate in a recovering economy?
• Balancing your pay mix – is “pay for performance” still a good thing?
  — Using cash – how to maximize a scarce resource
  — Short-term incentives – meshing with your long-term objectives
• Equity compensation in a recovering market:
  — Keeping your stock options viable
  — Performance awards – still a good thing?
  — The case for “stock price” performance measures
  — Selecting the “right” award mix for you
  — “Burn rate” and dilution considerations
• Investor expectations in a recovering market

The session was conducted by this panel of experts

• Mark Edwards, Chairman, Compensia, Inc.
• Tim Sparks, President, Compensia, Inc.
• Michael Benkowitz, Principal, Compensia, Inc.
• Tom Brown, Principal, Compensia, Inc.

Compensating Your Executives and Other Employees in Uncertain Times

February 27, 2009

Download a copy of the presentation materials »

The ongoing turmoil in the equity and credit markets and the continuing anxiety over the prospects for the nation’s economy has many technology and life sciences companies confronting significant challenges in their compensation programs. At many companies, the changed environment has been a contributing factor in their failure to satisfy the criteria necessary for a payout under their annual incentive plans, leading to difficult decisions about waiving performance conditions or paying discretionary bonuses. Further, with the precipitous decline in equity values, other companies are faced with the potential loss of key talent and looking to devise an effective retention strategy.

With the future uncertain, compensation committees will be re-evaluating their compensation programs from top to bottom; particularly their equity strategies, as they look at the award mix, timing considerations, and dilution concerns. Over the next several months, they will be called upon to “thread the needle” as they balance the often divergent interests of management and shareholders while ensuring that their key employees remain properly motivated and incented.

This Fast Break Briefing covered the impact of the current economic downturn on compensation practices and decisions. We took an in-depth look at several of the key issues confronting companies as they try to ensure that their compensation programs remain viable and effective.

Topics covered in this session included:

• Developing, interpreting, and adjusting peer group market data in a volatile environment
• Incentive compensation in a down market:
  — Selecting performance metrics and target levels
  — How to account for performance shortfalls
• Equity compensation triage in a down market:
  — Balancing target award values with dilution constraints
  — Performance-based equity – now what?
  — The shifting award mix – are stock options the answer?
  — Award timing – accelerating annual grants
  — The case for retention awards
  — When to conduct an option exchange
  — “Burn rate” and dilution considerations
• Disclosure considerations in a constantly changing compensation environment

The session was conducted by this panel of experts:

• Mark Edwards, Chairman, Compensia, Inc.
• Mark Borges, Principal, Compensia, Inc.
• Anna-Lisa Espinoza, Principal, Compensia, Inc.
• Susan Gellen, Principal, Compensia, Inc.

Teleconference: Preparing Your Executive Compensation Disclosure in 2009

Friday, February 13, 2009

Download materials from the teleconference »

As the 2009 proxy approaches, your Compensation Discussion and Analyses and related tabular disclosures will likely be more challenging than ever. The volatility in the stock market, as well as the global economic downturn, is having a significant impact on the executive pay decisions of many companies, triggering disclosures about the outcome of annual and long-term incentive plans and arrangements and the retentive value of their equity awards as well as program changes going forward.

In addition, the Emergency Economic Stabilization Act, the Treasury Department’s Troubled Assets Relief Program (“TARP”), and the prospect of further executive compensation reform is setting the framework against which most executive compensation programs will be judged. While most life sciences and technology companies haven’t yet been directly affected by these developments, investors are likely to expect some acknowledgement of this “new reality” in CD&As.

Finally, the SEC Staff is continuing to monitor compliance with the SEC’s now-two and one-half year-old executive compensation disclosure rules and issue specific comments on companies’ presentations. Based on recent comments from senior Commission officials, many companies continue to struggle with satisfying the Staff’s expectations in several key areas – particularly the disclosure of incentive compensation arrangements.

We discussed the following disclosure-related topics:

• The disclosure of incentive compensation arrangements, as well as the SEC Staff’s l’test thinking on the disclosure of performance metrics and target levels
• The five key topics that should be addressed in your Compensation Discussion and Analysis
• The impact of the executive compensation standards of the Emergency Economic Stabilization Act on disclosure, including the requirement that companies conduct an annual risk analysis of their incentive compensation arrangements
• Enhancing the disclosure of severance and change-in-control arrangements in a year where such arrangements are likely to be closely scrutinized
• The impact of these disclosure obligations on the Board Compensation Committee, and how the Committee should be discharging its responsibilities

This session was conducted by Mark A. Borges, a Compensia Principal and former SEC staffer and one of the nation’s leading authorities on executive compensation disclosure. Mark authors the Borges Proxy Disclosure Blog on the Compensation Standards.com web site and is the author of SEC Executive Compensation Disclosure Rules, published in June 2008 by the American Bar Association, and a co-author of the Lynn, Romanek & Borges’ Executive Compensation Disclosure Treatise and Reporting Guide, published in the Fall of 2008.

Mastering Performance-Based Equity: New Frontiers in Executive Pay

November 12, 2008

Download a copy of the presentation materials »

The landmark change to the accounting treatment of stock-based compensation in 2004 knocked down the primary obstacle to the use of performance-based equity incentives. As a result, the last several years have seen a steady increase in the introduction of such-previously unfamiliar and exotic vehicles as performance shares and performance-based restricted stock units by technology companies. And, with investors seeking stronger pay-for-performance relationships in executive compensation programs, the use of these instruments is only going to increase.

However, unlike traditional time-based stock options, performance-based equity incentives present compensation committees with several challenges. Designing these arrangements to complement a company’s long-term business and strategic objectives is complex and often tricky. Selecting appropriate performance metrics involves both significant financial operational, and disclosure considerations. Further, careful consideration must be given to the proper disposition of these awards in the event of a major corporate transaction, such as a change in control.

With long-term incentives representing the largest portion of most executive compensation packages today, management and compensation committees must thoroughly understand the strengths and weaknesses of the various vehicles at their disposal to ensure that their compensation programs remain competitive, as well as an effective means for creating long-term shareholder value.

At its November 12, 2008 breakfast briefing, Compensia took an in-depth look at the issues associated with performance-based equity incentives.

Topics covered in this session included:

• Strategic considerations in using long-term performance-based equity incentives; fitting them into the total compensation package
• Understanding the characteristics of today’s most common performance-based equity vehicles: performance shares, performance-based RSUs, and performance-accelerated RSUs
• Performance-based stock options: a new look to an old friend
• Design considerations: selecting and calibrating appropriate performance metrics; using relative or absolute measures; setting the performance period; payout timing and award vesting; selecting eligible participants; determining the award mix
• Planning for the unthinkable: severance and change in control considerations
• Developing a dialogue with your key shareholders on your executive compensation philosophy and policies

The session was conducted by this panel of experts:

• Mark Borges, Principal, Compensia, Inc. (Moderator)
• Michael Benkowitz, Principal, Compensia, Inc.
• Thomas G. Brown, Principal, Compensia, Inc.

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