How Do We Define Executive Pay? & Delaware Supreme Court Upholds Board Compensation Decision | February 2013
ATTENTION: For all U.S. public companies, make sure your Compensation Committee charters are updated to reflect the new exchange rules around independence of outside advisors. Getting with outside counsel plus updating your websites is advisable, with wording along the lines of:
"The Committee has the power in its sole discretion to retain or obtain the advice of a compensation consultant, independent legal counsel, and other compensation advisors; provided however, that in connection with the engagement of such advisor, the Committee must consider all factors relevants to the advisor's independence from management, including, without limitation, the following:
(Then the 6 points given by the exchanges are listed.)"
This will also be a great time to review the charter in its entirety to ensure it is up-to-date and accurate.
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As for this month's L-Blast, we have two great articles of interest:
1. "How Do We Define Executive Pay?" was just published in Corporate Board, and it attacks the misunderstandings around targeted, reported, and actual pay — something we are constantly having to educate the media on.
2. A very good piece by Wachtell, Lipton, Rosen, and Katz on a recent Delaware Supreme Court case upholding a board's compensation decisions.
Enjoy the read and don't forget to update those charters!
How Do We Define Executive Pay?
by Brent Longnecker, Chris Crawford, & Todd Henke
How much do you pay your CEO and other top officers? That depends on how you define "pay." Is it the amount reported on SEC filings, those numbers that stoke media outrage over "giveaway" CEO compensation? Is it what the executives could potentially earn if performance targets are met? Or is it the amount they take home at the end of the year? How well does your compensation committee explain why these numbers are all so different?
Delaware Supreme Court Upholds Board Compensation Decision
by Wachtell, Lipton, Rosen, & Katz
Earlier today (Jan 14, 2013) the Delaware Supreme Court upheld a Chancery Court determination that a board did not commit waste by consciously deciding to pay bonuses that were non-deductible under Section 162(m) of the Internal Revenue Code (Freedman v. Adams, Del. Supr., __ A.2d __, No. 230, 2012, Berger J. (Jan 14, 2013)). Unlike claims of gross negligence, claims of waste are not subject to exculpation or indemnification by the company and therefore have the potential for personal liability of directors.