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New 2015 Developments in Executive Compensation


At today’s Annual Meetings of public corporations across the United States, the media, investors, and stockholders have placed executive pay and compensation practices under their microscopes. As executive compensation and incentive plans continue to command attention, the SEC, IRS and the US Congress each have created new disclosure rules and regulations. It is imperative that HR professionals, compensation specialists, and corporate counsel be aware of the upcoming series of SEC and stock exchange listing requirements affecting how compensation committees approach pay practices.

This article is a very quick summary of a few recent laws and regulations impacting executive compensation. While most of these regulations were designed for, and only apply to, public companies, they have impacted private companies as many now comply with these regulations.

Sarbanes-Oxley, known as SOX since 2002, has provided the Securities and Exchange Commission (SEC) with the power to “claw back” executive pay and stock awards each year retroactively. The most powerful claw back provision in this Act is not only the change in standards, but has mandatory reporting requirements of ALL company perks, jets, country club memberships, etc. to the SEC. 

The Dodd-Frank Consumer Protection Act has a “say on pay” provision, which requires all public companies to present to their shareholders an advisory resolution to approve compensation of its named executive officers, once every three years. These requirements have spawned a series of new SEC regulations affecting companies. The CEO pay ratio disclosure requirement has created great debates at recent stockholder meetings. In fact, according to FactSet SharkWatch, activist stockholders have launched 238 campaigns in just the first nine months of 2014 to force public corporations to make changes to their compensation plans. These campaigns have resulted in the rapid growth of compensation and proxy litigation this past year.

The most recent focus, resulting from the Dodd-Frank Consumer Protection Act, is the requirement that public corporations must have “performance-based” goals tied to executive compensation, and all “enhanced compensation” must be disclosed to the SEC. Together, these provisions will force HR leaders and compensation experts to focus on rewarding executives according to their actual performance. This shall cause Human Resources/People Operations Departments and compensation experts to return to performance–based pay, forcing them to re-write their compensation and incentive plans in accordance with the correct metrics for performance-based compensation.

As a result of the recent competition for talent, companies, both public and private, are adjusting to the newly imposed legal restrictions and are finding new, creative ways to structure compensation packages for attracting employees. Companies are now designing compensation and incentive programs that are heavily weighted toward long-term rewards and are performance-based. 

Read the full article on the BlueSteps Executive Career Insider Blog at this link: https://www.bluesteps.com/blog/executive-compensation-2015