United States: Preparation For 2015 Fiscal Year-End SEC Filings And 2016 Annual Shareholder Meetings

As our clients and friends know, each year Mintz Levin provides an analysis of the regulatory developments that impact public companies as they prepare for their fiscal year-end filings with the Securities and Exchange Commission (the "SEC") and their annual shareholder meetings. This memorandum discusses key considerations to keep in mind as you embark upon the year-end reporting process in 2016.1

As was the case last year, there are no SEC rule changes that will directly affect the year-end reporting process. There are, however, a few key changes pending, for which companies should take steps now to prepare for compliance.

  • First among these is the "pay ratio" disclosure rule issued under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), that was finalized by the SEC in August. This new rule requires companies to disclose the ratio of median employee compensation to principal executive officer compensation and is set forth as Item 402(u) of Regulation S-K. The rule requires companies to begin providing this pay ratio information in their executive compensation disclosure with respect to the fiscal year beginning on or after January 1, 2017 in time for the 2018 proxy season. All public companies will be subject to this new disclosure requirement, with the exception of emerging growth companies, smaller reporting companies and foreign private issuers.
  • The SEC proposed the remainder of the Dodd-Frank Act executive compensation rules in 2015. It proposed rules regarding hedging of shares by employees and directors in February, measuring pay for performance in April, and clawback of "erroneously awarded compensation" in July, but no time frame has yet been set for the finalization of these rules and they will not be in place this proxy season.

Shareholder activism remains strong, and institutional shareholders are continuing to put pressure on companies to conduct their affairs in a more transparent manner, encouraging the adoption of governance policies that benefit shareholders, such as executive compensation clawbacks, stock ownership guidelines, and majority voting, and discouraging policies such as plurality voting, staggered boards and "poison pill" plans. As the largest public companies have adopted many of these corporate governance initiatives already, institutional investors are moving their attention to smaller companies that may historically have lagged in the adoption of shareholder-friendly governance features.

We will continue to update you on important changes in these areas. Our blog, "Securities Matters," provides comprehensive coverage of all aspects of the federal and state securities laws and regulation, capital market trends and best practices, corporate governance matters, Delaware corporate law, developments in securities and shareholder litigation, SEC enforcement, and related topics. Please subscribe to our blog at http://www.securitiesmatters.com/ to stay current on new developments.

We have addressed topics that we believe will be of interest to this year's reporting season in further detail below.

"Pay Ratio" Disclosure Rules Finalized; First Disclosure Required in 2018 for 2017 Fiscal Year. On August 5, 2015, the SEC adopted a final rule2 implementing Section 953(b) of the Dodd-Frank Act, requiring most reporting companies to disclose the ratio of median employee compensation to principal executive officer compensation. The final rule, which adds Item 402(u) to Regulation S-K with a conforming amendment to Item 5.02(f) of Form 8-K for companies whose salary and/or bonus information is not available at the time of filing the proxy statement, requires companies to begin providing pay ratio disclosure in filings that otherwise require executive compensation disclosure for the first full fiscal year beginning on or after January 1, 2017 in time for the 2018 proxy season. All public companies will be subject to this new disclosure requirement, with the exception of emerging growth companies, smaller reporting companies and foreign private issuers.

The pay ratio rule requires disclosure of:

  • Median Employee Compensation. The median of the annual total compensation of a company's employees, excluding its principal executive officer;
  • CEO Compensation. The annual total compensation of the company's principal executive officer; and
  • Pay Ratio. The ratio of the company's median employee compensation to the compensation of its principal executive officer.

In addition to the ratio itself, disclosure describing the methodology used to identify the median employee, determine total compensation and any material assumptions, adjustments (including allowable cost-of-living adjustments) or estimates used to identify the median employee or to determine annual total compensation will also be required. Consistent with the proposed rule, when identifying the median employee, the final rule requires companies to include all employees, including full-time, part-time, temporary, seasonal, and foreign employees employed by the company or any of its subsidiaries and to annualize the compensation of permanent employees who were not employed for the entire year, such as new hires. Companies may not, however, annualize the compensation of part-time, temporary, or seasonal employees. Consultants and other advisors who are not employees and individuals who are employed by unaffiliated third parties are not to be included in the calculation.

The SEC made changes from the proposed rule to address concerns regarding the cost of compliance with the rule and to make the rule a bit easier for companies to implement. For example, the SEC changed the timing of the date of the ratio calculation. Instead of the determination being made based solely on the number of employees employed as of the last day of a company's prior fiscal year, the final rule allows a company to choose a date within the last three months of its last completed fiscal year on which to determine the employee population. In addition, companies may identify its median employee once every three years unless there has been a change in its employee population or compensation arrangements that the company reasonably believes would result in a significant change to its pay ratio and, if within those three years, the median employee's compensation changes, the company may use another employee with substantially similar compensation as its median employee.

To address the criticism regarding the inclusion of foreign employees, the final rule allows companies to exclude foreign employees from the calculation under two circumstances:

  • Foreign Data Privacy Law Exemption — If the foreign employees are employed in a jurisdiction with data privacy laws that make the company unable to comply with the rule without violating those laws, provided that the company obtains a legal opinion from counsel to that effect and files the legal opinion with the SEC with its disclosure filing.
  • De Minimis Exemption — If a company's foreign employees account for 5% or less of its total employees, it may exclude all foreign employees when making its pay ratio calculation. However if it chooses to exclude foreign employees, it must exclude all of them. If more than 5% of a company's employees are foreign employees, it may also exclude up to 5% of its total employees who are foreign employees. However, if a company excludes any foreign employees in a particular jurisdiction, it must exclude all foreign employees in that jurisdiction. In calculating the number of foreign employees that may be excluded under this de minimis exemption, a company must count any foreign employee exempted under the data privacy exemption.

The rule allows for flexibility in identifying a median employee and does not specify a required methodology for purposes of such analysis. In determining the employees from which the median is identified, companies may choose to use their entire employee population, statistical sampling or other reasonable methods. The SEC will allow a company to apply a cost-of-living adjustment in the determination of its median employee, provided the same cost-of-living adjustment is used in calculating total compensation for that employee.

Once the company identifies a median employee, the company must calculate such employee's annual total compensation for the last completed fiscal year using the definition of "total compensation" in Item 402(c)(2)(x) of Regulation S-K. The rule permits a company to include perquisites that aggregate less than $10,000 and broad-based health coverage in the calculation of total compensation, provided that the company uses the same approach in calculating the CEO's total compensation.

Other Executive Compensation-Related Sections of the Dodd-Frank Act are Still to be Finalized. The SEC has proposed three additional rules, which would complete the executive compensation rules required to be promulgated by the SEC under the Dodd-Frank Act. These are the requirements to provide disclosure regarding the hedging of shares by employees and directors; the clawback of "erroneously awarded" compensation; and the relationship between executive compensation that was "actually paid" and the company's financial performance. We will update our clients and friends separately as final rules are issued.

The SEC has publicly stated that hedging may be the first rule to be adopted as the comments were not significant. The hedging proposal requires disclosure about whether directors, officers and other employees are permitted to hedge or offset any decrease in the market value of equity securities granted by the company as compensation or held, directly or indirectly, by employees or directors. The SEC's proposed rule takes a principles based approach in defining "hedging" in order for the rule to be flexible and cover new instruments that may be developed and not provide a "loophole" where certain types of instruments would not need to be disclosed. With respect to the clawback policy, the implementation of the rule is a two-step process. The SEC first must finalize its rule, which will contain a provision requiring the stock exchanges to require companies to have a clawback provision as part of its ongoing listing requirements. The stock exchanges will then have to amend their listing standards to comply. The exchanges will have up to 90 days after the final rule is published in the federal register to file their rules with the SEC. Companies will then have 60 days within which to adopt a clawback proposal. Therefore, it will be approximately 150 days between SEC approval of the clawback rules and the time clawback policies will have to be adopted by companies. The rule is expected to be adopted by the SEC sometime later this year with only minor changes from the proposal. In the meantime, companies may want to consider adding to their 2016 equity grants a provision allowing companies to clawback compensation from these grants based on clawback policies to be adopted in the future. The following is sample language that companies should consider adding to their equity plans if amending or adopting a new plan. Similar language could also be included in the grant agreement:

"Notwithstanding anything to the contrary contained in this Plan, the Company may recover from a Participant any compensation received from any Stock Right (whether or not settled) or cause a Participant to forfeit any Stock Right (whether or not vested) in the event that the Company's Clawback Policy then in effect is triggered."

Although as discussed above, the Dodd-Frank Act has not yet required companies to make changes regarding hedging and pledging and clawbacks, Institutional Shareholder Services (ISS) and institutional stockholders have pressured companies into adopting policies relating to these topics as part of good governance practices. Under ISS policy, a company that allows its executive officers or directors to hedge company stock or pledge a significant portion of company stock may receive an "against" or "withhold" vote for directors individually, committee members, or the entire board. ISS has not established a bright-line test for what constitutes "significant" pledging, but it has indicated that a determination of whether pledging is significant will be based primarily on the number of shares pledged as a percentage of the number of shares outstanding, market value and trading volume in the company's stock as well as the company's current views on future pledging arrangements.3 ISS views both hedging and pledging as adverse to shareholder interests because these practices sever the alignment of directors and executive officers' interests with shareholders by reducing the director's or officer's economic exposure to holding company stock while maintaining voting rights. ISS believes that pledging, which often occurs in connection with a margin loan, can have a detrimental effect on a company's

stock price in the event of forced sales to meet a margin call and such forced sales could also violate a company's insider trading policies. Therefore, if a company does allow these practices, and pledging is described in a company's beneficial ownership table, the company should be sure to address its policies on this practice in its Compensation, Discussion and Analysis section (CD&A) of its proxy statement.

Each year more companies are adopting clawback policies in response to investor pressure. Although many of these policies aim to comply with the Dodd-Frank Act, it seems that investors' primary concern is that companies have such a policy as opposed to the specific wording or requirements of such a policy. In addition, in 2013 certain institutional investors developed compensation recoupment principles aimed at pharmaceutical companies as many companies in the pharmaceutical industry have been increasingly entering into settlements because of executive misconduct. These recoupment policies are more rigorous than the provisions set forth by the Dodd-Frank Act and contemplate that that the compensation committee would have the discretion to determine if there was any material violation of a company policy related to the sale, manufacture or marketing of health care services that has caused significant financial harm to the company and should therefore trigger consideration of a possible recoupment of incentive compensation.

The rules on the relationship between executive compensation that was "actually paid" and the company's financial performance will be disclosed in a new table in the executive compensation section of a Company's proxy statement as new Item 402(v) of Regulation S-K. The table would be required to disclose the following information for five fiscal years (three years for smaller reporting companies):

  • Actual Compensation.

    CEO — The total compensation of the principal executive officer as disclosed in the summary compensation table with certain adjustments for pensions and equity awards (subtracting grant date fair value of equity awards and adding vesting date fair value of equity awards vesting in the particular year) so that the amount would replicate actual compensation.

    Other NEOs — The average compensation actually paid to all remaining named executive officers from the summary compensation table, adjusted as set forth above for the principal executive officer.
  • Summary Compensation Table Reported Amounts.

    CEO — total executive compensation as reported in the summary compensation table.

    Other NEOs — an average of the amounts reported in the summary compensation table for all remaining named executive officers.
  • Company Total Shareholder Return. The company's total shareholder return on an annual basis, using the definition of total shareholder return (TSR) included in Item 201(e) of Regulation S-K, which sets forth an existing requirement for a stock performance graph.
  • Peer Group Total Shareholder Return. The TSR on an annual basis of the companies in a peer group, using the peer group identified by the company in its stock performance graph or in its CD&A. This disclosure will not be required for smaller reporting companies.

In addition, using the information presented in the table, companies will be required to describe as a narrative or graphically the relationship between the executive compensation actually paid and a company's TSR, and the relationship between a company's TSR and the TSR of its selected peer group.

As proposed, emerging growth companies and foreign private issuers would not be subject to this new disclosure rule.

Say-on-Pay: Considerations for 2016. Shareholder support on say-on-pay resolutions continued to average above 90 percent across all companies in 2015. Say-on-pay continues to be perceived as a year-to-year item, in which success in past years is no guarantee of success in the current or future years, and companies should not become complacent about achieving the necessary support, even if they have enjoyed strong support in prior years. The advent of say-on-pay continues to cause companies to reevaluate their compensation-related disclosures in their proxy statements, in particular the CD&A section, with both advocacy and disclosure in mind.

In addition, issuer engagement with institutional shareholders has become an integral part of the say-on-pay process with many companies reaching out to their largest shareholders in the months following the annual meeting to discuss pay practices.

ISS continues to define the standard as to what constitutes a "passing" voting percentage on a say-on-pay proposal with 70% of the vote deemed by them to be acceptable and not require a company to alter its compensation strategy to demonstrate a stronger link between pay and performance.

ISS has not changed the way it analyzes say-on-pay this year4 and continues to recommend a vote against a say-on-pay proposal if:

  • there exists a significant misalignment between CEO pay and company performance (pay for performance);
  • the company maintains significant problematic pay practices; or
  • the board exhibits a significant level of poor communication and responsiveness to shareholders.

In addition, ISS will recommend a vote against or withhold from the members of a company's compensation committee and potentially the full board if:

  • there is no say-on-pay proposal on the ballot, and an against vote on a say-on-pay proposal would be warranted due to pay for performance misalignment, problematic pay practices, the lack of adequate responsiveness on compensation issues raised previously, or a combination thereof;
  • the board fails to respond adequately to a previous say-on-pay proposal that received less than 70 percent support of votes cast, with ISS looking at the following factors in evaluating whether a company has adequately responded;

    • disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
    • specific actions taken to address the issues that contributed to the low level of support;
    • other recent compensation actions taken by the company;
    • whether the issues raised are recurring or isolated;
    • the company's ownership structure; and
    • whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
  • the company has recently practiced or approved problematic pay practices, including option repricing or option backdating; or
  • ISS views the situation as egregious.

We continue to see a trend of companies including an executive summary at the beginning of the proxy statement in an effort to highlight key messages, clearly define the company's views on pay for performance, and ensure the company has a reasonable narrative to support its decisions for last year's pay. A trend of disclosing "realized" or "realizable pay" has also continued to assist shareholders in understanding the executive compensation value actually transferred during a fiscal year and ISS' standard research report now will generally show three-year realizable pay compared to the three-year granted pay for S&P 1500 companies. ISS will discuss realizable pay in its report when its quantitative analysis results in a "high or medium" concern that a company's compensation policies are not linked to overall corporate performance and will also look at realized and/or realizable pay at smaller companies to assist it in determining whether the company demonstrates a strong commitment to a pay-for-performance philosophy.5

In assessing executive compensation boards of directors should continue to bear in mind that their ultimate goal is not to secure a successful say-on-pay vote, but rather to attract, retain and incentivize executives who will contribute to the long-term value of the company. Directors should understand the executive compensation guidelines that ISS and similar groups promote, but should not allow this to override their own judgments as to the compensation programs and policies that are best for their companies. Directors should participate with management in soliciting favorable say-on-pay votes from major shareholders in order to overcome a negative recommendation by ISS.6

Class action law suits alleging that boards of directors breached their fiduciary duties by approving purportedly deficient proxy statement disclosure and claiming that shareholders need more information in order to cast an informed vote typically with respect to equity compensation plan approvals have continued but have not had much success in the courts. Plaintiffs typically bring these cases in state court and seek an injunction against the upcoming annual meeting until sufficient disclosure is provided in the proxy statement in order for shareholders to make an informed decision. The threat of an enjoined annual meeting has pushed many of these companies that have been sued into providing additional disclosures, thereby justifying a fee award to plaintiff's counsel. In many cases suits are never even filed as before filing a complaint plaintiff's counsel will send a demand letter to the company based on what it believes is misleading or omitted information in a proxy statement and at the same time post on its webpage that it is looking for plaintiffs. Many of these demand letters target smaller companies that do not spend their resources on expansive proxy disclosure. Unfortunately, many of these companies still end up paying a fee to plaintiff's counsel to prevent litigation from being filed and spend additional time and resources filing proxy supplements in response to plaintiffs' demands.

Therefore, companies with a low or negative say-on-pay vote and companies seeking authorization for new or additional shares to be issued pursuant to equity incentive plans should take a careful look at their disclosure to ensure that it complies with proxy statement disclosure requirements as well as consider enhanced disclosures to reduce the possibility of litigation. Many companies have boilerplate compensation policy language that is vulnerable to being exploited by plaintiffs, and which is not necessary to provide an accurate and reasonable basis for a company's compensation decisions. Some of the cases recently filed have focused on compliance with Section 162(m) of the Internal Revenue Code of 1986 by stating claims that the per share limit set forth in the company's equity plan has been exceeded or that there was inadequate or incorrect disclosure with respect to this rule in the CD&A and/or in the equity plan disclosure as language with respect to Section 162(m) was not properly drafted.

ISS 2016 Proxy Voting Guidelines. ISS has issued updates for its proxy voting guidelines for 2016 on the following topics: 7

Limitations on "Overboarding." "Overboarding" refers to the concern that directors who serve on multiple boards simultaneously will be overextended and unable to devote sufficient time and energy to the boards on which they have agreed to serve. ISS's previous policy provided that it would recommend withholding votes with respect to directors who serve on more than six public company boards simultaneously. It has revised this position to provide that directors who are not public company CEOs may serve on up to five public company boards simultaneously. Directors who are public company CEOs are limited to service on two public company boards in addition to their own company's board. ISS had proposed to change the latter position to limit a public company CEO to one additional public company board, but has decided not to change that policy at this time. Public company CEOs who serve on more than two boards will receive a "withhold" recommendation at the outside board(s) only.

The guidelines provide for a grace period, until 2017, for the change from six to five simultaneous board seats to allow directors to make an orderly transition of their "excess" directorships, should they choose to do so.

Unilateral/Pre-IPO Governance Changes. Continuing its historic posture of distaste for bylaw or charter amendments that are adopted by a board "unilaterally," or without shareholder approval, ISS has proposed to recommend voting against or withholding votes from individual directors, committee members, or the entire board if the board amends the company's bylaws or charter without shareholder approval to classify the board or to establish supermajority voting requirements to amend the bylaws or charter. In 2015, ISS noted that it would take the same actions if a board unilaterally amended a company's bylaws or charter "in a manner that materially diminishes shareholders' rights or that could adversely impact shareholders," so this is an amplification of that general theme. ISS noted that a public commitment by the issuer to put these provisions to a shareholder vote within three years of the IPO can be a mitigating factor.

Compensation of Externally-Managed Issuers. Externally-managed issuers (EMIs) are companies that do not directly compensate their executives, leaving compensation to an external manager who is reimbursed by the EMI through a management fee. ISS has noted EMIs typically do not disclose their compensation arrangements and payments in as much detail as non-EMIs, making it difficult for shareholders to assess pay programs and how they connect to company performance. ISS will recommend against say-on-pay proposals for EMIs that it believes include insufficient disclosure; disclosure will be considered insufficient if a comprehensive pay analysis is impossible with the information that is provided about compensation practices and payments.

Company Response to Proxy Access Proposals. After a shareholder proposal seeking proxy access has passed, ISS may issue an adverse recommendation if the form of proxy access implemented or proposed by a company contains material restrictions that are more stringent than those included in the majority-supported proxy access shareholder proposal, including:

  • Ownership thresholds above three percent;
  • Ownership for more than three years;
  • Aggregation limits below 20 shareholders; and
  • A cap on nominees below 20 percent of the board.

Where the nominee cap or aggregation limit differs from that specifically stated in a shareholder proposal that received majority support, ISS will evaluate the differences on a case-by-case basis, taking into account (and expecting to see) disclosure regarding shareholder outreach efforts. Most of the shareholder proxy access proposals that have previously passed asked companies to permit shareholders to "group" and aggregate shares they have individually held for 3 years in order to meet the 3% ownership threshold and were silent as to what a reasonable limit on aggregation would be; most (though not all) shareholder proponents have agreed to withdraw their proposals and major shareholders have been willing to support adopted proxy access bylaws where a company acts reasonably in selecting a group limit. If shareholders passed a proxy access proposal with a 25% nominee cap, the company should be able to propose a 20% cap without receiving an adverse recommendation from ISS, assuming it can demonstrate in its proxy statement sufficient shareholder outreach and support. The nomination cap is also an area where most shareholder proponents (and major shareholders) have been willing to show flexibility, and various approaches have emerged on the cap, including hybrid approaches that include both a percentage-based formulation and a numerical minimum or maximum.

Restrictions or Conditions on Proxy Access Nominees. On a range of "second-tier" issues that will have to be addressed as companies formulate proxy access bylaws to ensure that they are not abused, ISS will review proxy access implementation and restrictions on nominees on a case-by-case-basis. ISS considers the following restrictions to be "especially problematic" and to "effectively nullify" the proxy access right:

  • Counting individual funds within a mutual fund family as separate shareholders for purposes of an aggregation limit; and
  • Imposing post-meeting ownership requirements for nominating shareholders.

In addition, ISS views the following restrictions as "potentially problematic," especially when used in combination, in the context of evaluating board responsiveness to a shareholder-supported proxy access proposal:

  • Prohibiting resubmission of failed nominees in subsequent years;
  • Restricting third-party compensation of proxy access nominees (beyond requiring full disclosure of such arrangements);
  • Restricting the use of proxy access and proxy contest procedures for the same meeting;
  • How long and under what terms an elected shareholder nominee will count towards the maximum number of proxy access nominees; and
  • When the new proxy access right will be fully implemented and accessible to qualifying shareholders.

ISS Policy for Evaluating Equity Plan Proposals. For the second year, ISS is using its equity plan scorecard (EPSC) to evaluate equity compensation proposals and has made only minor revisions to its review process. On December 18, 2016, ISS updated its FAQs on equity compensation plans to continue to provide detail on the approval process and FAQ 32 describes the changes made to the EPSC for this coming proxy season.8 Last year, the first in which ISS used the EPSC model to evaluate equity plan proposals, the number of equity plan proposals recommended by ISS increased slightly and this new methodology generally provided companies with greater flexibility to structure key equity plan provisions and appropriately size their share requests.

The following are the key terms of the EPSC:

Plan Cost: The EPSC measures a company's shareholder value transfer relative to two benchmark calculations that consider:

  • new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants, and
  • only new shares requested plus shares remaining for future grants.

Plan Features: The following factors may have a negative impact on EPSC results:

  • Automatic single-triggered award vesting upon a change in control, which may provide windfall compensation even when other options (e.g., conversion or assumption of existing grants) may be available;
  • Broad discretionary vesting authority that may result in "pay for failure" or other scenarios contrary to a pay-for-performance philosophy;
  • Liberal share recycling on various award types, which obscures transparency about share usage and total plan cost; and
  • Absence of a minimum required vesting period (at least one year) for grants made under the plan, which may result in awards with no retention or performance incentives.

Grant Practices: The following factors may have a positive impact on EPSC results, depending on a company's size and circumstances:

  • The company's 3-year average burn rate relative to its industry and index peers — this measure of average grant "flow" provides an additional check on plan cost. The EPSC compares a company's burn rate relative to its index and industry.
  • Vesting schedule(s) under the CEO's most recent equity grants during the prior three years — vesting periods that incentivize long-term retention are beneficial.
  • The plan's estimated duration, based on the sum of shares remaining available and the new shares requested, divided by the 3-year annual average of burn rate shares — given that a company's circumstances may change over time, shareholders may prefer that companies limit share requests to an amount estimated to be needed over no more than five to six years.
  • The proportion of the CEO's most recent equity grants/awards subject to performance conditions — given that stock prices may be significantly influenced by market trends, making a substantial proportion of top executives' equity awards subject to specific performance conditions is an emerging best practice, particularly for large cap, mature companies.
  • A clawback policy that includes equity grants — clawback policies are seen as potentially mitigating excessive risk-taking that certain compensation may incentivize, including large equity grants.
  • Post-exercise/post-vesting shareholding requirements — equity-based incentives are intended to help align the interests of management and shareholders and enhance long-term value, which may be undermined if executives may immediately dispose of all or most of the shares.

ISS will continue to vote against equity plans that contain certain plan features that ISS deems egregious. These features, which have not changed from recent years, are:

  • a liberal change in control definition that could result in vesting of awards before a change in control transaction is actually consummated;
  • allowing for repricing or cash buyout of underwater options without shareholder approval;
  • using the plan as a vehicle for problematic pay practices or a pay-for-performance disconnect; or
  • any other plan features or company practices that are deemed detrimental to shareholder interests such as tax gross-ups.

To read this article in full, please click here.


1. We invite you to review our memorandum from last year, that analyzed regulatory changes that were new for fiscal year 2015. We would be happy to provide you with another copy upon request.

2. Pay Ratio Disclosure, Rel. No. 33-9877 (August 5, 2015)

3. Item 403 of Regulation S-K requires a footnote to the beneficial ownership table if a director or executive officer has stock subject to pledging.

4. The ISS 2016 policy in evaluating say-on-pay is available on its website at: http://www.issgovernance.com/file/policy/2016-us-summary-voting-guidelines-dec-2015.pdf; and http://www.issgovernance.com/file/policy/us-executive-compensation-policies-faq-dec-2015.pdf

5. See ISS Frequently Asked Questions on U.S. Executive Compensation Policies cited above that discusses how ISS will calculate a company's realizable pay.

6. Companies must be mindful of Regulation FD (Fair Disclosure) and not disclose material nonpublic information selectively nor risk sending mixed messages from the disclosures contained in the company's proxy statement or other SEC filings when speaking with stockholders.

7. A summary of the updates to the ISS 2016 voting guidelines can be found at: http://www.issgovernance.com/file/policy/executive-summary-of-key-2016-updates-and-policy.pdf.

8. http://www.issgovernance.com/file/policy/1_us-equity-compensation-plans-faq-dec-2015.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Megan N. Gates
Pamela B. Greene
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Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.