Compensation Committee Corner : Executive Compensation Lawyer & Attorney : Winstead Law Firm : Director Liability, Employee Benefit Arrangements

We now have our first failed say-on-pay proposal for this proxy season.  Discussed below, this failure raises the issue of whether companies should affirmatively disclose controversial pay practices or compensation issues within their proxy statements.  Minimally, the issue should be considered. 

Background

Generally, institutional shareholder advisory services such as ISS will only look to the "four corners" of the proxy statement in making its recommendation (i.e., it will not look at other filings of the issuer).  This means that if a company has a controversial pay practice or compensation issue, it should consider affirmatively explaining such issue in its proxy statement in the hopes of avoiding a possible negative recommendation from ISS (and applicable others). 

First Failed Say-on-Pay Proposal of this Proxy Season 

On January 28, 2011, Jacobs Engineering Group Inc. filed a Form 8-K (Found Here) showing that their advisory say-on-pay vote resulted in a majority voting "against" the proposal.  This is the first failed proposal for this proxy season.

It seems a cause for the failure related to a one-time grant of restricted stock to its executive officers.  The proxy statement contained little discussion about the grants.  Though I did not check, it can be inferred that ISS (or other service) recommended a "no" vote because the company later made an effort to explain the grants by filing additional materials to its proxy statement.  (Found Here)

Some Examples of Companies Providing Affirmative Disclosure

A few examples of companies providing affirmative disclosure of controversial pay practices or issues within their proxy statements are as follows:

• FedEx Corporation explained in their proxy statement filed on August 16, 2010, why tax reimbursements associated with their executive officers' receipt of restricted stock was appropriate even though the company generally discontinued tax gross-ups.  (Found Here)
• Level 3 Communications, Inc. discussed its rationale for single trigger vesting and 280G gross-up provisions in its proxy statement filed on April 2, 2010.  (Found Here) 
• Saks Incorporated addressed its rationale for severance arrangements with its executive officers in its proxy statement filed on May 7, 2010.  (Found Here)
• Intel Corporation addressed overhang and burn rate issues in its proxy statement filed on April 3, 2009.  (Found Here)

To close, companies should at least consider providing affirmative disclosure.

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Issuers who hold their annual shareholders meeting after January 21, 2011, will have to implement say-on-pay as part of their proxy process.  At this first annual meeting, shareholders must also decide on the frequency of the say-on-pay vote, such frequency also becoming known as "say-when-on-pay."  The purpose of this Post is to discuss issues that should be considered when implementing say-when-on-pay. 

Background

Addressing the frequency of say-on-pay, issuers must offer shareholders the following four choices: annual, biennial, triennial and abstention.  Thereafter, the vote on frequency must be held by a separate resolution no less than once every six years.

Worth noting is that a majority of the issuers who have filed proxy statements this season have recommended triennial say-when-on-pay.

Some Reasons to Adopt an Annual Vote

• There is a belief that annual votes will become routine, similar to annual ratification of an issuer's outside auditors.  Those following this thought believe that the scrutiny associated with an annual vote will eventually be less than the scrutiny associated with a biennial or triennial vote.
• Another thought is that shareholder dissatisfaction is likely to be expressed in the say-on-pay process as opposed to utilizing withhold/no votes on compensation committee members.  Thus, as the thought goes, compensation committee members are more protected with annual say-on-pay.
• ISS recommends annual voting.
• There is real time disclosure and shareholder feedback associated with annual voting.
• For those issuers with poor pay practices, annual voting may be preferred so that the taint associated with a no vote does not last for two or three years (as it would if biennial or triennial voting were implemented).

Some Reasons to Adopt a Biennial or Triennial Vote

•  A biennial or triennial vote helps shareholders evaluate the long-term effects of an issuer's multi-year compensation structures.  In contrast, an annual vote encourages short-term thinking and focuses on interim results, such as a decrease in stock price.
• Preparing for and implementing say-on-pay on an annual basis may be costly and mis-directs the attention of management.
• Assuming shareholders express negative thoughts during the say-on-pay process, the compensation committee may need to time implement changes to various compensation policies and procedures. 
• Some investors prefer a voting frequency that is longer than annual voting  (e.g., the United Brotherhood of Carpenters prefers triennial voting).
• Certain registered institutional investment managers may find that annual reporting to the SEC on how they voted is too burdensome for every portfolio company.

Recommendation from the Issuer

Issuers have the opportunity in their proxy statement to recommend a voting frequency.  The following are some examples of recent examples (and links to their proxy statements) where issuers have recommended a frequency vote or have affirmatively abstained from such recommendation (or you can go here where I have cut and paste the applicable language into this PDF):

• Annual vote recommendation filed by Navistar International Corporation in its proxy statement on January 14, 2011.
• Biennial vote recommendation filed by Fair Isaac Corporation in its proxy statement on December 27, 2010.
• Triennial vote recommendation filed by Tyco International Ltd. in its proxy statement on January 14, 2011.
• Affirmative abstention from any recommendation filed by Jack In The Box, Inc. in its proxy statement on January 13, 2011.

Any Worries with Recommending other than an Annual Vote?

For issuers who prefer other than an annual vote but are worried that such a recommendation may not succeed, consider offering an olive branch such as:

• A written commitment in the recommendation that the issuer will resubmit its say-when-on pay the following year if the biennial or triennial recommendation does not receive the affirmative vote of a majority of the shareholders.
• A written commitment in the recommendation that the issuer will resubmit the say-when-on-pay proposal at such biennial or triennial vote.

As a concluding thought, for those of you who are responsible for implementing say-on-pay and say-when-on-pay internally at the issuer, do not forget to set internal expectations as to what is an acceptable percentage of "no" votes.  It may be that your team thinks 10% or 20% "no" votes is acceptable, whereas your compensation committee may find such percentage appalling (or vice versa).

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Addressing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Act"), I previously discussed clawbacks (Post 1 of 8), say-on-pay voting requirements and a new prohibition on certain votes from brokers (Post 2 of 8), and new disclosure and shareholder vote requirements for golden parachute payments (Post 3 of 8).  As stated in those prior posts, the Act contains significant executive compensation and corporate governance rules that apply to most public companies.  This Post 4 of 8 discusses a new rule under the Act to disclose internal pay equity of the CEO against all employees.

New Internal Pay Equity Disclosure

The Act requires a comparison of the CEO's annual total compensation (as disclosed in the Summary Compensation Table) to the median total annual compensation of all employees (other than the CEO), disclosed in the form of a ratio.  In developing data for the comparison, the median compensation of all employees must be calculated in accordance with the rules governing Total Compensation under the Summary Compensation Table.

Effective Date

No effective date was specified in the Act.  As we wait for guidance from the SEC, companies should consider the comment from SEC Chairwoman Mary Schapiro that rules will not likely be in place for the 2011 proxy season. 

Issues to Consider

Some of the issues a company should consider when implementing the above include:

• Consider that it may take time to implement an internal system to track "total compensation" of non-CEO employees (using rules comparable to Total Compensation as disclosed in the Summary Compensation Table).
• It is not yet known whether temporary, part-time and/or union employees would be included in the disclosure.
• Consider that time may be needed to develop and compile compensation statistics for international employees residing in foreign jurisdictions (if such is required by the SEC to be part of the disclosure).
• It is not yet known how pay for U.S. citizens on foreign assignments would be calculated.
• To highlight the fairness of internal pay equity, consider whether to expand the above disclosure to discuss the CEO's Total Compensation against the Total Compensation of other executive officers within the company.  Consider whether to reflect such disclosure over one or more years.
• In relation to the previous bullet point, consider whether the disclosure should include an analysis of an executive's wealth accumulation and/or internal buildup of cash, deferred compensation and equity (a.k.a., walkaway pay).

Hopefully the SEC will soon provide guidance on the above disclosure rules since companies will need time to implement an internal mechanism to track Total Compensation of all non-CEO employees.  Until then, stay tune for more posts on the Act (Posts 5 through 8)! 

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It is expected that ordinary income tax rates, dividend income rates and long-term capital gains rates will increase effective January 1, 2011, due to expired tax cuts from the Bush administration.  Some companies are considering whether to accelerate payment of certain compensation for their key employees into the 2010 tax year to help those key employees take advantage of lower income tax rates.  The purpose of this Post is not to advocate such action, but to provide a summary of certain issues that should be considered when deciding whether to accelerate the payment of compensation.

BACKGROUND

The tax cuts from the Bush administration are scheduled to sunset at the end of the 2010 calendar year.  This generally means that if Congress fails to act prior to the end of the year, then effective January 1, 2011, tax rates will likely increase as follows:

• the top ordinary income tax rate would likely increase from 35% to approximately 39.6%;
• the top rate for qualified dividend income would likely increase from 15% to approximately 39.6%; and
• the long-term capital gains tax rate would likely increase from 15% to approximately 20%.

ALTERNATIVES TO CONSIDER

Accelerating taxable income of a key employee into the 2010 tax year could be accomplished through a variety of means, a few of which are discussed below.

• Cash Bonus Programs.  The full or partial payment of an annual cash bonus could be accelerated into the 2010 tax year.  A key issue to consider is whether any accelerated payment would violate the timing requirements of Section 409A.  Additionally, for those annual cash bonus programs that are intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended, a few other issues to consider include:
  • To maintain qualification under Section 162(m), the amount of money subject to the accelerated payment date would likely need to be discounted to reasonably reflect the time value of money.  This discount would likely be a small dollar amount. 
  • Additionally, and to continue qualification under Section 162(m), the compensation committee must certify the attainment of the stated performance goal prior to any payment.  This means an analysis should be performed as to whether the compensation committee could certify preliminary financial results or certify a portion of the financial results attained.  Any remaining balance owed to the key employee could then be paid in 2011 pursuant to the normal payment schedule, however, such 2011 payment would not likely qualify as performance-based compensation. 
  • In lieu of the above, the board or its compensation committee (as applicable) could pay a discretionary bonus to the key employee in 2010.  To avoid overpaying the key employee, the normal bonus scheduled to be paid in 2011 could be reduced by a corresponding amount assuming the board or its compensation committee (as applicable) retained negative discretion to reduce such payment.
• Nonqualified Stock Options (“NSOs”).  Generally, the holder of an NSO recognizes ordinary taxable income at the time of exercise equal to the difference between the then fair market value of the underlying stock and the exercise price.  Due to the optionality of the stock option, the holder could exercise at any time, including within the 2010 tax year (absent a company policy to the contrary).  And even if the NSO is subject to a vesting schedule, the board of directors or its compensation committee could decide to accelerate vesting into the 2010 tax year (assuming such discretion was retained); however, keep in mind that accelerated vesting would likely negate the retention attribute that the vesting schedule was intended to create.
• Restricted Stock and Stock Unit Awards.  As with cash bonus programs, a key issue to consider is whether any accelerated payment would violate the timing requirements of Section 409A.  Also, if the restricted stock award and/or stock unit award is designed to qualify as performance-based compensation under Section 162(m), then the above Section 162(m) analysis would generally apply.  However, if such awards are subject only to time-based vesting, then the board of directors or its compensation committee could decide to accelerate vesting into the 2010 tax year (assuming such discretion was retained); though keep in mind that accelerated vesting would likely negate the retention attribute that the vesting schedule was intended to create.

Additionally, the grant date of a restricted stock award could be accelerated provided the board of directors or its compensation committee takes appropriate action.  Assuming such award would be subject to a vesting schedule, the key employee recipient could make a Section 83(b) election in order to recognize ordinary taxable income on the date of grant (as opposed to the date of vesting), however, such election would generally have to be made, if at all, within 30 days from the date of grant.

SHAREHOLDER OPTICS

Any proposed action to accelerate the timing of a key employee’s taxable income should be properly vetted to determine the optics from the shareholder’s perspective (which is likely a factually intensive analysis).  How shareholders would perceive an accelerated payment is an issue for both public and private companies.  However, public companies should also consider:

• Whether an accelerated payment or vesting would be inconsistent with the compensation policies and procedures set forth in the CD&A of the company’s proxy statement.
• Whether and to what extent an accelerated payment would increase the named executive officer’s total compensation as set forth in the Summary Compensation Table of the company’s proxy statement.
• Related to the above, whether an accelerated payment to a key employee would cause a change in the identity of the company’s named executive officers for the fiscal year.
• Whether an accelerated payment would create CD&A optic issues if a named executive officer’s pay for the fiscal year increases when:

• The financial performance of the company decreases.  This issue references the provision under the Dodd-Frank Act that would require (when the SEC issues rules) a company to disclose the relationship between the financial performance of the company and the compensation actually paid to its named executive officers (likely disclosed in the form of a graph or pictoral).
• The median total annual compensation of all employees (other than the CEO) is relatively low when compared to the total compensation of the CEO after including the accelerated payment.  This issue references the provision under the Dodd-Frank Act that requires a comparison of the CEO’s annual total compensation (as disclosed in the Summary Compensation Table) to the median total annual compensation of all employees (other than the CEO), disclosed in the form of a ratio.

• Whether an accelerated payment would be “material” such that the company would be required to file a Form 8-K.

To conclude this Post, companies should proceed with caution when deciding whether to accelerate the payment of compensation related items for one or more of its key employees. 

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Over the last week I discussed clawbacks (Post 1 of 8), say-on-pay voting requirements and a new prohibition on certain votes from brokers (Post 2 of 8) under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Act"), signed into law by President Obama on July 21, 2010.  As stated in those prior posts, the Act contains significant executive compensation and corporate governance rules that apply to most public companies.  This Post 3 of 8 discusses a new requirement under the Act relating to golden parachute payments.

New Disclosure and Vote Requirement on Golden Parachute Payments

In addition to the new say-on-pay requirement discussed in a prior post (Prior Post), certain payments to named executive officers ("NEOs") in mergers and acquisitions must be adequately disclosed in the proxy or consent solicitation materials and submitted to the shareholders for their approval in the form of a non-binding shareholder resolution.  The disclosure must:

• Describe in clear and simple terms any compensation arrangements with NEOs that are related to the transaction.
• Describe the aggregate amount of all compensation that will or could be paid to the NEOs (including any conditions to payments).  AND
• Include a separate non-binding advisory vote to approve the payments (though a separate vote is not required if the arrangements were previously subject to a say-on-pay vote).

Effective Date

The above disclosure and vote requirements apply to shareholder meetings that occur after January 21, 2011.

Issues to Consider

Some of the issues a company should consider when implementing the above include:

• Consider reviewing current payment arrangements with NEOs to determine whether any golden parachute payments are aligned with the company's current compensation philosophy.  This should include a review of all prospective payments, including payments derived from employment agreements, incentive plans, bonus programs, etc.
• Once a list of prospective payments is compiled, the next step is to ensure the payments will be adequately disclosed in accordance with rules to be issued by the SEC.  It may be that the disclosure rules will resemble current requirements under Item 402(j) of Regulation S-K.
• Once the SEC issues disclosure rules, a determination should be made as to whether any prospective golden parachute payments should be disclosed and submitted to the shareholders for a say-on-pay vote prior to any known merger or acquisition.  Such prior disclosure and vote could avoid having to obtain additional disclosure and vote at the time of a merger or acquisition.

Over the next few months the SEC will likely provide guidance on the above disclosure and voting rules.  Until then, stay tune for more posts on the Act (Posts 4 through 8)!

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A few days ago I discussed clawbacks (Post 1 of 8) under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Act"), signed into law by President Obama on July 21, 2010.  As stated in that prior post, the Act contains significant executive compensation and corporate governance rules that apply to most public companies.  This Post 2 of 8 discusses a say-on-pay requirement under the Act (the other say-on-pay requirement applies to golden parachute payments and will be addressed in Post 3 of 8) and a new prohibition on the ability of brokers to vote on compensation-related matters.

New Say-on-Pay Requirement

Under the Act, shareholders of most public companies must be provided with a non-binding advisory vote on executive compensation as disclosed under SEC rules.  Specifically: 

• A vote is required at least once every three years, beginning with the first shareholder meeting that occurs after January 21, 2011.  In other words, say-on-pay will be required for many public companies this upcoming proxy season.
• At this first annual meeting, the shareholders must also decide on whether the vote should be held every one, two or three years (thereafter a vote on frequency must be held by a separate resolution no less often than every six years). 

New Prohibition on Certain Votes from Brokers

The Act requires national securities exchanges to prohibit brokers from voting on executive compensation matters (including say-on-pay), director elections and any other significant matter (as determined by the SEC). 

Effective Date

Say-on-pay votes apply to shareholder meetings that occur after January 21, 2011.  The rule prohibiting certain discretionary voting by brokers is effective July 21, 2010.

Issues to Consider

There are many issues a company should consider when implementing say-on-pay, and even more if the company has a large percentage of retail shareholders.  These include:

• How should a company revise its proxy statement to incorporate the mechanics of the say-on-pay mandate?  How should it frame the resolution?  Should the board of directors make a recommendation on the frequency of the vote? 
• Consider whether a company should make changes to its CD&A and tabular disclosure since shareholders will now be voting on its overall disclosure.
• Assuming retail shareholders typically vote with management, it would follow that the influence of institutional shareholder advisory services (e.g., RiskMetrics Group, Glass Lewis) could be disproportionately increased if the beneficial owners of the shares do not provide voting instructions to the retail shareholders.  This means a company may want to revisit its ability to comply with mandates set by shareholder advisory services (e.g., review change in control policies, employment agreements, separation pay arrangements, etc.).
• For those companies with a large percentage of retail shareholders, consider implementing ongoing educational campaigns with shareholders and beneficial owners to explain the company's compensation programs and educate beneficial owners that a failure to provide the broker with specific instructions would be the equivalent of a "no vote."
• Though say-on-pay is "nonbinding," keep in mind that compensation committee members would need to react to a failed say-on-pay proposal or risk receiving withhold votes during their reelection.  Last proxy season the shareholders of three companies voted against management say-on-pay proposals (KeyCorp, Occidental Petroleum and Motorola).  It could happen.

Given the number of action items a public company will need to consider or implement, the best advice is to prepare early, especially if shareholder educational campaigns need to be conducted.  Until then, stay tune for more posts on the Act (Posts 3 through 8)!

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The legislation I have been following (Prior Post 1, Prior Post 2) is no longer a bill sitting on the steps of Capitol Hill.  On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Act").  The Act represents significant legislation containing executive compensation and corporate governenance rules that apply to most public companies.  Due to the significance of the Act and the fact blog entries are not intended to be lengthy, I will address the Act in 8 separate entries, beginning with clawbacks.

New Clawback Requirement More Expansive than Section 304 of SOX

As a listing requirement, national securities exchanges will require companies to implement clawback policies (a.k.a. recoupment policies) that are more expansive than current requirements under Section 304 of the Sarbanes-Oxley Act (“Section 304”).  Under the Act:

• The clawback policy must be triggered any time the company prepares an accounting restatement resulting from material noncompliance with any financial reporting requirement (in contrast, Section 304 applies only when a restatement of financial statements is “required” and is the result of “misconduct”).
• Once the clawback policy is triggered, it would apply to all incentive-based compensation paid to current and former executive officers (in contrast, Section 304 applies only to the CEO and CFO).
• The look back period for which incentive-based compensation is subject to clawback is the three-year period preceding the date on which the restatement is required (in contrast, the look back period under Section 304 is twelve months).
• The amount subject to the clawback is the difference between the amount paid and the amount that should have been paid under the accounting restatement.

Effective Date

No deadline was provided within which national securities exchanges must implement this rule.

Issues to Consider

Previously (Prior Post) I set forth issues that should be considered in designing clawback policies.  Due to the Act's requirements, I am updating that Post with the following:

• Clawback policies should be revisited to determine what changes would be required under the Act.
• Determine “who” should be responsible for clawback enforcement (e.g., a risk assessment officer, the compensation committee, the full board of directors) and what repayment procedure should be used once a clawback is triggered.
• Determine whether the clawback policy should be more expansive than required under the Act.  For example, consider adding more events that would trigger the clawback than currently required under the Act, such as poor performance, violation of noncompetes, negligence, etc.  As I previously addressed (Prior Post), one reason for a strong clawback policy is that it can act as a mitigating factor to negate risk assessment disclosure under recent SEC rules (which require narrative disclosure of compensation policies and practices that are “reasonably likely” to have a “material adverse effect” on the company). Plus, a strong clawback policy acts as positive CD&A disclosure.
• The above should involve a current analysis and review of all compensation arrangements between a company and its executive officers (e.g., employment agreements, bonus arrangements, equity awards) to ensure proper integration between such arrangements and a company's new clawback policy.

 We will likely see more activity in this area as the national securities exchanges begin to implement this rule.  Until then, stay tune for more posts on the Act (Posts 2 through 8)!

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The purpose of this Post is to highlight issues that compensation committee members should consider when designing an effective "clawback policy" for compensation paid to certain executive officers.

Background

A clawback policy (also known as a "recoupment policy") generally refers to a company's ability to recover compensation it paid to an employee (or former employee) due to a specific triggering event.  Effective clawback policies can provide positive CD&A disclosure, are generally considered shareholder friendly by shareholder advisory services such as RiskMetrics, and can help negate "materiality" under the new SEC risk assessment disclosure rules (Prior Post).

Section 304 of SOX May Not Be Sufficient

Under Section 304 of the Sarbanes-Oxley Act of 2002 ("Section 304"), the CEO and CFO of a public company are required to reimburse the company for certain cash and equity compensation received (and any profit realized) during the 12-month period following the company's first issuance or filing of erroneous financial statements.  However, Section 304 has a number of deficiencies, including:

• Only the CEO and CFO are covered. 
• Clawbacks are mandated only when the company is "required" to restate its financial statements (it is not always clear whether a restatement is required, e.g., consider whether a restatement to follow advice of a new accounting firm would be considered voluntary or required).
• Clawbacks are triggered only as the result of "misconduct," which is not defined.
• Only the SEC can bring an action against the CEO and/or CFO (i.e., private plaintiffs such as a company or its shareholders cannot bring a claim under Section 304 against the CEO and/or CFO).

In light of these possible deficiencies, compensation committees should consider implementing a more robust clawback policy.

Issues to Consider When Designing a Clawback Policy

The following are a few issues compensation committees should consider when designing a clawback policy:

• Which employees should be subject to the clawback policy?  Minimally, it should include one or more employees who have influence on critical business issues.  For example, the policy could be designed to cover: (i) the CEO and CFO (comparable to Section 304), (ii) all named executive officers (though this could become burdensome if NEOs change from year to year under the new SEC disclosure rules), (iii) all Section 16 officers, or (iv) all executive officers.
• Should it cover current and/or former employees?
• Which events should trigger a clawback (e.g., restated financial statements, fraud, misconduct, negligence, poor performance, and/or violation of non-competes or other restrictive covenants)?
• Should the policy require the executive to have some culpability or should the culpability of a subordinate be sufficient?
• What compensation should be subject to clawback (e.g., cash payments, equity, etc.)?  Should it include profit (e.g., recover any profit arising from sale of stock options)?
• Who should be responsible for enforcement (e.g., a risk assessment officer, the compensation committee, the full board of directors)? 

To conclude, increased compensation governance standards, public outrage over perceived compensation abuses and prospective say-on-pay mandates are just a few of the reasons compensation committees should discuss implementing or bolstering clawback policies prior to their upcoming annual meeting.

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New SEC rules require narrative disclosure of compensation policies and practices that are "reasonably likely" to have a "material adverse effect" on the company. The purpose of this Post is to highlight that implementation (or increased use) of mitigating factors could negate risk assessment disclosure while simultaneously bolstering a company's compensation governance practices.

Background

On December 16, 2009, the SEC adopted final rules (Prior Post) that broaden executive compensation disclosure within proxy statements and annual reports. The new disclosure rules are generally effective February 28, 2010 (Prior Post).

One requirement of the new rules is that a company must provide narrative disclosure of compensation policies and practices that are "reasonably likely" to have a "material adverse effect" on the company. An important point is that no disclosure is required unless the materiality threshold is satisfied (though financial institutions participating in TARP are subject to different requirements).

Mitigating Factors

A risk assessment should be conducted to determine whether the materiality threshold is satisfied. This assessment should (i) focus on individuals (and groups of employees) who could cause risk to the company, and (ii) identify features of compensation programs that could entice executives (or groups of employees) to take risks that might threaten the company's value.

However, these risks (and the subsequent "materiality" analysis) should be balanced against mitigating factors such as:

• stock ownership guidelines that require an employee or director to own a meaningful amount of equity in the company until some future date (e.g., retirement, termination of employment);
• clawback provisions or policies that are more stringent than currently required under Section 304 of the Sarbanes-Oxley Act of 2002; and/or
• compensation limits or caps to ensure an employee's total pay does not exceed acceptable levels.

In addition to helping negate risk assessment disclosure, the above mitigating factors (and others not addressed above) are a form of good compensation governance (and positive CD&A disclosure) that every compensation committee should consider implementing or enhancing this proxy season.

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