Board Confirms Unallowability of Executive Compensation Based on Changes in Securities and Dividends Prices

In Exelis Inc. (ASBCA No. 58966, Mar. 29, 2017), the Board upheld the Government's disallowance of compensation paid under Exelis’ Long-Term Incentive Plan as expressly unallowable under FAR 31.205-6(i) and subject to level 1 penalties because it was “based on changes in the prices of corporate securities and dividends.” The amount of compensation was determined based on “total shareholder return” (TSR) using a formula that compared growth in the value of Exelis’ stock and dividends to other companies. The Board held that, “[a]s in Raytheon, the metric Exelis used to calculate and value the TSR compensation was TSR performance ratings, which were based on securities price changes and dividend payments.” The Board rejected Exelis’ argument that Raytheon could be distinguished because the TSR costs were “paid based upon a predetermined compensation award pool,” noting that “the plain language of the cost principle more broadly renders unallowable any compensation that is ‘calculated’ or ‘valued’ based upon‘changes in the price of corporate securities.”

Early Proxy Results Signal Investors Want Annual Say on Executive Pay

Shareholders strongly favor maintaining annual say-on-pay votes, even though the majority of investors back company executive compensation plans, according to a report from ISS Analytics, a unit of the nation’s biggest proxy adviser.

Investors this year get to weigh in on how frequently companies should seek their opinion on executive remuneration plans. This is the second time shareholders get to decide on the frequency of the executive compensation approval ballot since 2011, when the rules first came into effect. Investors could opt to hold the vote annually, once every two years, or every three years. READ MORE

Practical Considerations Relating to Share Withholding for Taxes

In a previous post, we summarized a new Financial Accounting Standards Board (FASB) rule that allows increased share withholding for taxes under United States Generally Accepted Accounting Principles (GAAP). This new rule permits cash settlement of a share-based award for tax withholding up to the maximum statutory tax rate in the applicable jurisdiction without causing adverse accounting treatment of the equity award.

The rule generally became effective for calendar year companies on January 1, 2017. Many companies are now considering implementing increased share withholding for taxes and must consider their existing equity plan provisions and securities law, IRS, and payroll issues. READ MORE

SEC Takes Action: Results of Under-Disclosing Executive Perks

The Securities Exchange Commission (SEC) investigation of and the action taken against MDC Partners Inc. (“MDC”) and its former Chief Executive Officer, Miles S. Nadal (“Nadal”), underscore the importance of proper disclosure of executive compensation. Between 2009 and 2014, MDC disclosed in its proxy statements some, but not all, of the perquisites paid on Nadal’s behalf. The estimated $11.285M worth of perquisites that MDC failed to disclose included private aircraft usage, club memberships, cosmetic surgery, yacht and sports car related expenses, jewelry, charitable donations, pet care and personal travel expenses. READ MORE

SEC fines and sanctions executive for misstatement of executive compensation

On May 11, 2017, the former head of MDC Partners, Inc. (MDCA), a NASDAQ-traded marketing firm, entered into a settlement with the Securities and Exchange Commission (SEC) to pay a $5.5 million fine arising from a years-long pattern of executive compensation disclosure violations. While MDCA already agreed to pay a $1.5 million SEC settlement earlier this year[1] in relation to these violations and cooperated with the SEC in its investigation, this most recent order pertains to its former President, CEO and Chairman, as an individual.

Companies registered under the Securities Act of 1933 or Securities Exchange Act of 1934, as amended (Exchange Act) are required to report certain executive compensation in accordance with Item 402 of Regulation S-K.[2] While salary, bonus, stock options and other more traditional benefits often comprise a large proportion of this reported compensation, perquisites (or “perks”) also need to be disclosed. READ MORE

CEO Pay Is Rising Twice as Fast as Workers' Income

The Associated Press reports that American CEOs got an 8.5-percent raise last year, taking in a median of $11.5 million in salary, stock, and other compensation. It's the biggest CEO pay increase in three years.

The raises are a reflection of the bull market in stocks.

"Boards of directors increasingly require that CEOs push their stock price higher to collect their maximum possible payout, and the Standard & Poor's 500 index returned 12 percent last year," the AP reported. READ MORE

Hewlett Packard Enterprise has frustrated its sales people with issues over their pay ... again

On April 27, Hewlett Packard Enterprise held an all-hands meeting for the thousands of people in its North American salesforce and apologized to them.

The company's internal software, which tracks how much each person has sold and their sales commissions that form the bulk of their pay, was still not working properly, a top HPE exec confessed matter-of-factly. READ MORE

Trump, Hill Republicans target ‘overly generous compensation’ for feds

With President Trump targeting federal employees’ retirement programs and House Republicans taking aim at their compensation generally, Uncle Sam’s goal of being a model employer looks shaky.

The administration’s fiscal 2018 budget proposal, scheduled for release Tuesday, includes a series of cuts to retirement programs, as The Washington Post reported last week. Then, amid a torrent of reports denoting Trump as unfit, unprepared and unbecoming, Republicans took time for a hearing to promote the notion that feds are overpaid. READ MORE

Can Chipotle’s Attempt to Tie Employee Compensation to High Customer Service Scores Help Restore Brand Loyalty?

Last year was a very challenging year for Chipotle, one that was well documented and caused company officials to take strident measures to take control of food safety, experiment with a temporary loyalty program, and restore brand loyalty among its customers.

Now, Chipotle management is tying employee compensation in its restaurants to high customer service scores. Is this a good or bad idea and what elements are involved in this that could bring a positive or detrimental effect? Can this impact the overall customer experience? READ MORE

Revenue Rule Could Pose Challenges to Bonus, Compensation Plans

The 2018 revenue recognition standard could affect companies’ compensation or bonus plans because measurement methods used under the old rules will change, a senior Deloitte & Touche LLP executive told a conference May 8.

“A lot of companies have some type of bonus arrangement, compensation plan, or some type of compensation for their employees and executives and invariably all those types of plans have some sort of link to revenue,” Deloitte senior consultation partner of revenue recognition Eric Knachel said at a Deloitte and Bloomberg BNA conference on revenue recognition. READ MORE

CEOs Just Had Their Largest Pay Raise in Three Years

Average compensation for CEOs at some of the largest companies in the U.S. clocked in at $16.6 million last year, up from $15.5 million in 2015, according to a study by executive data firm Equilar.

The study, which looked at figures from the 100 largest corporations by revenue that filed proxy statements covering 2016 before April 1, found the median pay increase for CEOs was 6%, the largest bump since 2013. READ MORE

House Republicans voted to change overtime rules for workers

On Tuesday afternoon, the House voted to pass a bill that Republicans have promoted since the Newt Gingrich era, one that would allow private-sector employees to exchange overtime pay for “compensatory time" off, electing to accrue extra hours off rather than extra pay in their wallets. The bill passed 229 to 197, largely along party lines.

The bill -- which supporters say would add flexibility to hourly workers' schedules while opponents worry that it wouldn't do enough to protect employees -- is not a new idea. It seeks to take a similar provision that has been available to government workers since 1985 and extend it to private-sector employees, making it legal for them to choose between an hour and a half of paid comp time and time-and-a-half pay when they work additional hours. READ MORE

The biggest threat to Snap: Employees are paid with stock that just dropped 20%, analyst says

One of Snap 's Wall Street critics said he's reasonably positive on the stock in the long term — but Thursday's stock sell-off exposed one of the company's biggest risks.

"I don't think that the company needs to be concerned about that, except for the fact that a lot of employees who work there have been issued significant amounts of [restricted stock units] which are dependent upon a high stock price," said Brian Wieser, senior analyst at Pivotal. "The biggest risk for the company is, 'How do you manage a workforce whose compensation is largely stock-driven, if the stock comes down to earth?'" READ MORE