Stock options have been a part of executive pay at major U.S. corporations for approximately 100 years. They have had an important role for approximately 70 years, starting in the 1950s. They have gone through periods of extraordinary popularity (e.g., the 1990s) and have been less popular during periods when the stock markets were in the doldrums. They survived the change in accounting rules (2006) that now require them to be a charge against earnings. This post examines this history and takes a look at where options are today. 
Posts Tagged ‘McCarter & English’
The Dodd-Frank law took effect July 21, 2010.  Subtitle E of Title IX of Dodd-Frank addresses “Accountability and Executive Compensation” (§§951-957). Since the enactment of the act, the Securities and Exchange Commission (SEC) has adopted final rules as to two of the provisions, proposed rules as to two others and has not yet proposed (but has announced it will be proposing) rules as to another three provisions. This post summarizes the current status of regulation projects under Dodd-Frank Sections 951 through 957.
The tax status of so-called “carried interests,” held by private equity fund sponsors (and benefitting, in particular, the individual managers of those sponsors) is the subject of this post. A decision by the U.S. Court of Appeals for the First Circuit holding that a private equity fund was engaged in a trade or business for purposes of the withdrawal liability provisions of ERISA (Employee Retirement Income Security Act) has caused considerable comment on the issue of whether a private equity fund might also be held to be in a trade or business (and not just a passive investor) for purposes of capital gains tax treatment on the sale of its portfolio companies. Proposed federal income tax legislation, beginning in 2007 and continuing into 2013, also has raised concern as to the status of capital gains tax treatment for holders of carried interests. The following post addresses both of these developments.
Today’s post considers what might be done in the design of executive pay to encourage commitment by executives to the longer-term interests of their employers.
A very interesting examination into design features in an incentive program that puts emphasis on long-term considerations of executive pay is contained in the proxy statement for Goldman Sachs. (Elements of this program discussed below have been developed by Goldman Sachs over a period of years—the CD&A section of the 2013 proxy statement provides a description of the program.) Following are two interesting aspects of that program.
Today’s column focuses on new rules of the New York Stock Exchange (NYSE) and the NASDAQ Stock Market (NASDAQ) concerning independence requirements for directors who are members of compensation committees. The new rules must be complied with by listed companies by the earlier of the first annual meeting of shareholders after Jan. 15, 2014, or Oct. 31, 2014. 
NYSE Listed Company Manual Section 303A.02(a)(ii) contains the following requirements regarding compensation committee member independence (references to an NYSE Listed Company Manual Section hereinafter will be referred to as NYSE Section):
[I]n affirmatively determining the independence of any director who will serve on the compensation committee of the listed company’s board of directors, the board of directors must consider all factors specifically relevant to determining whether a director has a relationship to the listed company which is material to that director’s ability to be independent from management in connection with the duties of a compensation committee member, including, but not limited to:
“Then you should say what you mean,” the March Hare went on.
“I do,” Alice hastily replied; “at least—at least I mean what I say—that’s the same thing, you know.”
“Not the same thing a bit!” said the Hatter. “You might just as well say that ‘I see what I eat’ is the same thing as ‘I eat what I see’!”
Alice in Wonderland, Lewis Carroll (1865)
The Preamble to SEC Disclosure Regulations (2006)  states: “We believe that plain English principles should apply to the disclosure requirements that we are adopting, so disclosure provided in response to those requirements is easier to read and understand. Clearer, more concise presentation of executive and director compensation…can facilitate more informed investing and voting decisions in the face of complex information about these important areas.”
To which the Mad Hatter might have responded: “You can assume plain English conveys clear thinking, but what happens if plain English is not fed by clear thinking?”