Regulatory, Shareholder and Market Updates

When change is the only constant.

The Issue

It’s important for stakeholders to keep abreast of evolving regulatory and technical developments taken by the federal government and shareholder advocacy groups. The recent passage of the Dodd-Frank Act will generally increase the compliance burdens of publicly-traded companies on U.S. exchanges, and in the case of mandatory clawbacks, strengthen shareholder recourse.

Farient’s Point of View

Farient does not expect these new legislative requirements to directly disrupt the executive compensation arrangements that have been established in most companies.  In fact, of the 10 percent or so large companies that have Say on Pay, investors have voted overwhelmingly in favor of the executive compensation arrangements. There have been a few cases in which shareholders have voted that lodged a negative non-binding vote. These negative vote cases demonstrate that shareholders focus on three key factors when deciding to how to vote, including:

• Performance of the company (i.e., total shareholder return, both relative and absolute)
• Alignment of executive pay relative to performance and to market pay reasonableness
• Transparency of pay programs and decisions

Even though Say on Pay is non-binding, and even if your company is assured a high proportion of positive votes, Farient views Say on Pay as an opportunity to demonstrate the integrity of your compensation programs and actions, or to explain adjustments where improvements are needed.

How Farient Can Help

Farient can help develop the inputs you’ll want and need to help your company decide how to respond to the new legislation.  These inputs include how other companies are responding, how shareholder advisors will advise investors, and whether or not your company has a good story to tell.  In this regard, Farient’s Alignment Model™ can paint a clear picture of whether your executive pay design and actions have been and will be both sensitive to Total Shareholder Return (TSR) and reasonable and fair for the company’s size, industry, and performance.  If the picture isn’t so pretty, we can help modify the pay programs to tell a better story about the future.  Finally, we can help prepare the new Pay and Performance and other disclosures that will be required.

Copyright 2011 - Farient Advisors, LLC

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