Last Thursday, I blogged on the significance of George Leon Family Trust v. Johnson & Johnson (D.N.J. 2014) (Plaintiffs’ Lawyers Continue to Press New Theories in Executive Compensation Litigation – With Some Success). At the risk of overdoing this subject, I wanted to address a very recent case that has been widely covered in the legal and financial press lately.
The press is full of reports on the Freeport-McMorRan Copper & Gold, Inc. Derivative Litigation (Del. Chancery Court, 2015), which recently settled, subject to court approval, for $137.5 million and the company’s agreement to adopt certain corporate governance reforms (the third largest derivative lawsuit settlement ever, reports Kevin LaCroix’s D&O Diary). Settlement proceeds (less attorneys’ fees and costs) would be paid to the company’s shareholders in the form of a special dividend.
What surprised me was the attention devoted to executive compensation governance reforms in a case of this magnitude, which include the following:
- EXECUTIVE MANAGEMENT, SUCCESSION PLANNING AND EXECUTIVE COMPENSATION
- Board Appointment of Executive Management
- The Board will annually approve the appointment of the Company's executive management.
- Senior Executive Succession Planning
- The Board will annually review the Company's succession plan for the Company's senior executives.
- Executive Compensation
- The Compensation Committee will receive advice from an independent executive compensation consultant, who will not provide any services to the Company's management. The Compensation Committee will assess the independence of its executive compensation consultant in accordance with the SEC and NYSE requirements.
- The Compensation Committee has or will adopt an incentive compensation clawback policy that would enable the Company to clawback all or a portion of incentive compensation in the event an executive's misconduct causes the Company to have to issue a restatement of its financial statements, to the extent that such executive's incentive compensation was based on the misstated financials. The Compensation Committee will amend the clawback policy, as needed, once the SEC adopts the final implementing rules regarding compensation clawbacks mandated by Dodd-Frank.
- FUTURE EQUITY VESTING PROVISIONS
- Any vest upon a change of control. Instead, vesting of such awards may be accelerated in connection with or following a change of control only upon a termination of employment or service, as applicable.
- Further future grant of equity-based compensation made by the Board of Directors or a committee thereof to the Company's executive officers or directors will provide that any unvested performance-based equity compensation will not automatically, any such accelerated vesting in accordance with Section V(A) above will not presume maximum achievement of any applicable performance goals, but instead will be based on one or more of the following:
- the target level of the award,
- a pro rata portion of the award based on the recipient's time of service, or
- the actual level of achievement of the applicable goal as of the date of the change of control or the date of termination.
Don’t miss our upcoming webcast “Executive Compensation Litigation: Proxy Disclosures,” on CompensationStandards.com this Wednesday, January 28, 2015.