If you attended the NASPP Conference sessions at which ISS and other shareholder representatives spoke – or had an opportunity to speak with them directly – then you know that one of the disclosure points they emphasized as important for the Say on Pay Vote was the Company's compensation risk assessment and mitigation process. We blogged on the necessity of and most effective way to conduct a compensation risk assessment several times in the last 12 months, both before and after the SEC's final rules made it a legal requirement.
Due to the shortness of time remaining in the proxy season following the SEC's promulgation of its final rule (and, maybe, budgetary restrictions), some companies did not conduct a particularly thorough or effective compensation risk assessment. Some of those companies received a comments letter from the SEC asking for further information, and many others did not.
Well, this year every company has another chance to do it right. And with Shareholder Say on Pay effective for most of next year's Proxy Statements, the stakes are much higher. SSOP is a single “yes” or “no” vote on the total compensation package provided to the named executive officers, as described in the CD&A and compensation tables. One questionable action, payment, or practice could cause shareholders to vote "no," regardless of the reasonableness of the overall packages. If the overall packages of the NEOs are reasonable – even below market – but there is one blemish, such as a gross-up on perquisite payments or an inadequate risk assessment, many shareholders may vote "no" on the package. There is no other way to register disapproval. They cannot criticize or object to that one provision or omission only.
Some of us have spent a lot of time creating and fine-tuning an effective compensation risk assessment process. Broc and I will be blogging on the compensation risk assessment process more in the next few days. Stay tuned.