Now that most of us have come up for air following proxy/annual meeting season, let’s get back to all of the other issues we have to worry about this year. Today, four points to consider for your Compensation Committee.

Hedging Policy: All companies will need to make a disclosure (and many will need to make additional disclosures). Since the SEC published its final rules in December 2018, I have posted a series of posts on the SEC’s new hedging disclosure rules, What Constitutes a “Hedging Transaction”?, Who Should the Hedging Policy Cover?, What Stock Holdings Should the Company’s Policy Address?, Location of Disclosure, What About Pledging?, What Do Companies and Boards Need to Do Now?

Human Capital: If you have been keeping track of developing trends, you surely have noticed that some investors and governance commenters are urging Boards to add new areas of responsibility to their purview, generally within the compensation committee function. Among these is human capital.

Committee Charter: Two separate issues arise with respect to the Compensation Committee Charter. First, all Companies/Boards should consider whether to eliminate certain provisions and requirements that were placed in the Charter only to satisfy the requirements of (now repealed) performance-based exception of Code Section 162(m). Second, companies that have elected Smaller Reporting Company status should consider revising the Committee Charter to reflect the slightly reduced duties applicable to the Compensation Committee of an SRC, which often are listed in the Charter. For example, the Committee of SRC no longer would need to prepare or review a CD&A, provide a “Compensation Committee Report” for the proxy, or conduct or report on a “compensation risk assessment.” Having said this, a Committee may want to retain certain functions even though not required, but it would be best to modify the Charter language to clarify that those are not mandatory duties.

Independence: Regarding the Compensation Committee, Boards are asking whether they still need to satisfy the “outside directors” requirement of Code Section 162(m), since the reason for that requirement (performance-based compensation) has been repealed. The only reason for continuing to maintain a Compensation Committee that satisfies the requirements of Code Section 162(m)—and it is an important one—is if there are any unvested or unpaid performance-based awards outstanding and grandfathered. If there are any such awards outstanding, a Committee consisting solely of “outside directors” would need to certify that the performance goals were achieved in order to ensure/preserve their deductible status. If no such awards remain outstanding, a Board only need concern itself with the Section 16b-3 and the NYSE requirements and—possibly—the ISS “demands,” which are slightly more restrictive in that they do not count any former officer as an independent.