Jeffrey London Describes How Dodd-Frank Has Impacted Executive Compensation in Corporate Counsel
As seen in Corporate Counsel’s “Golden Parachute Votes Impact Compensation Climate”
Corporate Counsel notes that since the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2010, there has been an increase in focus on executive compensation packages. Greater accountability from shareholders, who are required by Dodd-Frank to periodically vote on pay packages, has led to a number of changes in the ways that these packages, particularly “golden parachutes” given to executives during change of control transactions, are constructed.
According to Kaye Scholer Executive Compensation & Employee Benefits Partner Jeffrey London, the trend toward greater executive pay scrutiny is one that began long before Dodd-Frank was ratified. “The concept of pay for performance—it was evolving anyway,” said London, explaining that a combination of public discussion on the topic and a push from several leading proxy advisory firms was bound to result in changes.
One way companies have dealt with the increased scrutiny is by speaking with institutional investors regarding what they are looking for in a compensation deal more tied to performance. “Companies are really getting fairly active in what I characterize as shareholder engagement,” London said.
London also noted that there has been a decrease in so-called "single trigger" accelerated vesting for executives when their companies change hands. In addition, there has also been a push to limit the severance packages of executives. “You see more and more of a push for severance to go away once you hit a defined retirement age,” London explained.
There has also been a decline in use of excise tax gross-ups for executives who receive golden parachutes. According to London, this has been decreasing for some time, but shareholder votes have helped it along. London noted that some of his clients utilize a “best net” approach, in which the company either cuts the golden parachute's value or allows the executive to receive the full value (subject to the excise tax), whichever allows greater post-tax pay for the executive.