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3. Denomination of Award & Performance Period
Denomination of Award While annual incentive plans are generally denominated as a cash opportunity, performance plans can be denominated as a cash/cash unit target or a share/share unit target. Executives prefer cash performance plans that keep them focused o...
4. Performance Measures
In contrast to annual incentive plans, where companies rarely use stock price as a performance measure, in long-term performance plans, relative TSR is the most common performance measure and is used by 69% of CAP 120 companies. While many companies use TSR, f...
5. Form of Settlement & Termination Treatment of Long-Term Incentive Compensation
a. Form of Settlement Most often, awards that are denominated in cash are settled in cash and awards that are denominated in shares are settled in shares. However, there are times when the form of payment will be different from the form of denomination. For e...
2. Executive Severance
Executive severance benefits are typically provided in two scenarios: (i) termination by the company or by the executive for good reason, or (ii) actual or constructive termination in connection with a change in control (CIC). Severance is generally not provid...
2. Clawbacks, Hedging & Pledging
a. Clawbacks A clawback provision provides the company with the ability to recoup previously paid compensation to executives if a triggering event takes place. Sarbanes-Oxley mandated that incentive compensation for CEOs and CFOs be subject to clawback by the...
2. Proxy Advisor Approaches
a. ISS Approach: As a key component of its recommendations to institutional shareholders on how they should vote on management Say on Pay proposals, ISS assesses CEO pay using three quantitative tests: Relative Degree of Alignment: This test compares the p...
2. Director Compensation Design
Director compensation program design is simpler than executive pay but can have a number of different elements and may depend on the role a director serves on the board. When we consider director pay, we often break it down into the following components: Co...
2. Other Considerations
Family vs. Non-Family Executives Another consideration for family businesses is how to compensate family members relative to non-family members. Some family businesses may undercompensate family executives because of past practice or because the executives ar...
2. Key Issues for the Target/Acquired Company
Prior to the signing of the merger agreement, the target company should ensure that there is a clear understanding of the impact of a potential merger/acquisition on its employees. In particular, the compensation committee has an important role in making sure ...
2. Understanding and/or Modifying Outstanding Compensation Arrangements
As the company approaches the spin-off, a key compensation issue is how to adjust outstanding compensation arrangements to recognize that one company is breaking up into two companies. Decisions need to be made about what will happen to the company’s long-term...
3. Developing Future Compensation for SpinCo
Developing a future compensation program for SpinCo is a critical process that often evolves over time. While the default approach is initially to maintain compensation programs like those of the parent company, there may be a compelling case to make fundament...
4. Modifying Compensation Programs for ParentCo Following Spin-Off
After the spin-off transaction is complete, it is a good time for the remaining ParentCo to review its own compensation programs to ensure that they reflect the company’s new size and business focus. While not inclusive, the following program components may re...
2. Authors and Editors
Authors and Editors Eric Hosken, Partner New York [email protected] Bonnie Schindler, Partner Chicago [email protected] Assistant Author and Editor Grace Tan, Associate New York grace.tan@capartn...