In a prior post, we discussed the first eight of 15 recommended steps to consider when submitting an equity plan for shareholder approval. In this post, we discuss the final steps. While we know each situation is different, we hope you find these 15 steps a useful guide to consider when submitting an equity plan for shareholder approval.
- Update the plan to reflect current best practices and legal requirements, and, if applicable, ISS requirements. ISS may recommend against an equity plan if it contains features that ISS deems “egregious,” such as the following:
a. Has a liberal change in control definition
b. Permits repricings or cash buyouts of underwater options or stock appreciation rights without shareholder approval
c. Is a vehicle for problematic pay practices or has a pay-for-performance disconnect
d. Features other provisions or practices that are considered detrimental to shareholder interests, such as tax gross-ups or an evergreen (automatic share replenishment)
- Review the individual limits on equity grants and cash awards to make certain they are high enough to cover any unanticipated situations, and make sure the plan administrators and compensation consultants understand these limits. Individual limits on employee awards are no longer needed for purposes of Section 162(m) of the Internal Revenue Code.
- Consider imposing a meaningful limit on the number of shares that may be granted to non-employee directors under the plan. For example, a plan can impose an annual share limit on director grants or an annual limit on the fair market value of shares or total compensation to be granted to directors.
- Give the compensation committee and board of directors sufficient time, preferably in more than one meeting, to review the proposed share authorization, plan changes, and rationale for the share increase and plan changes.
- Include in the proxy a detailed discussion of the reasons for the share authorization and the board’s analysis.
- Include information in the proxy about share overhang and burn rates to ensure that ISS, Glass Lewis, and shareholders have clear data with which to perform their analysis. Double check all share numbers in the proxy, including the numbers in the proxy table for outstanding shares under equity plans, to ensure that they are consistent and will not be confusing to ISS, Glass Lewis, or shareholder reviewers.
- Make arrangements for the updated Form S-8, plan prospectus, stock exchange listing application, and equity grant documents to be ready as of the date of the shareholders meeting.