Shearman & Sterling’s
2021 Proxy Season Quick Reference Guide is a useful summary of the top themes facing Boards and Compensation Committees this year. Shearman’s
corporate governance survey earlier in the year found that almost half (44%) of the top 100 companies have now changed the name of the Compensation Committee to include a broader focus on talent, development or human capital, and this expansion is reflected in the topics Committees are embracing for 2021. Highlights include:
- Human Capital Management. In the wake of new SEC rules regarding mandatory HCM disclosures, companies are clearly increasing the level and detail of human capital management information in the proxy and 10-K. However, the types of information disclosed differ based on each company’s strategy, brand and culture – this should not be a one-size-fits-all model. See the Center’s story last week for examples of new HCM disclosures.
- COVID Changes. The impacts of COVID-19 now seem likely to continue through 2021, meaning that incentive plans will continue to be affected. Disclosures through December 2020 have shown significant changes to incentive plans, especially use of discretion to increase payouts to 75%-100% of target, lowering target or maximum payout opportunities, adding new metrics in the context of the pandemic, and even special awards (although proxy advisors have warned companies against this last action).
- Board Evaluation. The Shearman survey noted that board evaluation will continue to be a focus as investors increasingly pinpoint the details of board performance. ISS and Glass Lewis have both stated their expectation that boards have regular third-party performance evaluations.
The Guide also includes a useful “Proxy Drafting Checklist” including items such as complying with state equal pay legislation, reviewing the charters of the Compensation and Nom/Gov Committees to ensure they accurately reflect what the committees are in fact doing, and reviewing any benefits provided to executives to ensure that they are disclosed as perks if required (such as new health-related or personal transportation benefits provided to address COVID risks).
