ANNUAL MEETINGS
by a dissident shareholder under the universal proxy rules. First, the shareholder will need to file its own proxy statement and proxy card and solicit at least 67% of the voting power of the shares en- titled to vote on the election of directors at the meeting. For large cap companies with many thousands of holders, this will likely be costly even if a dissident were to utilize notice and access delivery. For smaller companies with a limited retail base, the solicitation costs would likely be significantly reduced. Other requirements for the shareholder include the need to
comply with any advance notice provisions set forth in a company’s bylaws, comply with the notice requirements in the universal proxy rules, and explain how to access the company’s proxy statement. In turn, the company will need to notify the dissident of its nominees. Te mix-and-match nature of the universal proxy card may make
it easier for dissident shareholders to “pick off” a small number of incumbent directors, particularly at companies with performance or governance issues. Investor relations teams faced with a proxy contest under the universal proxy card regime should work closely with experienced activist defense counsel, a proxy solicitor, and a public relations firm to develop an effective proxy fight strategy.
• A tabular list of at least three, and not more than seven, of the most important financial performance measures used by the company to link compensation actually paid to the company’s executives for the most recent year to company performance. For most companies’ legal, compensation, and finance teams,
compiling the information required by the new table may be quite burdensome as there are a number of complex and likely novel calculations required to determine the value of equity compen- sation and other pay components “actually paid” as this term is defined in the SEC rules. For board compensation committees and executive management, it may require thoughtful discussion to determine what is the most important financial metric used by a company to link compensation to performance. For example, this may be particularly challenging disclosure for pre-revenue life sciences companies. For IR professionals, it will be important to become involved
early on to understand what the table shows about the relationships between the SEC’s required metrics and company performance. Tere may be little or no correlation between the two while there may be a strong relationship between performance and metrics actually used by the compensation committee. It remains to be seen how investors will use the information in
PAY VERSUS PERFORMANCE DISCLOSURE
In August 2022, the SEC adopted long-awaited pay-for-performance disclosure rules that will be applicable to proxy statements for an- nual meetings held this spring. Tere are three key aspects of the new required disclosure: • A table that reports, for each of the last three years (this will eventually be five years), the compensation of the company’s key executives, both as reported in the traditional Summary Compensation Table in the company’s proxy or information statement and as “actually paid.” Te table also calls for stating, for the applicable years, the company’s total shareholder return (TSR), the TSR of companies in the company’s peer group, the company’s net income as reported in its audited financial statements and the financial performance metric identified by the company as the single “most important” financial performance metric used to link compensation actually paid to its executives to the company’s performance.
• A description, using the information presented in the table, of the relationships between the compensation actually paid to the executives and the performance metrics for the company reported in the table.
3 4 WI N T E R 2 0 2 3 ■ IR UPDAT E
this new disclosure, but each public company should be developing a strategy for best communicating management and board perspec- tives on the effectiveness of their executive compensation program.
RULES FOR EXCLUDING SHAREHOLDER PROPOSALS
For calendar year-end companies, at this point in the proxy season, the IR team should know whether the company has received any shareholder proposals calling for matters to be voted upon at the annual meeting. Tese proposals may relate to governance matters or environmental or social policy issues. Under SEC Rule 14a-8, companies must include properly
presented shareholder proposals in their proxy statements unless the company can invoke an allowable exclusion. One of the most common justifications for exclusion (beyond procedural faults by the proponent) is the ordinary business exception; a proposal could be excluded if it deals with the company’s ordinary busi- ness operations. In November 2021, the SEC Division of Corporation Finance
issued a staff legal bulletin outlining the Division’s views on two key components of the ordinary business exclusion: micromanagement
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