Partner Jessie Lochmann was featured in a Boston Business Journal article, “Behind the Boardroom Door: Ready for Proxy Season?” about an emerging issue that directors should be prepared to address during this year’s annual meetings and proxy season. These comments are from her discussion as a panelist at the National Association of Corporate Directors New England Chapter’s January event.
Lochmann explained, “Compensation committees will have a lot on their plates with respect to compensation structure as a result of the changes to 162(m) under the new tax law. It will likely cost companies more in 2018 and beyond to pay the same executive compensation that they are paying now, and those costs need to be considered when determining pay packages. The proportion of pay that is locked-in vs. that which is performance-based may now be reevaluated, and committees may find they like that additional flexibility in setting executive compensation. For example, without the need to meet any performance-based pay exception, Committees need not set performance goals during the first 90 days of the performance period, and they will no longer be limited to using negative discretion only in making bonus and LTIP payout decisions. However, the flexibility that comes from the changes to 162(m) must be balanced with the proxy advisory firms’ and institutional shareholders’ continued desire to see a certain percentage of pay be “at risk” and based on company performance.”
Lochmann explained, “Compensation committees will have a lot on their plates with respect to compensation structure as a result of the changes to 162(m) under the new tax law. It will likely cost companies more in 2018 and beyond to pay the same executive compensation that they are paying now, and those costs need to be considered when determining pay packages. The proportion of pay that is locked-in vs. that which is performance-based may now be reevaluated, and committees may find they like that additional flexibility in setting executive compensation. For example, without the need to meet any performance-based pay exception, Committees need not set performance goals during the first 90 days of the performance period, and they will no longer be limited to using negative discretion only in making bonus and LTIP payout decisions. However, the flexibility that comes from the changes to 162(m) must be balanced with the proxy advisory firms’ and institutional shareholders’ continued desire to see a certain percentage of pay be “at risk” and based on company performance.”
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