Executive Compensation

The New York City Commission on Human Rights (the “CCHR”) recently released guidance on the New York City salary history law (the “Law”) in the form of frequently asked questions. The guidance clarifies several aspects of the Law, including the application of the Law in the context of corporate acquisitions and the ability of employers to inquire about forfeited deferred compensation and unvested equity.

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On September 21, 2017, the Securities and Exchange Commission (“SEC”) issued helpful guidance to assist companies in complying with the CEO/median employee pay ratio disclosure requirement (the “Rule”) under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K. The guidance also addresses the issue of SEC enforcement action in respect of pay ratio disclosure.

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Questions for Boards and Management

On April 10, 2017 Wells Fargo released the independent directors’ report on sales practices at its community bank. While the report covers familiar elements of the widely-publicized accounts-creation  problems at the bank, it also takes an inside look at the organization to determine what caused the problems in the first place and what allowed them to persist for years before last fall’s regulatory enforcement actions.  The report cites the following as principal causes: Continue Reading With the Benefit of Hindsight: The Wells Fargo Sales Practices Investigation Report

President Trump has repeatedly used his Twitter account to single out companies for criticism of their business practices, raising the question for a broad range of public companies of how to prepare for and potentially respond to such criticism. Of course, rhetorical attempts by politicians to influence the conduct of private enterprise – commonly referred to as “jawboning” – are an old political tactic. The nature and frequency of jawboning in the current environment makes this a serious issue for boards and management at a wide variety of public companies, in a way that it has not been in the recent past.

Crisis plans maintained by public companies for other circumstances may provide useful guidance for how to respond to a politician’s social media attack (an “SMA”). However, every type of crisis raises unique concerns and considerations. Many companies should carefully consider the appropriate response to an SMA in advance.

This note is intended to aid public companies for a discussion at the board level concerning SMAs. It covers three main areas that public companies should specially consider: (i) governance, (ii) executive compensation- and employment-related issues and (iii) communications, and provides senior legal advisors with an outline of relevant considerations. While the principal considerations relevant to responding to an SMA will not typically be legal concerns, corporate governance considerations constitute threshold legal issues and employment-related and communications considerations implicate important legal issues.

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By the end of 2016, the world was facing a considerably greater level of global uncertainty than it had experienced in recent years. It is clear that while some old challenges will continue, new challenges will also be brought into the boardroom in 2017. The trends discussed in each of the sections below will increasingly be a focus of boards of directors and companies in the United States and across the globe, particularly as boards consider how best to assess and assist in mitigating associated risks. A strong understanding of the issues and challenges facing boards and companies over the next year and beyond will assist boards in addressing the issues and complexities that will undoubtedly arise in 2017.

Cleary Gottlieb and PwC’s Governance Insights Center have teamed up to create the Executive Compensation Series, which looks at the factors motivating boards to increasingly engage with shareholders about executive compensation. The first edition of the series is now available and discusses issues such as the impact of Dodd-Frank on executive compensation, elements of effective CD&A design and the influence of proxy advisors on compensation. Continue Reading Boards, Shareholders and Executive Pay

In the wake of President Obama’s signing into law the Defend Trade Secrets Act (“DTSA”) on May 11, 2016, companies will want to revisit their practices for protecting their trade secrets, especially in the employee/HR context.  The DTSA expands the body of trade secrets law, an area that has traditionally been the subject only of state law, by creating a federal civil cause of action for trade secret misappropriation.  The Act provides for injunctive relief and compensatory damages, and, if a trade secret is “willfully and maliciously misappropriated,” exemplary damages and attorney’s fees.  The legislation enables trade secret owners to protect their innovations by seeking redress in federal court, in the same way that owners of other forms of intellectual property, including copyrights, patents, and trademarks, can seek remedies in federal court for violations of their rights. Continue Reading Implications of the Defend Trade Secrets Act for Employers

On March 28, 2016, on remand from the First Circuit, the United States District Court for the District of Massachusetts held that Sun Capital Fund III and Sun Capital Fund IV were jointly and severally liable for the multiemployer pension plan withdrawal liability of their bankrupt portfolio company, despite the fact that these funds were not parallel investment funds, generally had different investors and neither fund individually held an 80% or greater ownership interest in the portfolio company.  Under the Employee Retirement Income Security Act or “ERISA”, an entity such as a corporation or a partnership engaged in a trade or business may have liability for pension liabilities of other entities in the same “controlled group”.  Although the rules are complicated and technical, entities that are under 80% or more common control with each other will generally be considered to be in the same controlled group for these purposes.  In the Sun Capital case, the District Court concluded that the funds’ coordinated efforts in forming the limited liability corporation through which they held their respective investments resulted in the funds having formed an undocumented general partnership-in-fact that was engaged in a trade or business.   As the 100% owner of the LLC formed by the funds, such de facto partnership was found to be in the portfolio company’s controlled group and its partners, the two funds, were held to be joint and severally responsible for the withdrawal liability of the portfolio company under general partnership unlimited liability principles. Continue Reading Most Recent Sun Capital Decision Expands Reach of Controlled Group Liability Under ERISA

The Pension Benefit Guaranty Corporation’s (the “PBGC”) widely reported[1] recent settlement agreement with The Renco Group, Inc. (“Renco”) illustrates the risks inherent in pursuing certain transactions where underfunded pensions are present.  Among the highlighted risks is the potential for the joint and several liability provisions of federal pension law[2] to enable the PBGC to reach for assets unrelated to a pension plan sponsor’s business, including personal assets of controlling persons, to satisfy underfunded pension claims.

Based on published reports, the Renco settlement, after a trial but before a decision was handed down by the Federal court in New York, is unusual in three respects.  First, the PBGC returned the plans at issue to Renco – that is, “restored”[3] the plans – rather than negotiating for Renco or an affiliate to make payments to improve the plans’ funded status.[4]  Second, the situation involves a rare instance in which the PBGC has pursued a litigation on the basis of a claim under Section 4069 of ERISA, the anti-evasion section of the pension termination provisions of ERISA.  Third, the PBGC used the controlled group joint and several liability provisions of ERISA to assert claims against entities that are not involved in the steel business but that are controlled by Renco and its controlling shareholder Ira Rennert.  While the PBGC has on many occasions used the controlled group liability provisions of ERISA to reach controlled group affiliates that are in separate lines of business from the plan sponsor, the facts in Renco are reminiscent of the PBGC’s lengthy fight with Carl Icahn beginning in the early 1990’s over responsibility for TWA’s underfunded pension obligations.[5] Continue Reading PBGC-Renco Settlement Highlights Risk and Reach of ERISA’s Pension Underfunding Joint and Several Liability Provisions