With new board diversity disclosure rules becoming effective August 8, 2022, Nasdaq has released guidance on acceptable formats to meet the new diversity reporting requirements.

Background

In August 2021, the SEC approved Nasdaq’s proposed new listing rules effected to enhance transparency and disclosure of board diversity statistics. The move by Nasdaq reflects regulation at the state level and requirements from institutional investors and investment banks like Goldman Sachs.

Nasdaq’s Final Rules require most Nasdaq-listed companies to annually disclose information on the gender and racial/ethnic characteristics represented on the board in a prescribed format, and to meet or make progress towards an acceptable diversity standard. The Final Rules require most companies to:

1. have at least two self-identified “Diverse” members of the board of directors; or
2. explain why the company does not have a minimum number of self-identified “Diverse” directors

Additionally, at least one director must self-identify as female and another must self-identify as an underrepresented minority, including LGBTQ+.

So far, NYSE has not proposed new disclosure requirements or firm diversity goals for companies listed on its exchange.

Latest Nasdaq Disclosure Guidelines

Nasdaq-listed companies (with certain limited exceptions) must meet the requirement by August 8, 2022, or the date of filing the 2022 proxy, whichever is later. The new diversity matrix disclosure requires meeting the following key criteria:

1. Updated annually
   • The Board Diversity Matrix must be updated at least once per year, and companies must disclose the data’s effective date
   • After the first year of disclosure, companies must disclose both the current year and the prior year’s diversity statistics
2. Published ahead of the annual meeting
   • The disclosure may be made ahead of the annual meeting either via (1) proxy statement, information statement, 10-K or 20-F, or (2) on the Company’s website
   • In the case of a website disclosure, the Company must notify Nasdaq of its availability within one business day and complete Section 10 of the Company Event form
3. Meet a defined board diversity objective
   • Companies need to meet a self-defined board diversity objective that meets Nasdaq’s criteria above or explain their reason for not doing so and potentially outline a plan for meeting the objective
   • Companies have a transition period to meet the objective or explain their reason for not doing so
4. Director diversity qualifications based on voluntary disclosure and aligned with Nasdaq’s definition
   • Director diversity information must be based on directors’ voluntary self-identification
   • Directors who fall into racial/ethnic categories that are not listed in the Nasdaq definition do not count towards the diverse director objective
   • Directors who fall into more than one acceptable diversity category may be disclosed as such, but the director cannot be counted more than once across categories for the purpose of meeting the diverse director objective

In its February 2022 guidelines, Nasdaq illustrated several acceptable approaches to meeting the diversity disclosure requirement. Nasdaq also offered examples of incorporating supplemental information, such as additional diversity qualifications that companies may choose to highlight. These various methods are outlined below:

Nasdaq also referenced unacceptable disclosures in its latest guidance. It finds that companies that are too vague in their definition of director diversity (e.g., disclosing the number of “diverse” directors without specifying the category of their racial/ethnic or gender identities) do not meet the criteria.

For definitions of diverse identities per Nasdaq’s rules, please see this resource.

Blackrock, Vanguard, and State Street (the “Big Three”) are among the largest and most influential institutional investors in the world with current assets under management (AUM) of $10.0, $8.2, and $4.1 trillion respectively. Given their size, they have ownership stakes in many U.S. publicly traded companies. As a result of their holdings, the Big Three have the power to influence proxy voting outcomes, and any policy update, should be closely monitored by companies.

For the 2022 proxy season, the Big Three released their proxy voting guidelines and engagement priorities. These updates are a way for the public, and companies to understand the Big Three’s positions and priorities for 2022.

In the following chart we summarize a variety of policy updates from the Big Three that focuses on executive compensation, Compensation Committee voting, human capital management, board composition and board of director overboarding.

As summarized above, there has been a focus over the last few years on ESG, particularly on diversity among the board of directors and workforce, human capital management and climate change (not summarized above). The Big Three believes companies that focus on these issues will enhance a company's ability to maximize long-term shareholder value.

This article highlights select changes and updates to the Big Three's voting policies. For full detail related to all the proxy voting guidelines, please visit:

Blackrock:

• BlackRock Investment Stewardship – Proxy Voting Guidelines for U.S. securities
• BlackRock Investment Stewardship – Engagement Priorities

Vanguard:

• Proxy voting policy for U.S. portfolio companies

State Street:

• Proxy Voting and Engagement Guidelines – North America (United States & Canada)
• CEO's Letter on Our 2022 Proxy Voting Agenda
• Guidance on Diversity Disclosures and Practices
• Guidance on Managing Director Time Commitments
• Guidance on Human Capital Management Disclosures & Practices

The Dodd-Frank Wall Street Reform and Consumer Protection Act allows public company shareholders to vote on Named Executive Officer (NEO) compensation arrangements related to a merger and acquisition (M&A) transaction. This vote, required beginning in 2011, is also referred to as say on golden parachute. Similar to say on pay, these votes are advisory and non-binding. The say on golden parachute proposal must be in the same merger-related proxy in which shareholders are approving the deal. Companies are required to disclose all compensation that may be paid to the NEOs because of the transaction as well as the conditions under which they become payable.

Both parties of a deal are required to have a say on golden parachute proposal for shareholder approval. However, if a company’s executive compensation program has already been voted on by shareholders and the pay levels and program design are unchanged from the last shareholder vote, the company does not need to submit a say on golden parachute proposal; this typically applies to the surviving entity only.

Companies put golden parachutes in place for the most senior executives so they can continue to make decisions that are in the best interest of the company. These arrangements also encourage executives to stay through the close of the transaction. Over the past ten years, many companies have adopted shareholder-friendly practices, such as double-trigger vesting of equity (i.e., change-in-control occurs plus termination of employment) and removing excise tax gross-ups, given increased shareholder scrutiny and the advent of the say on pay vote.

Say on Golden Parachute Vote Outcome

In 2021, the majority of say on golden parachute proposals received shareholder support. Three-quarters of these proposals received 80% support or higher (average support is approximately 85%). Around one in ten proposals received less than 50% support.

Proxy Advisors Perspectives

Proxy advisory firms, such as Institutional Shareholder Services (ISS) and Glass Lewis (GL), give investors a say on golden parachute vote recommendation. While these firms assess proposals on a case-by-case basis, they outline criteria used for the evaluation. ISS, for example, has multiple criterions used in their evaluation, but only note three that will most likely result in an against recommendation:

• Excise tax gross-ups
• Cash severance payment upon change-in-control without termination of employment (i.e., single-trigger)
• Single-trigger vesting of performance-based long-term incentives (LTI) with above target payout, unless there is a compelling rationale disclosed

Unlike ISS, Glass Lewis does not note any specific factors that could result in an against recommendation. Instead, they list criteria considered when evaluating the proposal including (but not limited to) the value (or magnitude) of payments, excise tax obligations, tenure and position of executives, use of single-trigger vesting, etc.

Shareholder Perspectives

CAP reviewed shareholder concerns from five recent acquisitions that failed their say on golden parachute proposal. Among these five companies, single-trigger vesting of LTI was the most common concern followed by excise tax gross-ups and large CEO retention bonuses. Shareholders are particularly concerned with single-trigger LTI vesting because executives could receive a windfall without termination of employment.

While not commonly cited, some shareholders were critical of how the equity vests at time of termination. Specifically, some were critical of accelerated or continued vesting (i.e., no pro-ration) of time-based equity while others cited above target payouts of unvested performance plans. It is unlikely that these provisions alone would result in an against say on golden parachute vote. Regardless, a company should provide a rationale for pay decisions, particularly if providing one-time retention awards or when deviating from previously disclosed shareholder-friendly practices.

Implications of Failing Say on Golden Parachute

Say on golden parachute votes are one-time, advisory, and non-binding but companies should be aware that there could be consequences of failing for the surviving entity. Beginning with the 2021 proxy season, Glass Lewis stated that they may recommend against the next say on pay vote or compensation committee members of the acquirer if an excise tax gross-up is introduced. To-date, we have not seen many shareholders vote against say on pay proposals of the surviving entity. Given continued scrutiny, we anticipate companies will carefully weigh the pros and cons of implementing non-shareholder-friendly provisions at the time of the deal; for those that do, we would expect to see robust disclosure on the rationale.

On June 23, 2021, SEC Chairman Gary Gensler provided commentary on the “2021 Unified Agenda of Regulatory and Deregulatory Actions”. The Agenda includes a list of short- and long-term regulatory actions that the SEC plans on addressing, covering nearly 50 items. In his statements, Chair Gensler focused on three of these items: public company disclosure, market structure and transparency initiatives. Given Chair Gensler’s commentary, public company disclosure will be at the forefront of this Agenda, and CAP expects the SEC to accelerate its rulemaking process with new proposals issued shortly.

As explained by Chair Gensler, the purpose of this Agenda is “to meet our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation, the SEC has a lot of regulatory work ahead of us… I look forward collaborating with my fellow commissioners and the dedicated staff to propose and finalize rules that will strengthen our markets, increase transparency, and safeguard investors.”

Below, CAP has summarized the items related to public company disclosure items and executive compensation as discussed by Chair Gensler or included in the Agenda.

Short-Term Agenda Items: Public Disclosure

Environmental, Social and Governance (ESG) Disclosure: Based on Mr. Gensler’s comments, and notable rulemaking areas identified by the SEC, new ESG disclosure rules are now a priority. He noted that the SEC has received more than 400 letters from investors on the subject, indicating a clear sentiment for increased disclosures. The following ESG topics are expected to have enhanced disclosure rules:

• Climate Change – Chair Gensler asked SEC staff for recommendations on governance, strategy, and risk management related to climate risk. His staff will also be considering specific metrics, namely greenhouse gas emissions, in an effort to see what is most important to investors. The commission is also considering requirements to achieve climate-related specific targets for (i) companies that have made forward-looking climate commitments; or (ii) companies with significant operations in jurisdictions with national requirements.
• Human Capital – Chair Gensler mentioned investors have requested a better understanding of company demographics, and as such could propose recommendations that could include specific metrics, including (i) workforce turnover; (ii) skills and development training; (iii) compensation; (iv) benefits; (v) workforce diversity; and (vi) health and safety.
• Board Diversity – The Agenda includes enhanced disclosures on the diversity of board members and potential nominees.
• Cybersecurity – Chair Gensler commented on the always changing technological landscape and its relationship with finance through the development of mobile brokerage apps, robo-advising and artificial intelligence. Given the heightened focus on this technology in 2021, due to notable incidents, the Agenda requires disclosures about cybersecurity risk governance.

Proxy Guidelines: The SEC is expected to address or amend current proxy rules and potential changes within the following areas: (i) amendments to regulations on proxy voting advice; (ii) allowing shareholder voting altogether by a “universal” proxy card for a contested director election; and (iii) reassessing amendments to shareholder proposals passed in October 2020 which addressed shareholder proposal eligibility, proposal limits per meeting, ownership thresholds, and proponent engagement.

Executive Compensation: The SEC is expected to address or amend executive compensation guidelines within the following areas: (i) finalizing clawback rules initially proposed in 2015 requiring companies to disclose their policy and expand the use of clawbacks; (ii) requirements to disclose relationship between pay and performance (i.e., compensation paid and financial performance).

Insider Trading: The SEC is expected to address or amend insider trading guidelines within the following areas: (i) mandatory cooling-off periods and disclosure requirements pertaining to Rule 10b5-1, which allows insiders to set up a trading plan for selling stocks that they own, selling predetermined shares at a predetermined time; (ii) modernize and enhance transparency of share repurchase disclosures, including S-K filings or Item 703, which requires the tabular disclosure of share repurchases.

Long-Term Agenda Items

Other relevant items on the agenda with an outlook beyond just the next few months include: (i) possible amendments to improve distribution of proxy materials, shareholder vote processing, and communicating with shareholders (i.e., proxy plumbing issues); and (ii) possible amendments to Form S-8 filings and Rule 701 which exempts certain sales of securities made to compensate employees.

Other Notable Regulatory Agenda Items, as listed by the SEC

• Market structure modernization within equity markets, treasury markets, and other fixed income markets
• Transparency around stock buybacks, short sale disclosure, securities-based swaps ownership, and the
  stock loan market
• Investment fund rules, including money market funds, private funds, and ESG funds
• 10b5-1 affirmative defense provisions
• Unfinished work directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
• Enhancing shareholder democracy
• Special purpose acquisition companies
• Mandated electronic filings and transfer agents

2021 proxy statements will be impacted – in many ways – by the COVID-19 pandemic. This includes SEC-required CEO pay ratio disclosure.

Companies should now be thinking about – and most will soon begin to work on – their 2021 proxy statements. Such disclosure this year will be impacted in many ways by the COVID-19 pandemic. This includes SEC-required CEO pay ratio disclosure, which compares the compensation of the CEO to that of the median employee.

2021 CEO Pay Ratio Disclosure

Selected practical considerations for 2021 proxy statements related to CEO pay ratio disclosure are outlined below.

1. New Median Employee. For most companies, 2021 proxies will be the fourth year of required CEO pay ratio disclosure. Given this, companies that have been using the same median employee for three consecutive fiscal years will have to determine a new median employee for 2021 proxy disclosure.

   Companies can use the same median employee for three consecutive fiscal years, assuming no changes to employee population and/or compensation arrangements that would be reasonably believed to significantly affect CEO pay ratio disclosure. Many companies experienced material disruption to their employee populations during the last year, and many companies made changes to their compensation arrangements during the last year. Given this, companies may have additional reason to re-calculate the median employee for 2021 proxy-based CEO pay ratio disclosure.

2. Furloughed Employees. Many companies furloughed employees during 2020, and this needs to be considered when determining the CEO pay ratio for purposes of required 2021 proxy statement disclosure.

   The SEC has directed companies to “determine whether furloughed workers should be included as employees based on the facts and circumstances.” To-date, CAP has worked through this issue with several companies with non-calendar fiscal year ends. Several issues need to be considered, such as the timing and duration of the employment actions.

3. Consistently Applied Compensation Measure (“CACM”). For 2021 proxy disclosures, we expect the approach companies use for their CACM to be consistent with what has been used in the previous years.

   Among the S&P 500, approximately 43% of companies used base salary plus other cash and equity compensation for their CACM in 2020, which was the most prevalent approach.

4. Determination Date. Many companies saw their employee population permanently or temporarily disrupted during 2020 due to the COVID-19 pandemic. Given this, companies should consider if selecting a determination date later in the fiscal year would likely lead to a less atypical result from the required CEO pay ratio calculation for 2020.

   CEO pay ratio disclosure rules dictate that companies may identify the median employee with an effective date any time within the final three months of the fiscal year. If a company decides to shift the determination date used for 2020, versus what was done in past years, the company must include a rationale for the change in the 2021 disclosure.

5. Supplemental Ratios. 2020 is likely to be viewed by many companies as having “one-time” events. As a result, there may be a significant increase in the prevalence of supplemental CEO pay ratio disclosures in 2021 proxies to reinforce that year-over-year change in the CEO pay ratio (up or down) should not be viewed as an ongoing expectation.

   Disclosing supplemental CEO pay ratios is allowed under SEC rules, as long as the prescribed CEO pay ratio is clearly disclosed as such. While disclosure of supplemental CEO pay ratios has been limited (approximately 12% of S&P 500 companies), when provided, supplemental CEO pay ratios are typically disclosed to explain a one-time event (e.g., CEO transition) that materially increased or decreased the ratio versus the prior year.

6. Narrative Disclosure. For the most part, we do not expect that companies will significantly expand their disclosures around median employee or workforce demographics in 2021 proxy statements, as it relates to CEO pay ratio disclosure. This is despite requests from certain large institutional investors and the New York State Comptroller.

   Any changes to CEO pay ratio narrative disclosure in 2021 proxies will likely be modest and focus on year-over-year comparability, and, where appropriate, use of a different median employee. It remains minority practice to include any description of the median employee as part of CEO pay ratio proxy disclosure. When descriptive information for median employee is included, companies most often disclose the geographic location, employment type and/or role of the median employee.

   When additional narrative disclosure is used, it will be important to not lose sight of what was disclosed in the newly required Human Capital Management section of the 10-K, to ensure consistent messaging around the employee workforce.

7. Comparability. Since inception, comparing CEO pay ratios across companies has been of limited usefulness. For example, beyond variability across industries, when looking at two competitors, the workforce of one may be largely U.S.-based while the workforce of the other may be mostly located in lower cost countries. Inconsistent disruptions in business and workforces in 2020 due to the historic COVID-19 pandemic, that may significantly impact the numerator and/or denominator of the CEO pay ratio calculation, has only reinforced the inherent issues with comparing CEO pay ratios across companies.

Year-over-year comparability of CEO pay ratios may also be difficult in 2021. For example, CEO salaries could have been temporarily reduced in 2020 and bonuses may pay out substantially lower than a typical year. In other instances, front line workers may have received additional pay, in the form of one-time bonuses, additional overtime and/or enhanced benefits.

Looking Ahead

While new considerations need to be addressed for 2020 CEO pay ratio calculations, we expect 2021 CEO pay ratio disclosures to remain primarily compliance-focused, in most cases with limited to no supplemental information. There will also continue to be pressure from outside stakeholders for greater disclosure around median employee information and related workforce demographics, though such workforce demographic information will most often be addressed and disclosed in other areas of the proxy statement and/or 10-K.

Additional CEO Pay Ratio Resources – Compensation Advisory Partners

• CEO Pay Ratio Tracker. CAP’s CEO Pay Ratio Tracker uses each company’s most recent pay ratio disclosure, and can be filtered on revenue, market capitalization and industry sector. The CEO Pay Ratio Tracker can be accessed here: https://www.capartners.com/cap-thinking/ceo-pay-ratio-tracker/
• A Deep Dive into the Second Year of CEO Pay Ratio Disclosures: https://www.capartners.com/cap-thinking/deep-dive-second-year-ceo-pay-ratio-disclosures/
• Pension Funds and Institutional Investors Weigh in on CEO Pay Ratio: https://www.capartners.com/cap-thinking/ceo-pay-ratio-shareholder-letter/
• Pay Ratio Disclosure: A Practical Guide to Implementation: https://www.capartners.com/cap-thinking/2017-pay-ratio-disclosure-practical-guide-implementation/

The COVID-19 pandemic dealt an unexpected blow that pushed a number of companies into bankruptcy. The impact of pandemic-related shutdowns was broad: Companies in a diverse range of industries – including retail, oil and gas, consumer goods, restaurants, and entertainment and recreation – filed for Chapter 11 bankruptcy protection in the first half of 2020. While the number of filings has not yet reached the level seen in the 2008 financial crisis, the number of bankruptcies is expected to rise through the remainder of the year.

The 2020 surge in bankruptcies has been accompanied by heightened scrutiny of executive pay in restructuring situations. Bankruptcy filings are often preceded by announcements of executive retention and other short-term performance-based awards. These awards can draw criticism as excessive and even inappropriate given the impact of bankruptcy on shareholders and the broader employee population. However, 2020 is unique. While situations vary by industry, most agree that this flurry of bankruptcy filings is not the result of poor management but rather the inevitable impact of unprecedented and unforeseeable broad shutdowns across the country to contain the pandemic. The companies entering bankruptcy need continuity, stability, and motivated leadership. Carefully designed and communicated retention and performance awards can play an important role in keeping leadership in place and focused on moving the company through the restructuring process.

The Evolution of Prepaid Awards

Corporate bankruptcies cause a significant amount of uncertainty for executives and employees, who can be tempted to leave for more stable work situations with predictable, secure compensation streams. Poor company performance means that annual incentives are unlikely to pay out, and equity holdings lose almost all value. In situations where shareholders need to retain executives through the bankruptcy period, cash retention awards to critical members of management can be effective by providing compensation stability. These programs are often called Key Executive Retention Programs (KERPs).

Executive retention awards in bankruptcy situations today have a unique design: they are paid before the bankruptcy filing and are subject to clawback provisions. Clawback provisions are triggered if the executive terminates employment during a specified time period or is terminated for cause. In addition, some clawbacks are tied to performance goals not being achieved. If triggered, the clawback provisions require executives to pay back the after-tax award value. The fact that the awards are prepaid differentiates them from most other cash incentives and makes them the subject of criticism and misunderstanding.

The unique design for executive retention awards emerged from changes to the U.S. bankruptcy code made through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Prior to BAPCPA, a large portion of executive compensation in bankruptcy situations was delivered through retention awards. Executive retention awards were typically paid out in a lump sum or through several payments based on the executive’s continued employment. Executive retention awards also had special status in the bankruptcy proceedings that ensured payment ahead of many other company obligations. As a result of the special status and lack of performance features, executive retention awards were not viewed favorably.

BAPCPA imposed stringent restrictions on awards to “insiders” implemented during the bankruptcy process that are based solely on retention and that lack performance features (“Insiders” are defined as directors, officers, individuals in control of the corporation, and relatives of such individuals). BAPCPA’s restrictions effectively stopped the use of executive retention awards once companies file for bankruptcy. Despite BAPCPA, executive retention awards eventually re-emerged – as prepaid awards subject to clawbacks. By paying the awards before the bankruptcy filing, companies can generally avoid the BAPCPA restrictions and avoid having the award subject to Bankruptcy Court approval.

Prevalent Executive and Employee Pay Practices during Bankruptcy

CAP analyzed the 8-K filings of a number of companies that entered bankruptcy in 2020. Based on this analysis, companies today often use a mix of compensation programs to retain and motivate executives and employees leading up to, and during, the bankruptcy process:

• Pre-filing, prepaid executive retention awards
• Performance-based Key Employee Incentive Plans (KEIPs)
• Employee retention and incentive programs

Pre-Filing, Prepaid Executive Retention Awards

A number of companies that filed for bankruptcy during 2020 announced prepaid retention awards for executives anywhere from days to months before the legal filing. The 8-K filings indicate that the prepaid retention awards are designed by the board with advice from compensation consultants, as well as bankruptcy and other advisors. Typical design parameters for executive retention bonus awards include:

While less common, some companies, including Chesapeake Energy and Ascena Retail Group, include base-level performance criteria in the clawback provisions to add a performance element to the prepaid retention awards. This improves the overall optics of such awards and helps avoid additional scrutiny during bankruptcy.

Performance-Based Key Employee Incentive Plans (KEIPs)

After BAPCPA, KEIPs emerged to provide incentives to executives without running afoul of the bankruptcy code. KEIPs, which are approved during the bankruptcy process, are performance-based incentives that pay out in cash based on the achievement of financial and operational goals. The goals can be very short-term in nature, such as quarterly performance periods.

Typical design parameters for KEIPs include:

A current trend is to design and implement the KEIP prior to filing. This is especially true in pre-packaged bankruptcies where the financial reorganization of the company is prepared in advance in cooperation with its creditors. Having these programs in place with payouts contingent on performance improves continuity throughout the entire process, incentivizes the management team to perform, and meets the court’s requirement that any variable compensation to executives be performance based.

One recent example of a company announcing a KEIP before the bankruptcy filing is Diamond Offshore Drilling. The company announced a prepaid retention program for executives, as well as a KEIP, a non-executive incentive plan and an additional retention plan. All plans except for the prepaid executive retention program are subject to Bankruptcy Court approval, according to the 8-K. The KEIP, nonexecutive incentive plan and the additional retention plan replace past incentives – including requiring the forfeiture of past restricted stock unit awards and stock appreciation rights – and current incentives that would have been granted in 2020. The KEIP includes nine participants, including the senior executive team.

Employee Retention and Incentive Programs

Retention and incentive programs for employees are also used during the bankruptcy process. The use of employee programs depends on the company’s business needs and other factors, such as size and industry. Retention and incentive programs for non-executives typically replace the value of annual incentives and sometimes long-term incentives. Employee retention programs are cash-based and pay out at specific intervals, often quarterly given the uncertainties associated with companies in restructuring situations. The duration of employee retention programs often mirrors those for executives.

Severance programs, which provide compensation to individuals at termination, are also used in bankruptcy situations. When communicated broadly during bankruptcy, severance can be considered a retention program as it helps employees have some financial security and focus on their current jobs rather than finding new positions. Severance programs tend to be used more commonly for employees than executives because BAPCPA limits the value that can be delivered to “insiders.” However, a recent example of a severance program for executives came from Hertz Global Holdings, which announced amendments to its executive severance programs prior to its bankruptcy filing in May 2020. The severance programs, which were disclosed in the same 8-K filing as a prepaid key employee retention program, cover senior executives and vice presidents, and the payment multiple was reduced to 1X salary and bonus from 1.5X.

Conclusion

Executive compensation programs implemented in conjunction with a bankruptcy should be carefully designed and reviewed with outside advisors to ensure that the company is complying with bankruptcy code. Companies should carefully review the value of executive awards to ensure that they are reasonable while also in line with competitive practices and past incentive opportunities. Executive award amounts should be considered in the context of employee awards and the company’s overall financial situation to ensure fairness and avoid the appearance of excess. Lastly, companies should carefully communicate the rationale for executive awards and what the company is doing for employees in the 8-K current report or other announcement. Clear communication up front can help head off later public relations and optics headaches.