Corporate Governance

Shearman & Sterling LLP Introduction | 3 of these proposals related to share ownership guidelines and hedging limitations, which is a 53% increase in the number of these proposals from 2012. In addition, proposals seeking the prohibition of accelerated vesting of equity awards on a change in control have become increasingly common, with 10 proposals submitted to a vote at the Top 100 Companies this year. Support levels for these proposals have remained consistently low. CHANGES TO COMPENSATION PROGRAMS The Survey results show that the Top 100 Companies continue to modify certain elements of their compensation programs by eliminating "problematic pay practices" in favor of elements aligned with good governance practices. In particular: § Only 23 of the Top 100 Companies disclosed that they currently provide any "gross-up" of payments to mitigate the golden parachute excise tax rules, and 18 of those companies have eliminated gross-ups for new and future contracts. § Eighty-eight of the Top 100 Companies disclosed that they prohibit their directors, executives, or both from engaging in hedging and similar transactions. Fifty-two disclosed that they have policies prohibiting directors or executives from pledging company shares. § While the overall use of executive perks has remained steady, there has been a gradual, steady decline over recent years. One perk that has become more prevalent is the provision of home and personal security, which is offered by 55 of the Top 100 Companies. Six of the Top 100 Companies announced that they would reduce or eliminate the use of certain perks in 2013 or 2014. § Since 2010, there has been a 68% reduction in the number of Top 100 Companies that provide tax gross-ups on some or all of the perks provided to executives. An additional two companies disclosed that they reduced or eliminated tax gross-ups on perks beginning in 2013. WHAT'S ON TAP FOR 2014? It has been three years since the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"), and while there has been considerable movement in disclosure practices as an outgrowth of mandatory say-on- pay, we are still awaiting proposed SEC disclosure rules regarding clawbacks and CEO pay disparity. The number of Top 100 Companies disclosing that they maintain clawbacks has steadily increased since the adoption of Dodd-Frank, reaching 87 companies this year.

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