Shearman & Sterling Executive Compensation and Activists | 33
EXECUTIVE COMPENSATION
AND ACTIVISTS
By Doreen Lilienfeld
Increasingly, activist shareholders are aggressively
criticizing a company's management – as well as
its governance, business and strategy. The strategy
of some activists is to create discord between
management and the board by raising doubts
about management performance. This can often
WHAT TO DO? ACTIVIST SUCCESS RATES
As in respect of all matters
relating to activists, an old
adage rings true: If you fail
to prepare, then you should
prepare to fail.
According to SharkRepellent.net,
55%
of dissident proxy fights in the 2017
proxy season were successful (including
partial victories and settlements).
There is no substitute for advance preparation for an
attack by a shareholder activist and there will certainly
be scrutiny of executive compensation programs as
part of any activist's campaign.
A regular executive compensation program
review, with an activist eye, is now essential for
compensation committees.
create divisions on the board, putting the board on the
defensive. Common activist demands include changes at
the CEO level, changes to compensation programs and
separation of the positions of CEO and Chair. Compensation
committees should consider making an activism review
part of their upcoming agendas.
SOME ESSENTIALS FOR COMPENSATION COMMITTEES TO CONSIDER:
1
It is critical that the compensation committee understand the company's compensation strategy thoroughly
and ensure that compensation payouts are aligned with the company's performance goals. The committee
must understand the various sensitivities in the performance formulae and analyze what payouts would result
under multiple scenarios involving favorable and unfavorable company performance. The compensation
committee's actions will always be evaluated with the benefit of hindsight, so the need for doing the ground
work to ensure the company's compensation philosophy aligns with performance and actual payouts in
advance cannot be underestimated.
The company's peer group should be regularly monitored for activist activity, as well as for changes in
compensation structure and approach in order to ensure that the company has an articulable rationale for
its positions to the extent it is different from the approach taken by peers. Peer responses can be instructive
in planning for an activist response.
2
INSIGHTS
