Issue link: https://digital.shearman.com/i/889672
Shearman & Sterling 34 | Executive Compensation and Activists 9 The compensation committee ought to review the proxy disclosure with a fresh eye annually, rather than conducting a cut and paste of the disclosures made in the prior year. Balancing simplicity of presentation against completeness of disclosure is the art of this exercise. It has been widely reported that proxies have become longer over time as a result of changes in compensation governance rules. Each compensation program and practice discussed should be reviewed to ensure that the disclosure reflects the most current state of the company's programs and practices and with an eye to reducing duplication. Failing to prepare adequately for inevitable CEO succession is a frequent source of criticism of boards. The compensation committee should work with the nominating and governance committee to ensure a robust succession plan is in place for the C-suite, covering both the emergency succession scenario and ensuring the longer term development of a deep bench. Board succession should be another area of focus. Board members with more than a decade of tenure may be scrutinized for being less than "independent" and older board members may come under attack. Diversity of background and experience is another factor that institutional investors and activists examine when looking at whether a board is truly independent. The same factors are also considered in determining committee composition. As part of its annual review process, the compensation committee should review the tenure of its members and think about the potential for refreshment when new board members are added. The compensation committee should receive regular updates as part of its quarterly meetings on issues raised by regulators, calls to employee or whistleblower hotlines, matters discussed on investor calls or as part of regular shareholder outreach and media inquiries, in each case as relates to compensation matters. The compensation committee should be briefed on third party governance ratings and reports. Only Top 100 Companies have mandatory term limits for directors. Top 100 Companies explicitly state that term limits should NOT be adopted. 59 Beyond the company's regular peer group, the compensation committee should also stay abreast of media reports on activist activity, tactics and approaches related to compensation matters to have a sense of what issues are getting significant airtime and traction. 3 5 4 7 6