God Save the Queen and our Equity Plan!

Transcription

1 God Save the Queen and our Equity Plan! Ralph Beidelman, SVP Total Rewards, Discovery Communications Inc. Tara Wiseman, Director, Global Total Rewards, Kinross Gold Corporation Claudia Yanez, Director, Executive Compensation, SunPower Corporation

2 Session Description This session will provide insight into: typical project milestones for adopting a new stock incentive plan how to work effectively with internal and external advisors to formulate plan recommendations effective approaches for interacting and engaging with the compensation committee during the process common concerns raised by proxy advisors with respect to equity plans effective communications strategies to boil down the complexities of stock plans, to the essentials your executives and board members need to understand in order to drive faster decisions

3 Who we are #1 Pay-TV Programmer in the world We broadcast in over 220 countries and in 45 languages 6,800 Employees in more than 36 countries Annual grants to over 1,000 employees in 27 countries Satisfying curiosity around the world with leading brands: Discovery Channel, TLC, Animal Planet, Investigation Discovery and Science, as well as US joint venture network OWN: Oprah Winfrey Network Internationally we also control Eurosport and offer free-to-air in several countries $6bn in revenues Listed on NASDAQ

4 Portfolio approach What we grant Component Description Participants CS & SS SARs PRSU Options E/RSUs ESPP Cash & Stock Settled Stock Appreciation Rights (25% Stock & 75% Cash) with 35% of the net after tax proceeds used to purchase company stock within 18 months 3 year performance metrics (Revenue, OIBDA & FCF) no upside. 50% vest after 3 years and 50% after 4 years. Represents 50% of annual equity opportunity (other 50% is options) Vest prorate annually over 4 years. Granted to new hires and promotion. Typically represents 50% of core annual grant. RSU vest 33% years 2 & 3, 34% year 4. Typically represent 50% of core for VP+ and 100% for Managers and Directors. RSU vest 33% years 3 & 4, 34% year 5. Upside grants for top performing VP+ employees 15% discount and quarterly purchases. 1 year holding requirement. CEO CEO Direct Reports VP+, globally VP+, globally & select top Managers and Directors (25%) All employees, most countries LTI plan objectives: Alignment with shareholders Retention Reward past performance, and incent future performance Global eligibility criteria and global targets by level Actual grants consider: Retention of top talent potential/performance available pool

5 Who we are A senior gold producer, headquartered in Toronto, Canada, with employees in 8 countries THE AMERICAS Fort Knox Kupol Dvoinoye Kettle River - Buckhorn Round Mountain RUSSIA Tasiast Chirano GLOBAL PORTFOLIO Operating mine Development project La Coipa Maricunga Paracatu Lobo-Marte WEST AFRICA Highlights Listed on the TSX & NYSE 9 mines, 8 countries, 5 languages Over 9,000 employees, ~250 expats $3.5B in revenue $3.6B in market cap 2.7M gold equivalent oz produced

6 What we grant Also a portfolio approach 4 long-term incentive components, plus share purchase plan Component Description Participants Options RPSUs RSUs Cash RSUs ESPP Vest prorata over three years, expire after seven, settled in newly issues shares (or participant can surrender for cash value) RSUs with performance measures (Relative TSR, cost, production), cliff vest after three years, settled in newly issued shares Vest prorata over three years, settled in newlyissued shares Phantom RSUs (cash settled), vest prorata over three years, implemented in 2014 Employees contribute up to 10%, company matches 50%; purchases made quarterly; required six month hold of shares purchased VP+, globally (20% of grant) VP+, globally (30 50% of grant) VP+, globally (30 50% of grant) Select managers+, globally All employees, select countries LTI plan objectives: Alignment with shareholders Retention Reward past performance, and incent future performance Global eligibility criteria, but target grant size based on local market data Actual grants consider: risk and impact of loss potential/performance available pool

7 Who we are Leading global solar innovation since 1985 Generated over 25,000,000 MWh in total solar energy Diversified global portfolio leading residential, commercial, and utility solar energy markets on 6 continents World highest efficiency solar panels, more than 200 patents for solar technology $3B annual revenue, >6000 employees, Global headquarters in Silicon Valley listed on NASDAQ: SPWR Majority owned subsidiary of Total S.A. 5 th largest global energy company

8 Portfolio approach What we grant Component Description Participants PSU RSUs 1 year performance metrics (Revenue, Net Income & FCF) 50% upside. 33% vest years 1 & 2, 34% year 3. Represents 50% of annual equity opportunity (other 50% is RSUs) RSU vest 33% years 1 & 2, 34% year 3 no upside. Typically represent approximately a third of all employees; professional level individual contributors, managers, Directors, and VPs. CEO + CEO Direct Reports VP+, globally & professional level Individual contributors, Managers, and Directors (~30%) LTI plan objectives: Alignment with shareholders Retention Reward past performance, and incent future performance Global eligibility criteria, but target grant size based on local market data Actual grants consider: Retention of key talent potential/performance available pool

9 Stock Dividend May June July August 20 May: Comp Team update Press release (after market close) 21 May: Portal message HRM update (TBD) Rewards site placeholder message (DESPP & PEP pages) 16 June: CC meeting w/c 16 June: Targeted s to employees with DESPP/RSU; Options/CS SARs Employee FAQs Invitation to Behind the Stock Dividend w Andy, Ralph w/c 23 June: Behind the Stock Dividend presentation/webcast 24 July: Targeted reminder s to employees with equity Fidelity job aid 28 July: Record Date 28 July 8 August: Portal Feature reminder story 6 August: Issuance Date 7 August: Targeted s to employees with equity re: what they should see in accts now (cont. from July) 8 August: Portal Feature reminder story

10 Being effective with internal and external advisors Engaged industry specific equity Compensation Consultant Extensive work with external global tax consultant Internal work with Legal, Corporate Communications, Creative Agency, Tax, Finance & Investor Relations

11 Project milestones The challenge: Find a way to reduce the demands on our share pool in a low share price environment, without a significant increase in the draw on cash, and while continuing to provide meaningful equity compensation to employees July 2013 First presentation to HRCC: Projections & RSU alternatives Dec 13 Jan 14 Finalize approach on RSUs Review alternatives on Options and finalize Understand impacts to administration system May 2014 Shareholders approve plan changes May 2013 Projections prepared Cross functional team begins assessing pros and cons December 2013 Presentation to HRCC: Updated projection, Additional RSU alternatives & Option alternatives Jan Feb 2014 Detailed plan to HRCC Plan documents finalized & approved Administration system updated Communication First grant & vesting!

12 Keys to success: Put together a cross functional team Include internal functional leads, supplemented by external expertise (budget $) Involve them throughout the process Discuss changes with local teams to identify and understand country specific issues Being effective with internal and external advisors

13 Project Milestones Third Amended and Restated SunPower Corporation 2005 Stock Incentive Plan expires on August 12, 2015 Take action to adopt a new equity plan prior to the expiration of date of the current plan

14 Tips and Lessons Learned: Identify key advisors inside and outside the company To maximize efficiency, organize a meeting with internal advisors first Define advice that s required Identify sources of advice Identify point person that will collect the advice and by when Organize meetings with external advisors Share project milestone dates Outline specific advice/answers needed and by when Follow up all requests in writing to avoid any misunderstanding Being effective with internal and external advisors

15 Compensation Committee Engagement Very engaged Compensation Committee 20+ meetings a year (really) Focus on performance differentiation and survey analysis Internal Employee Engagement Survey results show a 20% differential in people who received equity and those seeing a clear link between pay and performance. Retention of top talent is critical Retention of top talent is 2/3 lower than the average employee turnover

16 Compensation Committee Engagement Compensation committee has 6 scheduled meetings each year Committee was supportive throughout the process, and was focused on: Clarity and transparency Protecting shareholder interests Do it once Enabling management to deliver appropriate compensation to reward and retain Evolution of message multiple views before approval: Introduced issue and proposed direction early; included pros and cons of alternatives; impacts (cash, shares, legal, tax, etc.) Proposed approach conceptual Proposed approach - concrete: who, when, $ & share estimates Legal plans for sign off

17 Know your audience! Compensation Committee Engagement Identify the ideal time to introduce the topic in committee agenda (plan ahead)» May depend on frequency of meetings, 4 scheduled meetings each year» Avoid surprises and allow enough time for committee input into the project plan Tailor the level of detail that s appropriate for your committee, and be transparent» Does not mean taking short-cuts or not doing your homework» Supplement summaries with full reports/analysis that may have been prepared by internal or external advisors Anticipate questions/issues from Committee members who may be members of other company boards/comp Committees» Have their other boards faced similar decisions in the recent past? Articulate the business case supporting recommendations to ensure alignment Is equity compensation critical for recruiting and retaining the company s workforce? How does the equity project fit into other corporate initiatives, is there a link? Make note of the areas of potential shareholder concern with any proposals being considered

18 Proxy Advisors Watch for updated guidelines, supplementary documents, FAQs, etc. Proxy advisors generally focused on: Cost of the plans Terms of equity plans and problematic practices» Be cautious of: single-trigger vesting on change in control; broad discretionary vesting authority; share recycling; no minimum vesting period; option repricing» Consider: increasing the proportion of equity which is performancebased; performance metrics used; longer vesting periods; including a clawback policy; requiring minimum holding periods Key metrics: burn rate, dilution Also important to know who your largest shareholders are Some have very detailed guidelines for voting on equity plans

19 Proxy Advisors Although we have engaged with proxy advisors to enhance disclosure, we have had limited success. 1. We reviewed the guidelines published by ISS and Glass Lewis to identify potential issues (RAG status report) 2. We had our proxy solicitation firm review our proposals considering ISS/GL guidelines and help determine acceptable limits 3. We had ISS Corporate Services review the plan and the number of additional shares being requested 4. We completed a broader shareholder outreach program in 2014/15 re: governance and executive compensation, including meetings with both ISS and GL Limited engagement with proxy advisors, given majority shareholder ownership structure

20 Effective Communications Strategies For Participants: We provide all types of media to participants We find 1:1 meetings when possible for international participants to be valuable Created equity simulation for HR and Legal people who support plans but may not participate in them One on one: encourages questions Provide models, examples, and address practical / logistical details (how do you sell, how do you transfer funds internationally on sale, what are the fees, etc.) For Compensation Committee: No acronyms! Have the right people in the room Be prepared for questions (have the market data; know the rules and proxy advisor guidelines; know the implications: tax, legal, disclosure, accounting) Brief, focused, high level but sufficient detail for them to approve Charts, tables, bullets

21 Effective Communications Strategies Tell them what you are going to deliver Deliver what you told them you would deliver Tell them what you delivered Plan to over communicate and repeat yourself Especially if committee meetings are spread apart Committee members may serve on multiple boards Time and attention demands are generally a challenge for everyone today, don t assume you don t have to remind everyone where you last left off Pre wire with Committee Chair, understand what additional discussions are needed with Committee members and who will lead them Play with shapes: use Powerpoint text boxes and SmartArt for emphasis of key points, slide after slide of plain vanilla bulleted text can disengaging and ineffective in driving decisions (but don t lose site of substance over form!)

22 Effective Communications Strategies Framing the message can be just as important as the message itself. Be clear whether you are asking for feedback, approval, or neither and are only sharing information Tables and charts are effective ways of presenting a lot of information in limited presentation real estate, and help you executize your message for maximum effectiveness

23 Thank You Ralph Beidelman Discovery Communications, Inc. Tara Wiseman Kinross Gold Corporation Claudia Yañez SunPower Corporation

24 APPENDIX

25 ISS U.S. voting guidelines Factor ISS measurements / guidelines Equity plan scorecard Plan cost shareholder value transfer (SVT) Outlined in more detail in a separate document from the general voting guidelines; summarized on subsequent slides Vote against the plans if the cost is unreasonable. SVT is reasonable if it falls below a company specific benchmark, which is determined as follows: Top quartile performers in each industry group (using Global Industry Classification Standard: GICS) are identified Benchmark SVT levels for each industry are established based on these top performers historic SVT Regression analyses are run on each industry group to identify the variables most strongly correlated to SVT The benchmark industry SVT level is then adjusted upwards or downwards for the specific company by plugging the company specific performance measures, size, and cash compensation in the industry cap equations to arrive at the company s benchmark Where plans are evaluated under the Equity Plan Scorecard policy, the company s SVT benchmark is considered along with other factors. Grant practices three year burn rate Burn rate benchmarks are calculated as the greater of: The mean plus one standard deviation of the company s GICS group segmented by S&P 500, Russell 3000 index (less the S&P 500) and non Russell 3000 index 2% of weighted common shares outstanding Year over year burn rate benchmark changes will be limited to a maximum of 2% points plus or minus the prior year s burn rate benchmark.

26 ISS U.S. voting guidelines (continued) Plans with passing scores on the Equity Plan Scorecard may still result in a negative recommendation if: There has been a liberal change in control definition; There has been repricing or cash buyout of underwater options or stock appreciation rights; The plan is a vehicle for a problematic pay practice or pay for performance disconnect; or Any other features or practices are deemed to be detrimental to the interests of shareholders Factor Liberal change in control definition Repricing provisions Problematic Pay Practices ISS measurements / guidelines Vote against the plan if it has a liberal definition of change of control and the equity awards could vest upon such liberal definition of change in control, even though an actual change in control may not occur (e.g. announcement or commencement of a tender offer, provisions for acceleration upon a potential take over, shareholder approval of a merger or other transactions, or similar language.) Vote against plan if it expressly permits the repricing or exchange of underwater stock options/stock appreciate rights (SARs) without prior shareholder approval. A vote against repricing may occur in any of the following situations: Where terms are amended for outstanding options or SARs to reduce the exercise price of the grants; Where outstanding options or SARs are cancelled in exchange for options or SARs with an exercise price that is less than the exercise price of the original grants; and Where a company has a history of repricing without shareholder approval Vote against the plan if it is a vehicle for problematic pay practices: Magnitude of pay misalignment Contribution of non performance based equity grants to overall pay Proportion of equity awards granted in the last 3 fiscal years concentrated at the named executive officer level

27 ISS Equity Plan Scorecard A score of 53 points out of 100 possible points is required in order to pass, with the maximum points for companies in the S&P 500 and Russell 3000 being 45/20/35 (plan cost/plan features/grant practices). Factor 1. Plan cost For S&P 500 & Russell 3000 companies: 45 points 2. Plan features For S&P 500 & Russell 3000 companies: 20 points ISS measurements / guidelines Measures Shareholder Value Transfer (SVT) relative to peers based on scaled scoring system, which is calculated in two ways: Only new shares requested plus shares remaining for future grants, and Only new shares requested plus shares remaining for future grants, plus outstanding unvested and exercised grants. The Equity Plan Scorecard model will not apply to stand alone non employee director plans, which will be evaluated based only on SVT. However, shares under this plan will be incorporated in the Plan Cost calculation when plans subject to Equity Plan Scorecard are on the ballot. Negatively impacts the scorecard results if the plan consists of the following features: Automatic single trigger vesting on a change of control Broad discretionary vesting authority that contradicts pay for performance philosophy Liberal share recycling (e.g. return to the plan shares withheld to cover taxes or exercise price) Absence of a minimum vesting period of at least one year for grants made under the plan A plan may carve out 5 percent of shares from the minimum vesting requirement and still receive full points. This category is based on a binary scoring system: for each item, the company can receive either full points or 0 points.

28 ISS Equity Plan Scorecard (continued) Factor ISS measurements / guidelines 3. Grant practices For S&P 500 & Russell 3000 companies: 35 points 3 year burn rate relative to the company s index and industry (scaled scoring): Forward looking burn rate commitments will no longer be accepted, but past burn rate commitments must be honoured Period for full vesting of the most recent CEO equity grant within the prior three years: Full points for vesting over more than 4 years Half points for vesting over a period of 3 4 years No points for full vesting in fewer than 3 years Estimated duration of the plan (sum of shares remaining available and the new shares requested, divided by 3 year annual burn rate): Full points for a plan duration of 5 years or less Half points for a duration more than 5 years but not greater than 6 years No points for a duration of longer than 6 years Proportion of the CEO s most recent equity grant within the prior three years that is subjected to performance conditions: Full points for 50% or more Half points for 33% 50% No points for less than 33% Note: Time vesting options are not considered to be performance based Clawback policy that includes equity grants (binary scoring) Established post exercise/vesting holding periods for shares received: Full points for a holding period of at least 12 months or to the end of employment Half points for a period of less than 12 months or until stock ownership guidelines are met No points if there is no holding period or the company is silent on the matter