Are there any corporate governance guidelines that apply to the operation of incentive plans?
If an issuer is organized under the laws of a US state (such as Delaware), the company must operate its plan in compliance with that state’s corporation laws. Each state varies, but one of the important governance points is whether shareholder approval of the plan is required (it is always required for public companies, ISOs, ESPPs and often for plans seeking exceptions from registration in California).
State law may also regulate whether and under which circumstances the company’s executives may be delegated the power to make equity awards on behalf of the company’s compensation committee to non-executive employees.
Public companies may only grant equity to executive officers through a properly constituted compensation committee (generally, directors who are “independent” for stock exchange purposes and who satisfy certain other criteria for purposes of Section 16 of the Securities Exchange Act of 1934 (“’34 Act”)).
In light of stock option “backdating” and other US corporate governance failures, US public companies typically only grant equity at certain regular, pre-established dates throughout the year, avoiding times just before and after earnings releases and outside of periods when material non-public information could affect the grant price.
Romanian law does not set out specific express guidelines for the operation of incentive plans.
The Danish corporate governance guidelines, which applies for public companies, recommend that the board of directors compose a remuneration policy, which applies to the board of directors and the executive board.
The board of directors and the executive board, normally, participates in Incentive Plans and, therefore, the guidelines apply to the board of directors and the executive board’s Incentive Plans.
The recommended policy includes:
- a detailed description of the components of the remuneration package, including any Incentive Plan,
- a reason for the chosen remuneration package, including each component of the package,
- a description of the criteria underlying the balance between the individual remuneration components, and
- a description of the connection between the remuneration policy and the Company’s long-term value creation and the relevant goals for this.
Corporate governance guidelines have not been established as a standard in local legislation or corporate local practices. Therefore, any incentive plan beyond those legally or contractually established will apply based on the internal policies of each company.