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Seven Hot Topics for Boards in 2014

Here's what CFOs need to know about what will be going on in boardrooms as they head into next year.

3. Set appropriate executive compensation.
Shareholders and proxy advisory firms are increasingly focusing on pay for performance, and activists are targeting disparity between pay for executives and other employees.

Most boards took some action in response to their companies’ most recent say-on-pay shareholder polls, but only 3 percent reduced executive compensation, Akin Gump points out. Far more common steps included enhancing proxy statement disclosures, increasing the use of compensation consultants and making compensation more performance-based.

The law firm recommends that boards do more shareholder outreach. But many board members don’t want to: a 2013 study by PricewaterhouseCoopers found that 34 percent of directors believe it is not appropriate for the board to engage in executive compensation discussions with shareholders.

Akin Gump notes that “much to the delight of companies, the SEC continues to lag in its rulemakings on several [executive-compensation] provisions of the Dodd-Frank Act.” These include new disclosures on the pay disparity between the CEO and the median of all other employees; proxy-statement disclosure of the relationships between executive compensation and company financial performance; and the development and disclosure of clawback policies for the recovery of incentive-based compensation earned during periods for which financials are later restated.

4. Address the growing demands of compliance oversight.
Constantly changing and overlapping legislative and regulatory requirements are weighing down companies and usurping more board time. Akin Gump notes that since 1993, almost 82,000 new federal rules have been issued, while 2,305 rules are in the pipeline, many of them deriving from the Dodd-Frank Act and the Affordable Care Act.

“With the growing demands on directors’ time, there is increasing temptation for directors to adopt a ‘check-the-box’ approach to their legal and regulatory oversight responsibilities,” the law firm wrote. But that can lead to penalties: “Enforcement agencies often consider the effectiveness of a company’s compliance programs when deciding whether to bring charges or settle an enforcement action.”

And such enforcement is increasingly vigorous. For example, both the SEC and the Justice Department been ramping up their enforcement efforts under the Foreign Corrupt Practices Act. Two-thirds of the 20 largest criminal penalties in FCPA cases have been issued in the past three years, and three of the five largest have occurred in the past year.

5. Address the impact of health-care reform on the company’s benefits plans and cost structure.
Despite the continuing legal challenges and political hardball, as well as the delays and technical glitches, it appears that the Affordable Care Act is here to stay. As such, boards and companies need to be prepared for certain key provisions scheduled to take effect in 2014 and beyond.

For one, Akin Gump recommends that boards address strategies and costs related to “pay or play” — the decision to offer health insurance that meets minimum quality and affordability standards or else pay a penalty, usually $2,000 per employee per year.

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