Together with my colleagues Charles Lee and Louis Rambo, we presented the attached slides to attorneys engaged in representing public companies. We address the significant new developments that will impact public companies in the upcoming proxy season, including pay ratio, proxy access, shareholder proposals, and board diversity issues. We seek to answer an important question – why hasn’t proxy access been used, despite 60% of the S&P 500 having adopted proxy access bylaws?

1. 2018 Proxy Season Updates
October 24, 2017

2. 1
Introduction
Proxy and Related Matters
• Proxy Season: November – April / May
• Pay Ratio Disclosure (the most significant development)
• Other Dodd-Frank rules apparently sidelined
• Proxy Access: continues advance through and beyond S&P 500,
but still lacks teeth
• Shareholder Proposals – some major trends continuing from last
proxy season
• Potential ISS voting policy changes for 2018

3. 2
Pay Ratio
Annual Total Compensation
of the CEO
Annual Total Compensation
of the Median Employee

4. 3
Pay Ratio – Background
• July 21, 2010: Dodd-Frank signed into law, including section
directing the SEC to implement pay ratio
• September 18, 2013: SEC proposes rule
• August 5, 2015: SEC adopts rule
• January 1, 2017: Disclosure applies to fiscal years starting
on or after this date
• April 30, 2018: Deadline for calendar-year companies to
disclose initial pay ratio

5. 4
Pay Ratio – Applicability
• Pay ratio disclosure does not apply to:
- Emerging growth companies (EGCs)
- Smaller reporting companies (SRCs)
- Foreign private issuers
- Registered investment companies
- MJDS filers
• Transition periods available for:
- Newly public companies
- Companies that cease to be EGCs or SRCs

6. 5
Pay Ratio – Median Employee
• Two-step process:
1. Select the employee pool
2. Rank the employees
• Determine every three years, unless employee population or
compensation has changed significantly
• Key is to be reasonable in the determination process

7. 6
Pay Ratio – Median Employee (Employee Pool)
• Can look to another area of law to determine who counts as an
“employee”
• Determination date must be a date within last three months of the
fiscal year
• Location / work schedule are irrelevant – include US and non-US
employees who work on a full-time, part-time, seasonal or
temporary schedule
• Exclusions:
- Data privacy exemption (non-US employees only)
- 5% de minimis exemption (non-US employees only)
- Acquired companies (year of acquisition only)
- Unconsolidated subsidiaries
- CEO
• Statistical sampling permitted

8. 7
Pay Ratio – Median Employee (Rank
Employees)
• Rank employees based on:
- Annual total compensation or
- Consistently applied compensation measure (CACM)
- Must reasonably reflect annual compensation of employees
• Flexibility for measurement period
• Adjustments available:
- Annualizing (permanent employees only)
- Cost-of-living (other countries only)

9. 8
Pay Ratio – Disclosure
• First included in 10-K / proxy statement but could also
appear in 33 Act registration statements requiring executive
compensation disclosure
• Brief disclosure focused on:
- What is the ratio?
- How did the company compute the ratio?
- Methodology used to identify the median employee
- The CACM used by the company
- Assumptions, adjustments and estimates
- When was the determination date?

10. 9
Pay Ratio – Aftermath
• Considerations beyond disclosure
- Communicating with employees
- Does the communication constitute a “solicitation”?
- Does the communication implicate Regulation FD?
- Preparing for media coverage
• Implications on other areas of compliance
- E.g., Portland, OR imposing surcharge on business license tax
based on pay ratio
• Pay ratio in 2019 and beyond

11. 10
SEC Regulatory Agenda Changes
• A number of long-standing rule proposals by the SEC have
yet to be adopted, including:
- Pay-versus-performance disclosure
- Compensation clawbacks
- Hedging disclosure
- Universal Proxy Card
• These rules were removed from the SEC’s rulemaking
agenda for 2017, and seem unlikely to be adopted in the
near future. However, new Chairman has yet to put forward
his own agenda

12. 11
Proxy Access
• Over 60% of S&P 500 companies have adopted proxy access, almost all in
the last three years
• Core terms:
- 3% ownership
- 3 year holding period
- Number of nominees: greater of 2 or 20% of the board
- Up to 20 shareholders may aggregate holdings to reach ownership threshold
• National Fuel Gas (NFG): Last year, first proxy access nominee submitted
but rejected on grounds that the nominating shareholder had control intent;
there have yet to be additional attempts to submit proxy access nominees
• Still no successful use of proxy access, but may be used as leverage by
shareholders of companies that have adopted proxy access

13. 12
Proxy Access vs. Proxy Contest
Expensive Minimum Ownership
and Holding
Limit on Number
of Nominees
Control
Intent
Disclosure
Limit
Proxy
Access
NO YES YES NO YES
Proxy
Contest
YES NO NO YES NO

14. 13
Proxy Access
• What to expect for the upcoming proxy season
• Steps to take for companies that have (and companies
that have not) adopted proxy access

15. 14
Shareholder Proposals and Engagement:
Sustainability and Environmental Issues
• Institutional investors have expressed new interest in sustainability and
environmental issues, providing credibility and voting power
- BlackRock: 2017-18 engagement priorities list “climate risk” disclosure as one of
its five priorities
- Vanguard: 2017 proxy voting guidelines state it will evaluate shareholder
proposals related to the environment on the merits of each proposal, and may
support those with a demonstrable link to long term shareholder value
• Continues to be frequent area of shareholder proposal:
- Environmental shareholder proposals increased again in 2017, with over 50
going to a vote
- Average shareholder support increased to nearly 30%, up from around 10% in
2006
- Climate change proposals received majority support at Occidental Petroleum,
PPL Corp (a utility holding company), and Exxon Mobil

16. 15
Shareholder Proposals and Engagement:
Board Diversity
• Institutional investor focus on board diversity
- Vanguard’s August 2017 Proxy Voting Report: “Companies should be prepared to discuss –
in both their public disclosures and their engagement with investors – their plans to
incorporate appropriate diversity over time in their board composition.”
- BlackRock’s engagement priorities for 2017-18: “over the coming year, we will engage
companies to better understand their progress on improving gender balance in the
boardroom …. If there is no progress within a reasonable time frame, we will hold
nominating and/or governance committees accountable for an apparent lack of commitment
to board effectiveness.”
- State Street published a report citing research that companies with women on their boards
have “stronger financial performance as well as fewer governance-related issues such as
bribery, corruption, shareholder battles and fraud.”
• Shareholder Proposals
- Companies received more board diversity shareholder proposals in 2017, with those voted
on averaging about <30% approval; expect an increase in diversity proposals in 2018
• Update disclosure
- Consider addressing board diversity beyond the minimum requirements of Regulation S-K

17. 16
ISS 2018 Policy Survey Topics
• ISS released its policy survey in August, which may
foreshadow potential changes to its voting policies for 2018
• Survey topics:
- Gender diversity on boards
- One-share, one-vote principle
- Share issuance and buyback proposals
- Virtual only or “hybrid” shareholder meetings
- Pay ratio

18. 2018 Proxy Season Updates
October 24, 2017