An Equilar publication Issue 34, Fall 2020

The View From the Top Mark Cuban talks adapting to a COVID-19 world, diversity and inclusion, and more

FEATURING CEO Pay by U.S. President & Interview with Shellye Archambeau Issue 34 Critical governance issues post-pandemic The rising role of General Counsel

Fall 2020 Demystifying data science for board members Setting incentives in uncertain times How CEO pay ratios affect Say on Pay Executive equity awards and the pandemic 36

ASK THEEXPERTS What willbethemostcritical must addresspost-pandemic? governance issuescompanies Learned Lessons commentary on current topics current on commentary

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Navigating the COVID-19 pandemic has created profound and unique ROBERT BARBETTI challenges for public and private companies. But it’s also an opportunity to Global Head of Executive solidify current corporate governance and create important new policies. Compensation and Benefits Boards and senior management should consider the following as part of good J.P. MORGAN corporate governance, not only in the context of an unprecedented global PRIVATE BANK pandemic, but in any business environment. Ensure communication systems are solid. Understanding the impact COVID-19 has on business operations and suppliers is critical, but Robert Barbetti, Managing Director, is the communicating that understanding to teams is just as important. There are Global Head of Executive Compensation now many new federal and state regulations in place that must be considered and Benefits at J.P. Morgan Private as companies create their policies to mitigate risk and stay compliant. Bank. As a senior member of the Private Management should stay abreast of updated crisis policies, disaster Bank’s Advice Lab, Mr. Barbetti focuses recovery, international relations, cybersecurity and more so that they can on maximizing and optimizing executive communicate properly to employees as well as clients and suppliers. Having compensation for insiders. these communication policies in place will help organizations develop well- His expertise includes managing single defined expectations. stock concentrations, employment and Review succession plans for board members, senior management and severance packages, pre-IPO planning, key officers. Regardless of size, all companies should have an emergency M&A transactions and capital market succession plan and transition team in place for immediate action; there solutions for executive compensation. In should also be a longer-term plan in place. These plans should not only particular, Mr. Barbetti focuses on issues look at staffing but other functions as well, such as real estate, financials, related to Sarbanes-Oxley and good supplier relations and stakeholder communications. In this time of COVID- corporate governance, especially those 19, many companies not only need to look at top executives but all levels of challenges faced management. They also should consider short-term or leave of absence plans, by boards as needs have changed. of directors. Executive compensation is more complex than ever. Since the start of the pandemic, short-term and long-term awards based on performance metrics may have become meaningless. PSUs with three-year horizons, equity award grants and annual bonuses were all impacted, and given today’s market volatility, these incentives need reviewing. Additionally, in the last year some companies changed from absolute metrics to relative metrics to being purely subjective. As such, and especially ahead of end-of-year reviews, performance goals for payouts and/or vesting may have been altered. Even the impact of salary reductions that occurred for many companies altered the benefits tied to those salaries, such as life and disability insurances along with 401(k) plans. Benefit plans should contemplate the impact of reduced or no salary if the necessity arises in future situations. Flexibility should be built in performance and benefit plans to address the impact of COVID-19 today and future catastrophic situations. 38 ASK THE EXPERTS commentary on current topics

The COVID-19 pandemic was an eye opener. APRIL ARNZEN Overnight, the workplace radically transformed, Senior Vice President of Human Resources and so did the needs of our customers, employees MICRON TECHNOLOGY and communities. The most critical governance issue companies April Arnzen is Senior Vice President of Human must address post-pandemic will be managing Resources at Micron Technology. She is responsible change. for aligning people to Micron’s business strategy. You have to imagine that as a technology She was appointed to her current position in 2015. company providing essential infrastructure, we Since joining Micron in 1996, Ms. Arnzen has held various still need people to come to work. As employees positions of increased responsibility and worked across many returned to work, we knew that we also had to functions within the Human Resources department. She helped consider them as parents and caregivers. That shape many of Micron’s team member programs, including became a huge hiring and retention challenge for performance management, human resources us in an incredibly competitive talent market. business partners, total rewards, leadership As the wildfires and social injustice raged in development, and succession and integration. the U.S., we found ourselves playing the role of

As the COVID-19 pandemic continues to cause MARC ULLMAN business and economic uncertainty into the Partner foreseeable future, corporate boards and MERIDIAN COMPENSATION PARTNERS senior management teams face unprecedented challenges. Through that lens, board compensation Marc Ullman is a Partner and leader of the firm’s committees need to make prudent executive New York office. With over 20 years of executive pay decisions regarding annual and long-term compensation consulting experience, Mr. Ullman incentive (LTI) plan payouts and design changes. has established many long-standing client relationships as a trusted Committee decisions on incentive programs must advisor to both boards and management teams. reflect company and industry-specific issues Mr. Ullman consults with large and small, publicly held and arising from the pandemic. As such, it is important privately owned organizations, and has experience in various to consider a company’s specific facts and industries, including consumer products, financial services, insurance, circumstances before landing on any one solution. manufacturing, media, professional services, REITs, retail, technology Most companies have adopted a “wait and see” software and hardware, and telecommunications. approach on their 2020 annual incentive program Mr. Ullman consults in the areas of executive new hires and and have not revised goals for the second half of terminations, shareholder engagement, share reserve requests, the year. We expect that committees will evaluate transaction-related compensation programs, such as in initial discretionary adjustments to formula-based annual public offerings, M&A and spin-offs. He also consults in all phases incentive payouts as a year-end decision. That will of the ongoing annual executive compensation cycle, including: require the committee to exercise judgment that competitive pay analyses, annual and long-term incentive plan may take many forms. Some companies may find review, design and implementation, incentive plan metrics selection it challenging to neutralize the COVID-19 impacts and performance target and range setting, pay-and-performance due to second-order effects. Instead, a committee alignment analysis, compensation risk assessments, board of may approve annual incentive payout levels that directors’ compensation, and assistance reward for efforts against new/revised business with proxy disclosure drafting and priorities. Other companies may consider a total shareholder communication. bonus pool that is affordable given the need to manage liquidity and the desire to emphasize an “all in it together” message. Many committees are in discussions about potential modifications of outstanding 39

educators, cultural interpreters and activists. During the pandemic, buildings were outfitted BRAD EASTMAN to become hospitals, during the fires, offices Senior Vice President and General Counsel became safe havens. RIGNET The pandemic confirmed that we have to plan ahead for disasters. It also confirmed how Brad Eastman is the Senior Vice President and critical it is to be agile and resilient. Above all, General Counsel of RigNet, Inc., the leading we must sustain connections to the communi- provider of ultra-secure satellite communications ties where we live and work, the customers we and intelligent networking solutions. Mr. Eastman also serves as a serve, and employees and families that depend director of a private company in Wisconsin, a trustee of the Houston on us. Grand Opera and on the advisory board of Holocaust Museum Managing workforce expectations has Houston. Prior to RigNet, Mr. Eastman held various positions in the reached a new level. To be successful, we must legal department of Cameron International Corporation and then continue listening to our people’s needs and Schlumberger Limited, after Schlumberger challenges. We must embrace change as the acquired Cameron. Mr. Eastman has a next normal. law degree from Harvard University and a Bachelor of Arts from the University of Texas.

Post-pandemic companies will have to learn how to operate efficiently in a performance-based equity awards tied to far more decentralized environment without affecting internal control. Most multi-year goals, with specific attention given companies are realizing that many functions can be performed remotely, to the accounting and disclosure implications reducing occupancy costs and providing alternative career paths to many of any such adjustments. We expect that people who do not prefer a traditional office environment. Do all functions many companies may ultimately decide to need to be performed in an office? Accounts receivable and payable? leave existing equity award cycles in place. However, each company still needs to maintain internal control over its Looking forward, committees are beginning to decentralized workforce and must find ways to attract, motivate, supervise and think in earnest about how their LTI program retain scattered workers. Boards of directors need to oversee management in design may need to change for 2021 and developing policies and the proper control environment for the decentralized beyond. Structuring LTI programs to focus future. Boards of directors must be comfortable that company culture can on shareholder alignment will continue to be properly instilled in parts of the workforce who work individually. Boards be paramount. With that said, some 2021 LTI should be asking management about how compliance will be monitored and awards will be designed to address executive ensured in the new work-from-home world. Beyond compliance, boards need retention concerns, especially when executives to know how management will evaluate and mentor employees who they have outstanding equity awards that are may only sporadically meet in person. Further, boards need to understand unlikely to pay out and therefore pose a management’s cybersecurity arrangements in the new world. low “buyout price” by a competitor. In those Because parts of the workforce will continue to work from home, the board situations, the need to address practical issues needs to understand how management will meet its diversity and inclusion may outweigh the external optics. objectives. A hybrid work-from-home environment creates opportunities to Each company and industry faces more individually tailor work environment to each employee’s individual different pressures and recovery scenarios. circumstances, but it also creates the opportunity to have a caste of in-office A compensation committee will have to workers and a separate caste of work-from-home support workers. Boards make executive pay decisions in the context need to ensure that opportunities are not distributed because of gender, race, of other business decisions, such as capital nationality or any other irrelevant category and that all employees have an expenditures, workforce disruptions and opportunity to develop their own career goals. employee welfare, and post-COVID business Management faces the challenge of designing controls and policies for the strategy implementation. Ultimately, a new hybrid office/work-from-home environment. Additionally, management committee may balance competing interests must learn to create teams of widely dispersed individuals without many in making pay decisions that incentivize and of the ways of traditional team building. Camaraderie could be built over an retain critical executive talent during the office birthday cake or team lunch. Management needs to learn how to get remainder of the pandemic. the most out of each employee when these informal interactions are limited. 40 ASK THE EXPERTS commentary on current topics

As companies plan to return to a more “normal” post-COVID world, they’re SHELLY CARLIN recognizing that what started as a public health emergency has become multiple Executive Vice President concurrent crises that have threatened lives, devastated economies and CENTER ON EXECUTIVE exposed deep divisions in American society. As COVID-19 plunged the economy COMPENSATION into recession, its disproportionate impact on Black and Hispanic Americans reflected persistent income inequality and racial disparities in our health care Michele Aguilar “Shelly” system. And while the pandemic raged, America’s long, tragic history of racial Carlin is Executive Vice inequity boiled over into the most widespread civil unrest in a generation. President of HR Policy Association and In the midst of these crises, some of the fundamental structures, its Center On Executive Compensation assumptions and beliefs underlying our economy are being challenged. One and CEO of the American Health Policy example: the acceleration of pre-pandemic calls for reimagining the purpose Institute. Ms. Carlin joined the Association of the corporation. Challenging shareholder primacy has taken on a new in August 2014 from Motorola Solutions, meaning in the midst of our current crisis. How much responsibility should where she was Senior Vice President, a company bear for the health, safety and well-being of its workers? Should Human Resources and Communications. companies—and their CEOs—take public positions on social issues? Should During her tenure at Motorola, Ms. they be expected to go beyond equal opportunity to ensure equality Carlin led the HR function through a period of outcomes in their organizations? of substantial change, from the spin-off These questions are already driving the new corporate governance of its consumer cell phone business to a agenda, and pressure will increase as investors focus on the importance of major transformation of how HR services a company’s performance on environmental, social and governance (ESG) are delivered. She also implemented the issues. Companies are increasing attention on the social aspects of ESG, CEO Leadership Forum, a business-driven such as workforce diversity, pay equity and pay parity. Under pressure by learning program for the company’s top 20 stakeholders skilled at harnessing the power of social media, companies high-potential executives. may be expected to take a stand on social issues and play a proactive role Prior to serving as the head of HR, Ms. in social change. Diverse stakeholders will demand they go beyond public Carlin was Corporate Vice President, statements of support and create mechanisms to measure and reward actual Global Rewards. Before joining Motorola results. This will have implications for executive compensation programs, as in 2008, she was VP of Compensation, interest groups and even investors push for inclusion of these social goals in Benefits and HR Technology for the incentive pay designs. Campbell Soup Company. Ms. Carlin’s Companies will be pressured to establish meaningful goals to measure earlier positions included VP, HR Rewards progress, such as increased representation of minorities and Operations for TIAA-CREF; VP of in senior management or the elimination of pay Compensation and Benefits for Sears, differentials by race and gender. Boards Roebuck and Co.; and SVP of executive will be expected to consider performance compensation and corporate unit against those goals in determining rewards reporting for Bcom3 Group, Inc. and assessing individual executive Ms. Carlin earned a BA and MBA from performance. A company’s the University of California, Los Angeles, ESG performance will and was an Academic All-American in be assessed by multiple softball and a stakeholders, and leaders member of UCLA’s will need to prepare for and 1982 National manage potential employee dissent Championship team. among those who may not agree with the company’s positions on social issues. The strategic contribution of the company’s chief HR officer will be critical to navigating heightened expectations of corporate social responsibility in the new governance environment. fcafotodigital/gettyimages.com 41

The first and most important governance issue to address is employee PAUL J. FERDENZI safety. Organizational leaders must make sure all proper procedures and Vice President, General processes are implemented to ensure the current and future safety of our Counsel and Corporate employees, whether for this pandemic or the next. Organizational leadership Secretary must decide on whether the traditional office environment is still the best CURTISS-WRIGHT environment to ensure an efficient and effective workforce. We must decide for those who cannot work from home whether staggered shifts are the new Paul J. Ferdenzi joined norm or if we can go back to a standard shift and still protect our workers. Curtiss-Wright Corporation in June 1999 as Employees need to know that organizational leaders care about their an Associate General Counsel responsible wellbeing and that they want to provide a safe and secure work environment. for the corporation’s legal needs in the This is the most important issue that organizational leaders must address areas of employment, securities and real because, without a devoted workforce, an organization cannot succeed. estate law. In May 2001, the Board of Secondly, we need to be aware of our enhanced cybersecurity risk. With Directors appointed Mr. Ferdenzi to the more people working from home, it becomes increasingly difficult to ensure office of Assistant Secretary of Curtiss- confidential and proprietary information is secure and protected from all Wright Corporation and in November threats, inside and out. Companies will need to devote additional resources 2011, the Board of Directors appointed to secure their networks by securing network access from thousands of entry him to Vice President of the corporation. points outside the design of the original infrastructure. Senior leaders will need Mr. Ferdenzi was promoted to the to implement new programs and policies that: detect and quarantine non- Vice President, General Counsel, and authorized machines on internal networks; monitor and control data storage Corporate Secretary in March of 2014. on external devices; monitor network activity to identify anomalies and threats Prior to joining Curtiss-Wright early; and deploy next-generation web security solutions with advanced threat Corporation, Mr. Ferdenzi served four protection and content filtering. All of these approaches will help secure an years (1993–1997) with the United States expansive network of home workers that access company resources. Navy in the Judge Advocate General’s Lastly, organizational leaders need to assess, monitor and possibly enhance Corps (“JAGC”). Mr. Ferdenzi served in their supply chain management and re-evaluate off-shore operations to low- various capacities as a trial and appellate cost countries. Organizational leaders will need to assess the weaknesses in defense counsel and legal assistance their company’s supply chain in order to avoid future disruption caused by attorney to the United States Naval geopolitical influences or future pandemics, and decide if such weaknesses Academy and the Naval Medical Center can be further strengthened by moving their supply chain in country or in Bethesda, Maryland. After completing diversifying suppliers throughout the world to ensure a continuous supply his tour of duty with the Navy, Mr. of raw materials and product. Ferdenzi joined the law firm of Gallagher, These are risks that all companies will need to address in this post- Briody & Butler in Princeton, New Jersey, pandemic environment. Without healthy employees, a secured business where he practiced law in the areas of environment and dependable supply chain, a company cannot continue securities, banking and finance, corporate to operate in an efficient and effective manner. governance, employment and real estate. 42 & Bradstreet and and & Bradstreet alternative site infusion services company. company. services infusion site alternative and implementing people and organization capacity, he is responsible for all human human all for responsible is he capacity, drive business performance. outstanding 30 over with partner business and executive Stryker Corporation. He has also served in HR HR in served also has He Corporation. Stryker Baxter International. Baxter Boston Scientific, Dun Resources Officer for Option Care Health Health Care Option for Officer Resources years of demonstrated results in developing developing in results demonstrated of years this $3 billion, 5,900-employee home and and home 5,900-employee billion, $3 this that cultures dynamic to foster and talent, resources for and communications activities Human Chief the Mr. currently is Rude served as CHRO for PBM Catamaran as as PBM Catamaran for CHRO as served top grow and engage to attract, strategies leadership roles at roles at leadership well as global medical device manufacturer manufacturer device medical global as well based in Bannockburn, Illinois. In this this In Illinois. Bannockburn, in based Prior to Option Care Health, Mr. Rude Mr. Rude Health, Care to Option Prior

ASK THEEXPERTS SVP & Chief Human Human SVP &Chief Resources Officer Resources Human Resources global OPTION CARE HEALTH CARE OPTION Mike Rude is a strategic astrategic is Rude Mike MIKE RUDE MIKE

commentary on current topics current on commentary

executive officer—oftenthegreatestpositiveornegativecultureinfluencer. on acompanyandultimatelyitsshareholders. environment. Withinoursocialmedia,instant-accessworld,stumblingon on issueslikethe#MeToomovement,systemicracism,payequityand own. Ifnot,theywillwalk!Companiesinthe“newnormal,”post-pandemic compensation committees—managingexecutiveand for theirstakeholdersandshareholders.Employeeswillincreasinglywant The profileforthesuccessfulCEOinpost-pandemicworldwillclearlybe differentiate thosecompaniesthatcandeliversustainedgrowthandvalue must addresspost-pandemic. meetings. Ibelieve,however,amorecriticalreview,assessmentandoversightof values thatliveoutintheorganization’sday-to-dayactivitiessupporttheir most importantresponsibilityithasisappointingandremovingthechief remote workandwork/lifebalance,butalsodemonstratewheretheystand (ESG) demandsandtheshiftingimportancethesehavewithkeystakeholders, the need to address the growing rise of environmental, social and governance the needtoaddressgrowingriseofenvironmental,socialandgovernance the company’spurpose(ifithasarticulatedone!)andwanttoknowthat to makesurethereisalignmentwiththeirpersonalpurposeforwork succession planning.Inthe“newnormal,”whatacompanystandsfor— any oneoftheseareascanhavesignificantfinancialandreputationalimpact a company’sculturewillbeoneofthemostcriticalgovernanceissuecompanies and directorshaveplentyoftopicstoconsiderduringtheirupcomingboard and capabilities,aswellspendtheirprecioustime.Thiswilldirectly in the“newnormal”asaresultofCOVID-19 pandemic.Layerintothatmix Company boardshavealotontheirplatesastheycontemplatehowtogovern world mustnotonlyaddressemployeesafety,mentalhealthconcerns, but ithasoftenbeenthroughthelensoftraditionalcharters beyond profits—willinfluencewheregreattalentchoosestousetheirskills Boards havealwayshadaresponsibilityforshapingcompanyculture, So howcantheboardprovideappropriategovernanceoverculture?The greatest valuetotheorganization. great challengestoboardgovernance, butIbelieve develop, trackandreportoncriticalorganizational management isexecutingtoimprovethem. metrics, andallocateappropriatetimeduring metrics withthesamerigorastheydofinancial those thatfocusoncompanyculture willbringthe to reinforcethedesiredcorporateculture. strategy. Boardsshouldalsopressmanagementto should ensurethatexecutiveshaveandcan shifting, andtheboardmustensureright and necessaryculturetodeliverthecompany articulate aclearunderstandingofthecurrent practices andbehaviorstoensuretheyarehelping person sitsinthatchair.Additionally,theboard Finally, boardsneedtoexaminetheirownculture, board meetingstodiscussthemandthestrategies The post-pandemic“newnormal”willbring

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