New clawback rules are coming
The SEC appears ready to issue final rules for “clawbacks”, requiring companies to adopt policies that require executive officers to pay back incentive-based compensation when a restatement of the financial results is required. Clawbacks will occur when errors or misstatements cause financial restatements that revise targets used to award incentive compensation, whether the mistake was intentional or not.
The SEC will enforce the rules if companies do not, jeopardizing a company’s stock listing. Under the existing Sarbanes-Oxley rules only the CEO and CFO are subject to clawbacks. The new rules ushered by the Dodd-Frank Act seeks to expand exposure to cover a larger group of executives, although a restatement is still a required trigger. It is estimated that 86% of S&P companies and 44% of Russell 3000 companies already have adopted a clawback policy. A joint study by Cornell University and consulting firm Pearl Meyer & Partners LLC found over half of public companies tie a portion of executive pay to shareholder return or stock appreciation plus dividend payments, an increase from just 17% a decade ago.
Upon the issuance of these rules, the SEC will have completed proposals on all executive compensation rules required by the Dodd-Frank Act.
It ain’t over ’til it’s over
And, it’s far from over. Though it’s been five years since the Dodd-Frank financial reforms began, it is only 64% complete, according to a study by law firm Davis Polk & Wardwell LLP and reported by the WSJ. According to the study, of the 390 rule-making requirements of the 2010 Dodd-Frank law: 249 have finalized rules, 58 have rule proposals, and 83 await proposed rules of which 33 have missed the law’s deadline. Also noted, about half of the consumer protection measures have been completed with few missed deadlines, while mortgage reforms and new derivative rules remain as the most delayed issues.
50 Eye Shades of Green?
Who would have thought that the most enduring relationships would exist between a company and its auditor? But it’s true, according to Audit Analytics, which found the average auditor tenure among Russell 3000 companies was 16 years. That’s way longer than most celebrity marriages where it has become customary to save a piece of wedding cake for the divorce lawyer. Of the 80 Russell 3000 companies that switched auditors through the first half of this year, over half had auditor tenures lasting over 10 years.
Four years ago, the Public Company Accounting Oversight Board (PCAOB) floated the idea of mandating auditor rotations but dropped the idea after strong pushback from companies arguing that audit quality would suffer as new audit firms got up to speed. The European Union forces companies to rotate auditors every 10 years. The EU, however, will allow an additional 10 years if companies put the audit contract out for bid and up to 14 years if the company gets a second auditor to sign off on its financials.
Topping the charts for the longest relationship goes to Procter & Gamble – for better, for worse, for richer, for poorer, through good times and bad – they have stuck with Deloitte for 125 years. On the other hand, last year Honeywell International‘s 45-year relationship with PwC ended on the rocks. We fully understand… sometimes it takes a while to make “simply the right choice.”
Who ya gonna trust?
Auditors, that’s who. At least that’s the findings of the 2015 Main Street Investor Survey conducted by the Center for Audit Quality. Queried on how much confidence they have amongst several different entities when it comes to effectiveness and “looking out for investors’ interests,” investors picked independent auditors (76%), followed by financial advisors and brokers (73%) and independent audit committees (71%). The largest gain this year went to corporate boards of directors, jumping 10 percentage points (49% to 59%).
A teachable moment
Favoring more hedge funds and private equity in its investment mix for fiscal year 2015, Yale University’s endowment gained 11.5%, beating Harvard University for the fifth straight year. Yale’s endowment now stands at $25.6 billion, still shy of Harvard’s $37.5 billion that grew a more modest 5.8%.Non-Ivy League schools that out-earned both Yale and Harvard were MIT (13.2%) and Bowdoin College (14.6%). The median return for large endowments and foundations that have released results for the year ending June 30 is 3.6%, according to Wilshire Trust Universe Comparison Service.Schools say they rely on endowments to construct new buildings, expand facilities, pay administrative and professor salaries and provide some student aid. At the risk of being called into the Dean’s office, may we suggest that more of that money be used to counter the explosive rise in tuition costs?
Surprise! Now you see it… now you see it again
Disappearing-message service Snapchat Inc. has started charging users to make their favorite messages reappear. Priced at around three for a dollar, this will be the first time Snapchat has charged its 100 million users for any feature in the free program. What Snapchat really wants to appear is a new revenue stream to justify its $16 billion valuation. The WSJ reports that in the past year Snapchat has also started selling ads, and last month hired its first finance chief.
And, for those who thought your Snapchat messages vanished forever… surprise!
What’s 50 Cent worth in the court, not In Da Club?
Rule number one: If you’re going through bankruptcy, don’t be bragging about how rich you are.
Bankrupt rapper 50 Cent (real name Curtis James Jackson III) was paid to endorse the Frigo RevolutionWear brand that makes high-priced, tight-fitting men’s underwear. Though Jackson posted on Instagram last year saying he made $78 million from the endorsement, he recanted in court earlier this year saying he exaggerated his wealth, even borrowed expensive jewelry.
Since bankruptcy judges can grant exceptions, Jackson’s lawyers are asking that he not have to provide financial details of the deal. “No entertainer wants the terms of its endorsement contracts made public because the results of that disclosure would be disastrous by giving competitors an unfair advantage in allowing them to undercut the financial terms of the entertainer’s endorsement deals,” his lawyers pleaded.
The WSJ reports that Jackson filed for bankruptcy on July 13, blaming his financial troubles on two multimillion dollar judgments including a soured business deal to develop headphones that cost him $18.4 million in a lawsuit that followed. Jackson first appeared on the music scene in 2003 with hit rap song “In Da Club,” and has sold more than 22 million albums. His Farmington, Conn., mansion, once owned by boxer Mike Tyson, is reported to have 21 bedrooms, 25 bathrooms, a recording studio, a substantial night club, multiple gyms, an indoor racquetball court, a home movie theater, an eight-car garage and a helicopter landing pad.
San Francisco’s Department of Emergency Management could not explain a surge in its 911 call center. Call volumes to 911 had increased by 28% between 2011 and 2014, and the costs of following up on each emergency call was mounting. The mayor’s office took advantage of a Google initiative that offers Google staff engineers and developers to work on projects for social good.
The British Broadcast Corporation (BBC) reported that Google quickly got to the bottom of the issue, revealing that the increased volume was the result of what the BBC called “butt-dialing” – that is, accidentally making calls from pocketed mobile phones. In one sample session – when Google researchers sat by the call handlers, they found 30% of calls coming in from mobile phones were accidental butt-dials. A stat likely true throughout the nation.
Here in the states, we prefer to call it pocket dialing…but we thank the BBC for uncovering the fact that sometimes other than money talks.
Why join the navy if you can be a pirate?
If you can count your money, you don’t have a billion dollars.
J. Paul Getty
Consistency is the last refuge of the unimaginative.
Simply the right choice
Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
1925 Century Park East, Suite 1120
Los Angeles, CA 90067
6100 Glades Road, Suite 205
Boca Raton, FL 33434
Room 2109, 21/F, Shui On Centre
6-8 Harbour Road, Wanchai, Hong Kong P.R.C.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
Firm Managing Partner
Jeffrey B. Engler
Director of Tax,
Assurance & Audit
Tax & Accounting
Leisure Time Industries
Media & Entertainment