Some companies in the oil and gas, energy, utility, and manufacturing industry sectors have included safety compliance and/or improvement as a performance metric in their incentive compensation plans.Safety as a performance criteria appears frequently in incentive compensation plans for both executives as well as broad-based employee groups.Now, regulators have raised a potential problem with the use of safety as a performance metric.

In today's environment, with annual Say on Pay (SOP) votes, intense external scrutiny and the need to strongly align pay with performance, it is increasingly important for companies to be confident in their executive pay program. The foundation of a sound executive pay program is built on the company's business strategy and talent needs, which, collectively, must be achieved in order to create shareholder value.

To qualify for the performance-based compensation exception under Section 162(m), payment of the compensation must meet several requirements, including that performance goals must be set by the corporation's "compensation committee." The Code defines "compensation committee" as the committee of independent directors that has the authority to establish and administer the applicable performance goals, and certify that the performance goals are met.

Section 409A was added to the Internal Revenue Code (IRC or "Code") as part of the American Jobs Creation Act legislated in 2004. Essentially, Section 409A sets forth certain requirements for the effective deferral of compensation under nonqualified deferred compensation arrangements. Much of the impetus for Section 409A was the ability of certain executives to accelerate the payment of their supplemental retirement arrangements and deferred compensation at Enron immediately prior to the company's demise.

Last month, U.S. regulatory agencies released two sets of new rules affecting executive compensation. One set of the new rules has been developed by the Department of Labor (DOL) and deals with defining who is a fiduciary pursuant to rendering investment advice with respect to an employee benefit plan (subject to ERISA) or an individual retirement account (IRA). The DOL's fiduciary rule is considered to be a Final Rule and will become applicable on April 10, 2017. The second set of rules is a proposal by six U.S. financial regulatory agencies (Securities and Exchange Commission, Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, National Credit Union Administration, and Federal Housing Finance Agency) setting forth new policies and rules pertaining to incentive compensation plans of certain financial institutions.

Yesterday's (April 12, 2016) Equal Pay Day produced an extraordinary volume of discourse and disclosure on a vitally important topic – and one that is surfacing more frequently at the Compensation Committee level.

Proxy executive compensation and Compensation Discussion & Analysis (CD&A) disclosure is principally based upon a one-year look back at executive compensation forms, levels, policies, and practices. In addition, the proxy tables and schedules which disclose the historical pay forms and levels for the Named Executive Officers (NEOs) are fixed in format and do not allow for any flexibility in reporting NEO compensation beyond that which is prescribed by the Securities and Exchange Commission (SEC).