“Retirement” or “Severance” and the disclosure of either or neither or both

Fred WhittleseyConscious Compensation: The Impact Compensation Blog, Pay and Performance: The Compensation Blog, The Cannabis Compensation Blog

Topic: Executive Compensation
Sub-Topic: Compensation Arrangements for Departing Executive
Company: Arena Pharmaceuticals (ARNA)

Most small companies have no retirement benefits or pensions, especially entrepreneurial cannabis companies. This follows the pattern of technology company startups over the past several decades.

They frequently have severance arrangements for departing executives, and these are quite varied, from “none” to “lots” and every gradation in between

Arena Pharmaceuticals is barely a cannabis company, having just one drug, a CB2 agonist. Its executive compensation program appears to be modeled more after the  biotech sector than the cannabis sector.

But because they are a “cannabis stock” we follow their executive compensation, and this one makes for good reading – they don’t have retirement or severance benefits, except for those generous retirement and/or severance benefits they provided to the terminating General Counsel three months earlier.

See if you can make sense of the two conflicting SEC filings summarized below.

Note: The “retiring General Counsel” is 54 years old.

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Form 8-K
January 13, 2020

 On January 13, 2020, Steven W. Spector, J.D. notified the Company of his intention to retire from his positions as the Company’s Executive Vice President, General Counsel and Secretary, effective March 2, 2020 (the “Retirement Date”).

In connection with Mr. Spector’s retirement, the Company and Mr. Spector entered into a Transition and Retirement Agreement, dated January 13, 2020 (the “Transition Agreement”). 

 CCC’s Bullet-point Summary:

  • Cash severance payment of #approximately $990,000
  • Continuation of health insurance for 19 months
  • 18 months of accelerated vesting of stock options
  • Continued post-termination stock option exercisability for 18 months

In addition, the Company and Mr. Spector will enter into a Consulting Services Agreement, effective as of the Retirement Date (the “Consulting Agreement”).

CCC’s Bullet-point Summary:

  • March 2, 2020 through December 31, 2020
  • “Market rate hourly consulting fee” through September 2, 2020
  • Consulting services constitute “continuous service” so,
    • Stock options remain outstanding
    • Outstanding PRSUs remain outstanding

Subject to the satisfaction of certain conditions, upon termination of the Consulting Agreement for any reason other than (i) termination by the Company for cause or (ii) termination by Mr. Spector prior to December 31, 2020.

 CCC’s Bullet-point Summary:

  • Accelerated vesting of all remaining unvested stock options
  • Exercise period for stock options extended for 36 months
  • Outstanding PRSUs remain outstanding

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Then 3½ months later,
in their annual proxy statement,
the Company said this:

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Form DEF 14A
April 29, 2020

 Compensation Practices and Governance Highlights (page 22)

Post-termination/Retirement Benefits: No post-termination or retirement benefits

Compensation Consultant (page 23)

The Compensation Committee has retained Frederic W. Cook & Co., Inc., or FW Cook, as its compensation consultant. 

Severance Benefits for Former General Counsel. (page 30)

In March 2020, Steven Spector, who was serving as our General Counsel and Secretary, terminated employment and was deemed by our Compensation Committee to qualify for severance.

So which is it? There are no post-termination (severance) or retirement benefits, or there are? His termination was a retirement, or a termination eligible for severance? Because the company has neither, correct?

I am really hoping that cannabis companies don’t follow the highly-criticized, socially irresponsible pattern of more mature industries like biotech. Executive severance is a hot button with shareholders and the public. (See the 22 January 2020 Almost Daily Cannabis Compensation Update)

Because of the ongoing, but rapid diminishing stigma of cannabis, the media loves cannabis news stories. And the media continue to love executive compensation stories like the one last year about the Tilray CEO.

Cannabis companies are blazing a new trail in the global economy and with this fresh opportunity comes the opportunity, and the responsibility, to be socially responsible to all stakeholders.