In yet another divisive 3-2 vote along party lines, on August 6, 2015, the U.S. Securities and Exchange Commission (SEC) adopted final rules requiring public companies (other than emerging-growth companies, smaller reporting companies and foreign private issuers) to disclose the ratio of the compensation of its chief executive officer to the median compensation of its employees (CEO Pay Ratio). The new rules were mandated under Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
SEC’s Large Payouts to Compliance-Officer Whistleblowers Highlight Need for Companies to Pay Prompt Attention
On April 22, 2015, the U.S. Securities and Exchange Commission (SEC) announced that it had awarded $1.4 million–$1.6 million to a compliance officer-turned-whistleblower who aided the SEC in an enforcement action against the officer’s employer. This marks the second time an employee with an internal audit or compliance function—who does not typically qualify under whistleblower rules—received an award under the SEC’s whistleblower program dictated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Much attention has been given to recent U.S. Securities and Exchange Commission (SEC) proposed rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank Act) that would require disclosure of chief executive officer pay ratios and a new pay-for-performance table. But there’s another proposed rule that could cause significant headaches for public companies during the 2016 proxy season. As we previously reported, the SEC has proposed rules that would require disclosure of what categories of transactions are – and are not – allowed under issuer hedging policies. These rules would implement Section 955 of the Dodd-Frank Act. We believe that this issue has not received significant attention because most public companies already have hedging policies. What’s not appreciated is that the scope of the proposed rules is quite broad and could cover many common investment transactions that would not be a hedge under many public company hedging policies. For example, purchasing the stock of other issuers could be a hedge under the proposed rules. If the proposed rules are implemented in their current form, public companies could be forced to choose between (i) disclosing that some forms of hedging are allowed under their hedging policies, thereby risking adverse voting recommendations from proxy advisory services (such as ISS and Glass-Lewis, at least under current voting guidelines) or (ii) modifying existing hedging polices to limit investment approaches used to diversify concentrated stock positions, which would complicate compliance oversight of hedging policies and lead to changes by executives in their investment strategies, including potentially more sales of issuer stock under 10b5-1 programs. McDermott Will & Emery has submitted comments urging the SEC to clarify and narrow the scope of hedging transactions that would be covered as part of the final rules – click here for a copy of the comment letter. We recommend that public companies keep in mind the need to review existing hedging polices in light of what the SEC adopts as final rules on hedging policy disclosures, which could be finalized by early this fall.
SEC No-Action Letter Permits Non-ERISA Retirement Plans to Issue Participant Fee Disclosures Without Violating Securities Laws
The U.S. Securities and Exchange Commission (SEC) issued a no-action letter on February 18, 2015, that extends relief from SEC Rule 482 to sponsors of certain retirement plans exempt from ERISA. The relief permits sponsors of non-ERISA plans to follow final U.S. Department of Labor regulations for participant-level fee disclosures, provided the sponsor complies with several conditions set forth by the SEC.
The U.S. Securities and Exchange Commission recently issued a proposed rule that would require public companies to disclose in annual proxy statements whether their employees and board members may hedge or otherwise offset any decrease in the market value of such companies’ equity securities. The proposed rule implements Section 955 of the Dodd-Frank Act and covers a broader range of transactions than typical hedging policies.
The U.S. Securities and Exchange Commission recently amended the rules governing money market funds in an effort to increase the stability and liquidity of these funds in times of economic stress. Sponsors of retirement plans should consider how their use of money market funds should be changed in light of these revised rules.
On October 18, 2010, the U.S. Securities and Exchange Commission (SEC) issued proposed rules regarding shareholder advisory votes on executive compensation and golden parachute arrangements under Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). There are three separate shareholder advisory votes under Section 951 that are covered by the proposed rules:
- “Say-on-Pay Vote” – voting on whether to approve the compensation of named executive officers as disclosed under federal securities law.
- “Say-on-Frequency Vote” – voting at least once every six years on whether the say-on-pay vote should occur every one, two or three years.
- “Say-on-Parachutes Vote” – voting on whether to approve so-called golden parachute compensation in connection with a business combination.
For more information and analysis regarding how the rules could affect the 2011 proxy season, click here.
The proposed rules are available at www.sec.gov/rules/proposed/2010/33-9153.pdf.