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SEC planning rules on disclosure of investors’ executive pay votes

New provisions under the Dodd-Frank Act

The Securities and Exchange Commission, the US financial regulator, is planning to adopt rules on the disclosure of institutional investors’ voting on executive pay in the first half of this year.
The Dodd-Frank Act enacted after the financial crisis requires institutional investment managers to report at least annually on how they voted on top managers’ pay at company annual meetings.
The SEC had originally released draft rules in October 2010 but postponed a vote on them in July last year. The issue now appears on its January-June 2012 agenda.
Specifically, it applies to managers and other investors such as pension funds who run more than $100m. They will have to disclose their say-on-pay voting in their annual “N-PX” filings at the SEC. US mutual funds already have to disclose how they voted.
In a submission to the SEC in November 2010, California pension giant CalPERS said it supported the move as a “best practice” principle also shared by the Counsel of Institutional Investors and the International Corporate Governance Network. Fellow California pension fund CalSTRS also supported the proposal, saying it would encourage all of its external investment advisers to prepare for its implementation as it was not an “undue burden”.
The incoming rules are among a number of issues relating to Dodd-Frank that the SEC plans to address this year.

These include the adoption of exchange listing standards on companies’ compensation committee independence and new rules on compensation consultant conflicts.Also on the SEC’s agenda are proposals for rules on the disclosure of pay-for-performance, pay ratios, and hedging by employees and directors and for the recovery of executive pay (“clawback”). It will also adopt rules on conflict minerals and on disclosure by extractives firms. The agency will also report to Congress about companies’ use of compensation consultants.

But the date for the creation of a new Investor Advisory Committee and Office of Investor Advocate is not yet confirmed.

The rule-making agenda comes as SEC Chairman Mary Schapiro has said the Dodd-Frank say-on-pay regulation has improved communication between companies and shareholders.
“It has given shareholders a clear channel to communicate satisfaction – or lack of satisfaction – with executive compensation practices to their boards,” she said. The new regime was giving boards a powerful incentive to clarify disclosure to shareholders, she added.
“I believe that the baseline say-on-pay regulations are already having a beneficial effect on compensation disclosure practices at public companies, and provide a benchmark against which to measure progress as other rulemakings proceed.”
She noted that companies will now have to disclose in their proxy statements, in the year following the vote, how they have responded to the most recent say-on-pay vote. Schapiro said this would provide “another set of data points” for investors to see how their vote was acted upon by the company.