SEC links pay and risk, faster voting results

In a 4-1 vote, the Securities and Exchange Commission has approved a series of governance reforms designed to “help investors make more informed voting decisions.” As from 28 February 2010 investors will not only know a great deal more about the directors they are electing, they will also have faster access to voting outcomes with the introduction of a four day results filing requirement.

The new rules will require new proxy disclosures about:

  • The relationship of a company’s compensation policies and practices to risk management.
  • The background and qualifications of directors and nominees.
  • Legal actions involving a company’s executive officers, directors and nominees.
  • The consideration of diversity in the process by which candidates for director are considered for nomination.
  • Board leadership structure and the board’s role in risk oversight.
  • Stock and option awards to company executives and directors.
  • Potential conflicts of interests of compensation consultants

The final rules were initially proposed in July 2009 and received  more than 130 comment letters. As a result of the feedback,  the SEC made a number of amendements  aimed at clarifying and more precisely defining the standards. In future, companies to report the value of options when they are awarded to executives (the aggregate grant date fair value), instead of the current requirement to report the annual accounting charge. The changes effectively reverse the SEC’s 2006 regulation, when it called for disclosure of share-based compensation based on annual, rather than aggregate, amounts.

Separately, the SEC has announced that is re-opening the public comment period for its shareholder director nomination proposals. The re-opening lists four specific comment letters the SEC received which it believes would be worthy of further public comment before it considers the final proposals; two submissions from the Business Roundtable, one from Shareowners.org and an in-house study from the SEC’s Division of Risk, Strategy & Financial Innovation regarding share ownership and holding patterns of US quoted companies.

Links

SEC Final Rule >>

Proxy Access – Consultation Extension >>



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