Investor Relations 101

[Tina]

Issue Date: IR Alert - July 2, 2009,

New Disclosure Rule Approved By SEC: Shareholders Now Given a Vote on Executive Compensation at TARP-Enabled Banks

The Securities and Exchange Commission this week voted unanimously to propose a rule giving shareholders a vote on the pay of executives at banks receiving funds from the federal government's bank-bailout program. The proposal was part of a larger package of governance and disclosure rules under consideration by the agency. Commissioners at the SEC also voted to consider transparency rules to expand disclosure of pay packages and other governance matters, MarketWatch reports.

They also approved, in a split, party-line 3-2 vote, a measure introduced by the New York Stock Exchange that prohibits brokers from casting director-election votes on behalf of investors that don't vote themselves. "All three of these measures seek to enhance the quality of the system for each of 800 billion shares voted annually," said SEC chairwoman Mary Schapiro, reports MarketWatch writer Ronald D. Orol.

Some institutions that haven't paid back the government money from its Troubled Asset Relief Program and will need to give investors a say on pay include Bank of America, Citigroup and other financial firms. J.P. Morgan Chase & Co., Goldman Sachs and Morgan Stanley repaid TARP funds, in part, to avoid pay restrictions associated with the program.

The say-on-pay proposal would allow shareholders a non-binding vote on the pay packages of executives of financial institutions that have accepted funds as part of TARP.

The corporation is not required to follow the results of the vote, however a substantial vote against executive pay packages is likely to be embarrassing.

Such an approach, which Congress is considering for all U.S. corporations, would likely lead to more behind-the-scenes discussions between management and shareholders about executive pay packages.

The agency proposed new disclosure regulations, including a measure that would require corporations or dissident investors to provide more details in proxy disclosure documents about the business experience of director nominees.

Existing rules require only a brief description of the business experience director candidates have over the past five years. The agency will consider whether boards should disclose more details about why they choose a particular leadership structure.

The measure also requires corporations to provide more information about how its pay policies create incentives that impact the firm's risks and how management is controlling that risk. The measure also seeks improved reporting of stock and option awards in a compensation table based on fair value rules, which seeks to provide a more accurate sense of the officials pay at that time.

New disclosures about fees paid to consultants are also required in situations where the advisor or any of its subsidiaries provides other services to the company. The new proposal is intended to enable investors to consider pay decisions and assess any conflicts of interests a consultant may have in recommending pay packages.

The measure also requires a corporation to disclose the results of an investor vote within four business days after the end of the meeting at which the vote was held. In many cases of contested director elections, when dissident investors nominate their candidates for election against management's slate of directors, corporations often delay release of results of elections for a week or a month after election.