SEC Proposes Pay For Performance Rules
On Wednesday, the SEC proposed rules to require pay-for-performance disclosure as mandated by the Dodd-Frank Act. The proposal would require companies to include a new table in their proxy statements that shows compensation “actually paid” to top executives, as well as the total shareholder return (TSR), as defined in Regulation S-K, on an annual basis for the company and the peer group selected by the company for its stock performance graph or CD&A. Compensation “actually paid” is derived from the current summary compensation table, except that pension amounts are adjusted and equity awards are considered paid only when vested and are valued as of the vesting date. Companies would also be required to describe in a narrative or in graphics the relationship between the compensation “actually paid” and the company’s TSR performance data, and the relationship between the company’s TSR performance data and the TSR performance data of its selected peer group. The SEC would require these pay-for-performance disclosures to cover a five-year period (three years for smaller reporting companies). Companies would have to provide the new information for their principal executive officer and an average for the group of other named executive officers in the summary compensation table.
More Calls for Transparency in Political Spending Disclosure
Last week, a group of 144 business leaders, entrepreneurs, investors and philanthropists petitioned the SEC to require public companies to disclose their political spending. In a separate petition that day, the treasurers of five states made a similar request. A 2011 petition calling for SEC rulemaking on this disclosure has been the most commented-upon petition in SEC history. Pressure on the SEC has also appeared in an innovative ad campaign in Washington DC’s Union Station, featuring a comic strip of frightened investors calling on SEC Chair White to save them from “the menace of dark money.”
Wanted: NASAA Representative at the SEC
SEC Commissioner Aguilar recently reiterated a request that he introduced in 2009 by calling for a NASAA representative to be embedded at the SEC. His call for more involvement by state securities regulators in the SEC follows approval of Regulation A+, which becomes effective on June 19. Regulation A+ enables smaller companies to offer and sell up to $50 million of securities in a 12-month period without going through a full-blown SEC registration process and preempts state review of “Tier 2” offerings under the rule. According to Commissioner Aquilar, “having a state regulator representative as part of the review team will create synergies that will go well beyond Regulation A+.”
Constitutionality of SEC Administrative Proceedings Upheld
Ever since the Dodd-Frank Act made the SEC’s choice of forum more permissive, the SEC has been pursuing enforcement actions through administrative proceedings rather than filing charges in federal district court. Targets of these actions have argued that the SEC’s approach deprives them of the discovery and other rights they would have in federal court. In Duka v. SEC, a former S&P official argued that the SEC’s administrative proceedings were unconstitutional because the SEC’s administrative law judges were protected from removal by the President, thus violating the separation of powers. A federal district judge ruled that Duka had failed to show she was likely to win her claim, allowing the SEC’s administrative action to proceed.
The Ticker shares recent developments in SEC compliance, capital markets, corporate governance, executive compensation and other matters important to public companies and their officers and directors. It is published by Fredrikson & Byron’s Public Companies Group.