We are making our "To Do List" for the remainder of 2013 (I know, you're jealous of the exciting life we lead). Unless and until the SEC issues more rules effectuating the key Dodd-Frank Act provisions on executive compensation (e.g., clawbacks, pay ratios, performance comparison), the list includes a series of less "high profile" issues. As many of you know, the pledging of company stock holdings by officers and directors became an issue this proxy season. Pledging first arose as a mainstream issue last October when ISS released its 2013 Draft Policies for Comment and one of the proposed changes under the section "Key Changes Under Consideration" for "Management Say-On-Pay Proposals (U.S.)," was (as I blogged then):

"Add pledging of shares as a factor that may lead to negative recommendations under the existing problematic pay practices evaluation."

In its final policies for 2013, ISS acknowledged that some modest pledging arrangements are acceptable, but that it still viewed excessive share pledging arrangements as a potential problem.

Last week, Mark Borges blogged on companies' disclosure in light of the revised ISS policy on pledging, including a sample "Cypress Semiconductors' Supplemental Proxy Disclosure." I thought it might be useful to add another sample or template that we have used recently, to the one cited by Mark.

  • Officer or Director may pledge 20% or less of his/her stock ownership
  • Total number of shares collectively pledged by all persons covered by the policy would not exceed 2% of the Company's total outstanding common stock following the pledge
  • The pledger has the financial capacity to repay the loan without resort to the pledged securities
  • The pledge does not mitigate in any respect the risks of stock ownership to the pledger
  • The pledger would continue to meet stock ownership guidelines with unpledged stock alone
  • Pledger provides information to the Board demonstrating compliance with the above conditions