The Us Securities and Exchange Commission has adopted a “say-on-pay” rules that will allow the shareholders of publicly listed companies to weigh in on executive compensation via advisory votes. The new rules, which implements a Dodd-Frank Wall Street Reform and Consumer Protection Act, gives shareholders more input regarding executive compensation. This should hopefully help curb the practice of paying financial firm executives lavish compensation packages. The SEC approved the vote by 3-2 on Tuesday.
Shareholders would get a vote on “golden parachute” pay packages related to an acquisition or merger and companies would have to offer up more disclosures. Although the vote on say-on-pay is non-binding, companies will likely want to avoid being associated with a “no” vote. Some companies, including Apple Inc. and Microsoft Corp, have already adopted say-on-pay proposals on their own.
Also that day, the SEC proposed new reporting requirements for private fund advisers, with advisers to private funds valued at more than $1 billion upheld to more frequent and rigorous reporting. Reporting requirements would vary depending on the type of fund. Meantime, advisers to funds valued at under $1 billion would only have to report once a year on leverage, credit providers, fund strategy, and credit risk related to trading partners.
In addition, advisers of large hedge funds would also be required to disclose more information than private equity fund managers because hedge funds are considered more high risk and use leverage more often than private equity funds. Per SEC Chairman Mary Schapiro, the toughest reporting requirements under the rule would affect approximately 200 large hedge fund advisers in the US who represent over 80% of assets under management, as well as some 250 large private equity fund advisers.
The rule requires that the Financial Stability Oversight Council be given better information about hedge funds, liquidity funds, and private equity funds. This is for making sure that trading activities do not endanger the wider marketplace.
The SEC is also proposing to make it tougher for individuals to qualify as “high net-worth” when it comes to certain high risk investments.
Related Web Resources:
SEC adopts shareholder say-on-pay rules
SEC, in Split Vote, Adopts ‘Say on Pay’ Rule, Wall Street Journal, January 25, 2011
Say-on-pay rule proposal, SEC, January 25, 2011
Financial Stability Oversight Council, US Department of the Treasury
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