Tag: SEC rulemaking


SEC and PCAOB on Audit Committees

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, Jack B. Jacobs and Thomas J. Kim.

Public company counsel and audit committee members should be aware of recent activity at the U.S. Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) that could lead to additional regulation of audit committee disclosure and to federal normative expectations for how audit committees and their members behave.

READ MORE »

SEC Adopts CEO Pay Ratio Disclosure Rule

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Corey Perry, and Rebecca Grapsas. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein.

On August 5, 2015, the Securities and Exchange Commission (SEC), by a 3-2 vote, adopted rule amendments [1] to implement Section 953(b) of the Dodd-Frank Act, which requires public companies to disclose the “pay ratio” between its CEO’s annual total compensation and the median annual total compensation of all other employees of the company. [2]

The pay ratio disclosures that will result from this much-anticipated new rule will further heighten scrutiny on corporate executive compensation practices—with specific focus on how CEO compensation compares to the “median” employee. Companies should be aware that, depending on the magnitude of pay ratios, these new disclosures may exacerbate existing concerns among investors, labor groups and others around executive compensation.

READ MORE »

Special Meeting Proposals

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn. The complete publication, including footnotes, is available here.

Shareholders petitioning the board for the special meeting right propose either to create the right or, in circumstances where the right already exists, to lower the minimum share ownership threshold required to exercise the right. As of June 30, 2015, 339 companies in the S&P 500 and Fortune 500 already provided their shareholders with the right to call a special meeting outside of the usual annual meeting. During the 2015 proxy season, 20 special meeting shareholder proposals went to a vote at Russell 3000 companies. Of these, six proposed to create the right, and 14 proposed to lower the ownership threshold with respect to an existing right. Only four special meeting shareholder proposals received majority support: three created the right for the first time and one lowered the threshold for an existing right to 25%. Overall, shareholder proposals relating to special meetings received average shareholder support of 43.6% this proxy season.
READ MORE »

Clarity in Commission Orders

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

This statement is about the critical importance of clarity in Commission Orders for enforcement actions. One of the Commission’s most effective deterrents against future misconduct is what it says about the enforcement actions it takes. As a result, the Commission must use its position as a regulatory authority to carefully and effectively send clear messages to securities industry participants regarding what is, and what is not, acceptable behavior. For this reason, Commission Orders need to contain sufficiently detailed facts so that there is no doubt as to why the Commission brought an enforcement action, why the respondent deserved to be sanctioned, and why the Commission imposed the sanctions it did.

The Commission and its staff should always be cognizant that there is a broad audience that carefully reads Commission Orders for guidance. This broad audience is usually not familiar with the underlying facts of a particular matter, and is relying on the Order’s description of the misconduct to appreciate why a named respondent ran afoul of the applicable laws. A clear and transparent Commission Order, therefore, is an absolute necessity to ensure public transparency and accountability.

READ MORE »

SEC Adopts Pay Ratio Disclosure Rules

Michael J. Segal is partner in the Executive Compensation and Benefits Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Segal and Michael J. Schobel. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

The SEC yesterday [August 5, 2015] voted 3-2 to adopt the long-awaited final pay ratio disclosure rules under the Dodd-Frank Act. The rules add new Item 402(u) of Regulation S-K, which will require SEC reporting companies to disclose annually (1) the median of the annual total compensation of all of their employees, excluding the CEO, (2) the annual total compensation of the CEO and (3) the ratio of the annual total compensation of the median employee to the CEO’s annual total compensation. Below is a brief summary of the final rules.

READ MORE »

SEC Chair’s Statement on Pay Ratio

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff. Related research from the Program on Corporate Governance about CEO pay includes Paying for Long-Term Performance (discussed on the Forum here) and the book Pay without Performance: The Unfulfilled Promise of Executive Compensation, both by Lucian Bebchuk and Jesse Fried.

To say that the views on the pay ratio disclosure requirement are divided is an obvious understatement. Since it was mandated by Congress, the pay ratio rule has been controversial, spurring a contentious and, at times, heated dialogue. The Commission has received more than 287,400 comment letters, including over 1,500 unique letters, with some asserting the importance of the rule to shareholders as they consider the issue of appropriate CEO compensation and investment decisions, and others asserting that the rule has no benefits and will needlessly cause issuers to incur significant costs.

These differences in views were evident at the time the Commission voted to propose the pay ratio rule. That the Commission was even considering the rule proposal was, for example, criticized as contrary to our mission. We may hear similar thoughts today [August 5, 2015].

READ MORE »

The CEO Pay Ratio Rule

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [August 5, 2015], the Commission takes another step to fulfill its Congressional mandate to provide better disclosure for investors regarding executive compensation at public companies. As required by Section 953(b) of the Dodd-Frank Act, today’s rules would require a public company to disclose the ratio of the total compensation of its chief executive officer (“CEO”) to the median total compensation received by the rest of its employees. The hope, quite simply, is that this information will better equip shareholders to promote accountability for the executive compensation practices of the companies that they own.

READ MORE »

Dissenting Statement on Pay Ratio Disclosure

Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Piwowar’s recent remarks at a recent open meeting of the SEC. The complete publication, including footnotes, is available here. The views expressed in the post are those of Commissioner Piwowar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

When the pay ratio disclosure rule was originally proposed, I objected to its consideration on the grounds that the Commission and its staff should not spend our limited resources on any rulemaking that unambiguously harms investors, negatively affects competition, promotes inefficiencies, and restricts capital formation—especially when there is no statutory deadline for completion. Pursuing a pay ratio rulemaking was wrong then and remains wrong now.

Today’s [August 5, 2015] rulemaking implements a provision of the highly partisan Dodd-Frank Act that pandered to politically-connected special interest groups and, independent of the Act, could not stand on its own merits. I am incredibly disappointed the Commission is stepping into that fray.

READ MORE »

Is Proxy Access Inevitable?

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Efforts by shareholders to directly influence corporate decision-making are intensifying, as demonstrated by the significant increase over the past three years in financially focused shareholder activism and the more recent efforts by large institutional investors to encourage directors to “engage” with shareholders more directly.

Through the collective efforts of large institutional investors, including public and private pension funds, shareholders at a significant number of companies are likely within the next several years to gain the power to nominate a portion of the board without undertaking the expense of a proxy solicitation. By obtaining proxy access (the ability to include shareholder nominees in the company’s own proxy materials) activists and other shareholders will have an additional weapon in their arsenal to influence board decisions.
READ MORE »

Are Public Companies Required to Disclose Government Investigations?

Jon N. Eisenberg is partner in the Government Enforcement practice at K&L Gates LLP. This post is based on a K&L Gates publication by Mr. Eisenberg.

For many public companies, the first issue they have to confront after they receive a government subpoena or Civil Investigative Demand (“CID”) is whether to disclose publicly that they are under investigation. Curiously, the standards for disclosure of investigations are more muddled than one would expect. As a result, disclosure practices vary—investigations are sometimes disclosed upon receipt of a subpoena or CID, sometimes when the staff advises a company that it has tentatively decided to recommend an enforcement action, sometimes not until the end of the process, and sometimes at other intermediate stages along the way. In many cases, differences in the timing of disclosure may reflect different approaches to disclosure. We discuss below the standards that govern the disclosure decision and practical considerations. We then provide five representative examples of language that companies used when they disclosed investigations at an early stage.

READ MORE »

  • Subscribe

  • Cosponsored By:

  • Supported By:

  • Programs Faculty & Senior Fellows

    Lucian Bebchuk
    Alon Brav
    Robert Charles Clark
    John Coates
    Alma Cohen
    Stephen M. Davis
    Allen Ferrell
    Jesse Fried
    Oliver Hart
    Ben W. Heineman, Jr.
    Scott Hirst
    Howell Jackson
    Robert J. Jackson, Jr.
    Wei Jiang
    Reinier Kraakman
    Robert Pozen
    Mark Ramseyer
    Mark Roe
    Robert Sitkoff
    Holger Spamann
    Guhan Subramanian

  • Program on Corporate Governance Advisory Board

    William Ackman
    Peter Atkins
    Joseph Bachelder
    John Bader
    Allison Bennington
    Richard Breeden
    Daniel Burch
    Richard Climan
    Jesse Cohn
    Isaac Corré
    Scott Davis
    John Finley
    Daniel Fischel
    Stephen Fraidin
    Byron Georgiou
    Larry Hamdan
    Carl Icahn
    David Millstone
    Theodore Mirvis
    James Morphy
    Toby Myerson
    Barry Rosenstein
    Paul Rowe
    Rodman Ward