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From Securities Regulation Daily, July 16, 2015

Proxy panel discussion closes with hint at August pay ratio vote

By Anne Sherry, J.D.

Proxy access, the hot topic of the 2015 proxy season, naturally dominated at the SEC Investor Advisory Committee’s shareholder rights panel. Michael Garland, of the New York comptroller’s office, discussed the results of the city’s pension funds’ proxy access campaign, while Institutional Shareholder Services’ Patrick McGurn called the season one of the strangest he’s seen in the last 30 years. Finally, Jonathan Ingram of the SEC’s Division of Corporation Finance hinted that the SEC is indeed planning to vote on the pay ratio rules in August.

Proxy access. McGurn credited New York’s proxy access campaign for catapulting the issue into the spotlight in 2015. He noted that 49 proxy access proposals received majority support, more than every other shareholder proposal topic combined. Environmental and social proposals also saw an uptick, outweighing all of the governance and compensation proposals combined. On the flip side, three issues receded into the background this proxy season: hedge fund activism, uncontested boardroom elections, and say-on-pay.

On the subject of proxy access in the wake of CorpFin’s suspension of no-action relief on Rule 14a-8(i)(9), both McGurn and Garland agreed that shareholders do not seem to be confused by the presence of competing proposals on the ballot. On the contrary, McGurn sees competition as a positive, increasing shareholder engagement and ultimately driving better disclosure. Garland stressed that dozens of companies have enacted or agreed to enact proxy access bylaws, which would not have happened had Chair White not revoked the Whole Foods decision and directed the staff to review Rule 14a-8(i)(9).

“Cynical” countermeasures. When Chair White announced that suspension, at least 25 companies had followed Whole Foods’ lead to request no-action relief, Garland remarked. Each company unequivocally represented that it would submit its own proxy access resolution at its 2015 meeting. Despite those representations, however, 13 of the 25 failed to present a company-sponsored proposal or unilaterally enact proxy access. In fact, 11 companies argued across-the-board against proxy access in their opposition statements to the New York pensions’ proposal. This reveals that the promises in the no-action requests were “a cynical attempt to deflect a proposal with lower thresholds,” in Garland’s view.

Along those lines, Ingram noted that CorpFin staff often receives no-action requests to exclude shareholder proposals in which the company promises to take action in the future. Typically, the staff will sit on the request until the promised action has been taken, but significant time elapses between the request and the staff response. In a compressed proxy season, he said, it is not fair to proponents for SEC staff to be issuing a no-action letter two months after the incoming request. CorpFin is considering addressing the issue by granting relief conditioned on the company taking the promised action, or perhaps flat-out denying a speculative request when it comes in. The division is open to further suggestions.

Pay ratio. Finally, Ingram recapped the SEC’s progress in implementing rules under Dodd-Frank, particularly pay ratio. CorpFin and DERA are both working on pay ratio and are taking into consideration approximately a thousand unique comment letters. The key issues are whether companies may exclude non-U.S. employees from the median employee calculation (he opined that this is a difficult argument to make, given that the statute says “all employees”) and whether companies may exclude part-time employees or include them at a full-time equivalency.

Ingram said that he cannot provide specifics as to the adoption of the pay ratio rules, but added that “we all probably read the same newspapers.” Specifically noting that at least one article has speculated that the Commission plans to vote on the pay ratio recommendations next month, Ingram seemed to confirm a recent Bloomberg report that cites two unnamed sources as predicting a vote as soon as August 5.

MainStory: TopStory SECNewsSpeeches DoddFrankAct Proxies CorporateGovernance DirectorsOfficers ExecutiveCompensation

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