Still no pay-ratio, but the Securities and Exchange Commission on Monday cracked into its lingering list of Dodd-Frank executive compensation rules with a proposal to enhance corporate disclosures on directors and employees hedging securities that were awarded to them as performance-based compensation.
The rule would require an annual meeting proxy statement that discloses whether employees and directors are allowed to hedge or offset any decrease in the market value of equity securities granted as compensation, or held directly or indirectly. The intent is to inform shareholders if executives are permitted to purchase financial instruments that allow them to avoid compensation restrictions that they hold stock long-term, and receive their compensation even if the firm's performance fails to meet expectations.
The requirement would apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies, and registered closed-end investment companies with shares listed and registered on a national securities exchange. The disclosure would apply to equity securities of the company, its parent, subsidiary, or any subsidiary of any parent of the company that is registered under the Exchange Act.
Companies will be required to disclose and discuss policies that permit board members and employees to purchase financial instruments—including prepaid variable forward contracts, equity swaps, collars, and exchange funds—that are designed to hedge or offset any decrease in the market value of company equity securities.
A 60-day public comment period will begin once the proposed rule is published in the Federal Register.