Update on the current board issues: September 2013

Issues in brief


SEC proposes CEO pay ratio rules

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The SEC has proposed rules that would require public companies to disclose the median of the annual total compensation of all employees, the annual total compensation of the CEO and the ratio of these two amounts.

The proposed disclosure would be required in any annual report, proxy or information statement or registration statement that requires executive compensation disclosures. The proposed disclosure requirements would not apply to emerging growth companies, smaller reporting companies or foreign private issuers. The public comment period ends 60 days after the proposed rule is published in the Federal Register.

SEC Chair Mary Jo White during the September 18 commission meeting said:

“After carefully considering the statutory mandate of section 953(b) of the Dodd-Frank Act and all of the comments we received, the staff has drafted and recommended a proposal that would provide companies significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate. The rules proposed would not require a specific methodology, but instead would provide a company with the flexibility to determine the median and calculate the annual total compensation for that employee in a way that best suits its particular circumstances.”

Commissioner Daniel Gallagher offered a dissenting opinion.

During the SEC meeting, Gallagher pointed out that the SEC staff even could not find benefits for quantifying annual total compensation. “As the proposal explains, “[T]he lack of a specific market failure identified as motivating the enactment of this provision poses significant challenges in quantifying potential economic benefits, if any, from the pay ratio disclosure,” he said.

[For more information on the proposed rule, read PwC’s In brief: SEC proposes rule requiring disclosure of CEO-to-employee pay ratio.]


SEC will not appeal resource extraction payments ruling; plans to issue revised proposal

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In early September, the SEC announced it will not appeal a July 2, 2013, federal court decision vacating its rule requiring oil, gas, and mining companies to disclose payments made to foreign governments.

The rule, which was mandated by the Dodd-Frank Act, was challenged by several industry groups, including the American Petroleum Institute and the US Chamber of Commerce. The US District Court judge’s ruling said the SEC failed to justify its decision that full company filings be made public rather than summaries of the filings. The judge also said that the SEC failed to justify its decision to reject industry’s request that the rule include waivers for operations in countries that prohibit payment disclosure.

Following the court’s decision, SEC spokesman John Nester issued the following statement: “The court remanded the matter for further SEC proceedings, which the Commission will undertake informed by the court’s decision.” The SEC did not announce the expected timing of any further action.

ISS including director tenure issues in its 2013-2014 policy survey

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Institutional Shareholder Services (ISS) has asked institutional investors, companies and boards to weigh in on whether long-serving board members are at risk of losing their independent perspective.

In ISS’s 2013–2014 policy survey, the proxy advisor asked respondents to consider whether long terms of service on boards are “problematic,” and to explain their reasoning. In addition, respondents are being asked whether long turns as lead director, board chair or head of any of the key board committees raises concerns.

Patrick McGurn, special counsel at ISS, says the questions were included in this year’s survey after hearing more debate about board tenure during the past 12 months than he has during the previous 24 years. He says people have begun considering how lengthy tenure and lack of turnover on boards may have negatively impacted diversity, as well as questioning the independence of directors with decades on a single board. In the United Kingdom, directors who serve for more than nine years on the same board are no longer considered independent.

The policy survey is used to inform ISS as it decides on its voting recommendations for the 2014 proxy season.

The proxy advisor released its 2013 Post Season Report: United States on September 10. The ISS annual report includes a summary of shareholder votes on key shareholder and management proposals from January 1-June 30, 2013, such as say on pay, board declassification, independent board chair, and environmental, social and governance issues.