Shareholders' Say on Pay

Posted on April 27, 2007 by Porter Wright

On April 20, members of the U.S. House of Representatives approved a bill that would provide shareholders of public companies with an advisory vote on executive compensation. H.R. 1257, the “Shareholder Vote on Executive Compensation Act,” was passed by a vote of 269-134.

H.R. 1257 would also provide shareholders with a separate advisory vote on golden parachute compensation. Thus, for example, shareholders would have an advisory vote on the offering of a severance package to a principal executive officer of a company in connection with the sale of the company’s assets.

The Administration opposes the bill, noting in a statement that it “does not believe that Congress should mandate the process by which executive compensation is approved.” The Administration further noted that recent improvements in corporate governance and executive compensation rules need “time to take effect” before additional governance rules are mandated.

Shareholders have an existing mechanism through shareholder proposals to offer advice to its board of directors. The Washington Post recently reported that shareholder proposals relating to compensation include proposals urging directors to strengthen links between pay and performance, proposals urging votes against directors who are on compensation committees, and proposals urging directors to develop compensation practices similar to those of comparable companies.

So far, however, shareholders who have supported say on pay proposals have fallen short of success. Last year was the first year that such a proposal appeared on shareholder ballots. The seven say on pay proposals earned an average of 40% of shareholder votes.

Thus far this proxy season, say on pay proposals have averaged about 41% support at seven meetings, indicating that such proposals have gained little momentum over the last year.

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Nasdaq/NYSE/Amex Disagree on Three-Character Symbols

Posted on April 25, 2007 by Jack J. Gravelle

The New York Stock Exchange today joined the American Stock Exchange in opposing a proposal by the Nasdaq Stock Market to allow any company with a three-character symbol that transfers its securities to Nasdaq from another domestic market to continue using its existing three-character symbol. Traditionally, companies listed on the New York or American Stock Exchange use one-, two-, or three-letter symbols, whereas companies on Nasdaq use four- and five-letter symbols.

Delta Financial Corporation became the first company with a three-letter symbol (DFC) on Nasdaq when it transferred the listing of its common stock from Amex on March 22, 2007. As reported by American Public Media, DFC’s three-letter switch was approved as a one-time occurrence.  

Nasdaq claims that allowing the portability of symbols will promote competition among exchanges, reduce investor confusion, and allow issuers to evaluate exchanges based on the most efficient trading platform and lowest investor costs without worrying about educating investors on a potential new symbol. 

NYSE and Amex counter that the proposed rule change will cause investor confusion, incorrectly assumes an issuer owns its symbol, and is inconsistent with previous requests by the SEC that the exchanges work together to develop a symbol portability plan. (See the NYSE comment letter here and the Amex comment letter here).

Public comment is now closed on the Nasdaq proposal, and the SEC must now decide whether to approve the proposed rule change or begin proceedings to determine whether the proposed rule change should be disapproved.

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Are Safe Harbor Rule 10b5-1 Trading Plans Really Safe?

Posted on April 20, 2007 by Porter Wright

As recently reported in our firm’s Securities Law Alert, safe harbor Rule 10b5-1 trading plans for executives may no longer be safe. Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement, recently warned that the SEC is “looking at” trading conducted under Rule 10b5-1 plans by company executives, and looking at those trades “hard.” Ms. Thomsen further declared that “[w]e want to make sure that people are not doing here what they were doing with stock options. If executives are in fact trading on inside information and using a plan for cover, they should expect the ‘safe harbor’ to provide no defense.” 

In light of the SEC’s recent focus on Rule 10b5-1 plans, it would be prudent for companies and executives to examine such plans and any trades made thereunder to preserve executives’ affirmative defense to insider trading charges.

Click here for the full text of the Securities Law Alert.

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Nasdaq Capital Market Covered Securities

Posted on April 18, 2007 by Jack J. Gravelle

The SEC has amended Rule 146 under Section 18 of the Securities Act of 1933 to include securities listed on the Nasdaq Capital Market or NCM (previously known as the Nasdaq SmallCap Market) in the category of “covered securities.” Covered Securities are only subject to federal registration requirements and are therefore exempt from state blue sky registration requirements.

The inclusion of securities on the NCM as covered securities is expected to make it easier for Nasdaq to compete for listings with other markets whose securities are exempt from state registration. The recent amendments should also reduce registration costs for issuers listing on the NCM.

Covered Securities are defined in Section 18 to include securities listed on the New York Stock Exchange, the American Stock Exchange, the National Market System of the Nasdaq Stock Market (now known as the Nasdaq Global Market), and any other national securities exchange with similar listing standards as determined by the SEC.

With these most recent amendments to Rule 146, the SEC has determined that national exchanges with similar listing standards include (i) Tier I of the NYSE Arca, Inc.; (ii) Tier I of the Philadelphia Stock Exchange, Inc.; (iii) the Chicago Board Options Exchange, Incorporated; (iv) options listed on the International Securities Exchange, LLC; and (v) the NCM. The amendments are effective May 24, 2007.

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