Advisors Face Enhanced Reporting of Say-on-Pay Votes

According to the SEC, a say-on-pay vote asks investors to vote on the compensation of a company’s top executives — the CEO, chief financial officer and at least three other most highly compensated executives.

Those votes comprise shareholder ballots on any of three matters concerning a public company’s executive compensation: 1) periodic advisory votes on the approval of executive compensation; 2) votes on the frequency with which those advisory votes should occur; and 3) votes to approve golden parachute compensation in connection with mergers and acquisitions. 

Examples of compensation include remuneration packages of executives, grants of equity to executives, performance measures related to compensation, short-term and long-term incentives.

The final rule and form amendments provide a two-part test for determining whether an institutional investment manager “exercised voting power” over a security and must therefore report a say-on-pay vote on Form N-PX: 

1. The institutional investment manager has the power to vote, or direct the voting of, a security.
2. The institutional manager “exercises” this power to influence a voting decision for the security.

According to the SEC, “voting power could exist or be exercised either directly or indirectly by way of a contract, arrangement, understanding, or relationship.” It is important to note that managers can be deemed to have exercised voting power even if they abstained from voting.

Advisory firms should also consider what written policies and procedures require any changes or additions due to the new Form N-PX reporting requirements.

Initial Form N-PX reporting will be required by Aug. 31 for the period from July 1, 2023, to June 30, 2024. Those advisory firms that vote proxies must track their say-on-pay voting activity that began on July 1, 2023.