Small firms not spared in SEC say-on-pay rule

WASHINGTON Mon Jan 24, 2011 2:53pm EST

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado in this November 3, 2009 file photo. REUTERS/Rick Wilking

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado in this November 3, 2009 file photo.

Credit: Reuters/Rick Wilking

WASHINGTON (Reuters) - Small publicly traded companies will not be exempt from a rule U.S. securities regulators are poised to adopt on Tuesday giving shareholders an advisory "say-on-pay" vote, according to a person familiar with the rule.

The rule is expected to stir concerns among the Republican commissioners at the Securities and Exchange Commission, as well as some small publicly traded businesses that have urged the SEC in their comment letters not to burden smaller companies with additional say-on-pay requirements.

The say-on-pay rule, which is required under the Dodd-Frank Wall Street reform law and will also cover newly public companies, comes in response to the financial crisis where shareholders often expressed outrage at lavish pay packages for executives.

The rule by the SEC would require a nonbinding shareholder say-on-pay vote and also empower shareholders to weigh in on how often to hold say-on-pay votes.

A number of publicly traded companies such as Microsoft Corp, Apple Inc and Verizon Communications have adopted "say on pay" proposals.

Under the SEC's proposal, shareholders would decide whether they want to vote on executive compensation every year, every two years, or every three years. They would also get a say on special payments known as "golden parachutes" in connection with a merger or acquisition.

The rule will not exempt small businesses and newly public companies, although it will give them a phase-in period before they must comply, said the person, who spoke anonymously because the rule has not been made public.

A small publicly traded business is generally defined as public company with a market capitalization of less than $75 million.

The rule would give them until January 2013 to comply, while many large companies would most likely need to begin holding say-on-pay votes sometime in the current proxy season.

Proxy statements, typically sent in the spring, are used by companies to solicit shareholder votes and report on top officers' pay.

While say-on-pay votes are advisory only, most companies want to avoid the embarrassment of a "no" vote. In addition, proxy advisory firms have said that they may recommend that shareholders vote out any boards that ignore say-on-pay votes.

In its proposal on say-on-pay, which was published in the Federal Register in October, the SEC asked for comments on how small-cap businesses should be treated. The law gives the SEC the authority to exempt small companies from the regulations.

A variety of business and industry groups have called for a small-business exemption, saying they had nothing to do with the crisis and they do not generally have the money for extravagant pay packages.

Among those that have called for an exemption include the United Brotherhood of Carpenters and Joiners of America and the Virginia Bankers Association.

"Even in the release, the SEC acknowledged that these rules would be burdensome on small businesses. We find it a little perplexing that the SEC may not have given more study and deliberation as to the impacts on small businesses and IPOs," said Tom Quaadman, a vice president at the U.S. Chamber of Commerce's capital markets center.

He added that he would not be surprised to hear complaints from Republicans in Congress, many of whom have raised concerns about the impact of new regulations on businesses and job creation.

(Editing by Andre Grenon and Steve Orlofsky)

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