On February 9, Commissioner Luis A. Aguilar issued a press release about a new rule proposed by the SEC, as proposed by Section 955 of the Dodd-Frank Act, which adds a new paragraph to Reg. S-K. It requires companies to
disclose employee and director level hedging activities. The rule is an attempt to better align executive pay, in particular stock-based compensation, with the shareholders of a company. Here's an excerpt from the
announcement discussing market growth:
Much of that growth reflects the trend towards equity-based and other
incentive compensation, which intends to meet the worthy goal of
aligning the interests of the corporate overseers of public companies
with their shareholders. However, some have suggested that company
policies that permit hedging of the company’s equity securities could
have the opposite effect.[3]
By allowing corporate insiders to protect themselves from stock
declines while retaining the opportunity to benefit from stock price
appreciation, hedging transactions could permit individuals to receive
incentive compensation, even where the company fails to perform and the
stock value drops.[4]
The purpose of this rule change is not to prohibit stock-based compensation, but to provide
greater transparency for investors.
Keep in mind that this is only the first in a series of Congressionally-mandated rules intended to improve transparency in executive compensation. The other disclosures are dealing with "pay for performance" contracts and the ratio between the CEO and the average worker's pay.
This proposing release is a positive step in the direction of providing
more information to shareholders as to whether the interests of
corporate insiders are truly aligned with their own.
If you have any concerns, public comments are being accepted.
To read Aguilar's full statement click
here.
No comments:
Post a Comment