Key rule changes make it more important than ever for investors holding stocks in public companies to exercise their voting rights
The SEC now requires publicly traded companies to give shareholders an advisory vote on pay for the most highly compensated executives. The changes, required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, make it more important than ever for shareholders to exercise their voting rights.
“Simply put, vote your shares!” said the SEC in an Investor Alert. “This is an important right that you have as an investor. Your involvement is essential to the corporate governance of the companies you own.”
The non-binding votes don’t have the power to stop a company, but widespread shareholder opposition to a compensation package could apply pressure on the board of directors. Companies are required to release preliminary tallies within four business days of the meeting, and the final voting results four days thereafter. They are also subject to further disclosure requirements.
Companies must also ask shareholders how often they would like to vote on pay from a choice of once each year, two years or three years. In certain circumstances, shareholders are also allowed a non-binding vote on golden parachutes offered to executives.
Companies with less than $75 million in stock are not required to hold Say-on-Pay and frequency votes until January 2013, but investors holding shares in larger companies have been enjoying the expanded voting rights since late January of this year. Companies that received federal aid through the Troubled Asset Relief Program of 2008 have been required to provide advisory votes on compensation until they repay their debts.
While individual shareholders have expanded voting rights, the rights of brokers have been curtailed. Brokers are no longer allowed to cast votes on behalf of clients unless the clients have provided voting instructions on compensation, frequency and golden parachutes. “As a result, if you don’t complete the voting instructions, your shares will not be considered when directors are elected,” said the SEC. “These changes increase the importance of investor participation in governance of the companies they own.”
Brokers maintain the right to vote uninstructed shares in director elections for mutual fund companies and certain closed-end funds.
Shareholders also have the right to cast a vote in elections for the company’s board of directors and on key changes affecting companies, such as mergers and acquisitions. They’re also entitled to attend shareholder meetings. Investors who choose not to attend – the majority – can exercise their vote by proxy. Proxy voting can take place in person at the meeting, by mail, by phone and over the internet.
Rule changes involving the rights of significant, long-term shareholders to nominate candidates for the board of directors have been postponed by the SEC in the face of legal opposition.