Shareholders of publicly listed companies will get to weigh in on executive compensation through advisory votes, under a new rule adopted by U.S. securities regulators on Tuesday.
The say-on-pay rules, approved in a 3-2 vote by the Securities and Exchange Commission, would implement a provision in the Dodd-Frank Wall Street reform law.
It is designed to give shareholders greater input over executive compensation after many investors expressed outrage during the financial crisis at lavish pay practices.
The say-on-pay vote is non-binding, although companies generally want to avoid the embarrassment of a no vote.
In other Dodd-Frank related actions on Tuesday, the SEC unanimously proposed new reporting requirements for advisors to private funds and also made it harder for people to qualify as high net-worth individuals for certain riskier investments.
Some companies, such as Microsoft Corp, Apple Inc and Verizon Communications, have already voluntarily adopted say-on-pay proposals.
Shareholders would also get to vote on certain so-called golden parachute pay packages in connection with a merger or acquisition, and companies would be required to make additional disclosures about such compensation arrangements.
Republican commissioners dissented on the rule in part because it only gives a temporary exemption to small public companies.
The rule should have afforded smaller companies an outright exemption, said Republican Commissioner Troy Paredes.
The SEC unanimously proposed that advisers to hedge funds and other private funds report key information to regulators.
The rule would arm the newly formed Financial Stability Oversight Council with better information about hedge funds, private equity funds and so-called liquidity funds such as unregistered money market funds. The aim is to ensure their trading activities do not pose a risk to the broader marketplace.
The plan establishes a tiered regulatory approach that would subject advisers to large private funds valued above $1 billion to more extensive and frequent reporting.
Advisers to these larger funds would have to file quarterly reports with fairly detailed information to regulators, the SEC said in a summary of the rule.
Those managing smaller funds worth less than $1 billion would only need to report once a year on basic information such as fund strategy, leverage, credit providers and credit risk posed by the fund's trading partners.
The proposal would also tailor reporting requirements for large fund advisers based on the type of fund they manage.
Since hedge funds more frequently use leverage and are considered riskier than private equity funds, advisers to large hedge funds would be required to disclose even more information than private equity fund managers.
Hedge fund disclosures could include details about exposures to various asset classes and, in some cases, liquidity and leverage information.
SEC Chairman Mary Schapiro said the most stringent reporting requirements under the rule will apply to about 200 U.S.-based large hedge fund advisers, representing more than 80 percent of assets under management.
About 250 U.S. based advisers to large-sized private equity funds would also be subject to the more extensive reporting rules as well, she said.
Today's proposal stems from the lessons learned during the recent financial crisis, lessons about the importance of monitoring and reducing the possibility that a sudden shock or failure will cascade through the entire financial system, Schapiro said.
Hedge funds had been concerned that the proposal might include some public reporting of certain fund data. The SEC did not include a public reporting element on Tuesday, and proposed to collect confidential information for review only by regulators.
A footnote in the proposal does suggest, however, that the SEC may in the future consider distributing general aggregated industry data, similar to the hedge fund survey that British regulators publish.
The reporting proposal is a joint rule by the SEC and the Commodity Futures Trading Commission, which regulates hedge funds that trade commodities. The CFTC is due to propose an identical reporting rule for commodity trading advisers and commodity pool operators on Wednesday. Any adviser dually registered with both agencies under the proposal would only need to file one disclosure form.
The SEC also took steps on Tuesday to make it more difficult for some high-net worth investors to qualify for certain riskier investments.
The proposal, put out for public comment by the commissioners in a 5-0 vote, would adjust the legal definition of who can qualify as an accredited investor.
Under current federal securities laws, anyone whose net worth is more than $1 million can qualify as an accredited investor and participate in private offerings.
But after the financial crisis caused many Americans to lose significant life-savings, the SEC is proposing to exclude the value of a person's home when calculating net worth.
(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)