Effective July 1, 2024, New rule 14Ad-1 requires institutional investment managers that are 13F filers to report say-on-pay votes (see below) on Form N-PX when voting on the approval of executive compensation, including, but not limited to, “golden parachute” compensation in connection with a merger or acquisition, among other matters. IF you are a 13F filer that does not vote proxies or does not vote on any say-on-pay matters, Form N-PX must still be filed, indicating that there was no such voting. However, if an institutional investment manager is not subject to reporting on Form 13F, the filing of Form N-PX is not required.
Section 13(f)(6)(A) of the Exchange Act defines “institutional investment manager” as “any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person.” A 2020 FAQ from the SEC clarified that banks, including their trust departments, insurance companies, broker/dealers, trustees, and investment advisers that manage private accounts, mutual fund assets, or pension plan assets are institutional investment managers.
According to the SEC, a Say-on-Pay vote asks investors to vote on the compensation of the top executives of the company – the CEO, the Chief Financial Officer, and at least three other most highly compensated executives. (These are called the “named executive officers.”) Say-on-pay votes comprise shareholder votes on any of three matters concerning a public company’s executive compensation: (i) periodic advisory votes on the approval of executive compensation; (ii) votes on the frequency with which those advisory votes should occur; and (iii) 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 provides 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:
- The institutional investment manager has the power to vote, or direct the voting of, a security.
- The institutional manager “exercises” this power to influence a voting decision for the security.
The Final Rule states that “voting power could exist or be exercised either directly or indirectly by way of a contract, arrangement, understanding, or relationship.”
Reporting will be required by August 31, 2024 for votes during the July 1, 2023 – June 30, 2024 period. Therefore, managers subject to Rule 14Ad-1 must track their say-on-pay voting activity starting on July 1, 2023.