Initial Form N-PX Filing Could Apply to Your Firm Even if You Dont Vote Proxies!

New Rule 14Ad-1 requires all institutional investment managers (i.e., including registered investment advisers that manage client assets-see below) that are 13F filers to report say-on-pay votes on the new version of Form N-PX when voting on the approval of executive compensation, including, but not limited to, “golden parachute” compensation. The term “golden parachute” generally refers to compensation arrangements with named executive officers concerning any type of compensation (whether present, deferred, or contingent) that is based on or relates to an acquisition, merger, or similar transaction. Form N-PX requires Managers to disclose the number of shares voted (or instructed to be voted) and how those shares were voted (e.g., for or against or abstain with respect to the proposal), as reflected in their records at the time of filing a report on Form N-PX. The rules do not contain a de minimis exception for smaller holdings. Please Note: Even if the advisory firm is 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:

1. The institutional investment manager has the power to vote, or direct the voting of, a security.
2. 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.” It is important to note that a manager can be deemed to have exercised voting power even if it abstains from voting.

Advisory Firms should also consider what written policies and procedures require any changes or additions due to the new Form N-PX Reporting Requirements.

Initial Form N-PX reporting will be required by August 31, 2024 for the period from July 1, 2023-June 30, 2024. Those advisory firms that vote proxies must track their say-on-pay voting activity that began on July 1, 2023.

As with all other compliance-related matters, we shall remain available to assist with N-PX questions/filings.