February 9, 2015 / 6:12 PM / 3 years ago

UPDATE 2-U.S. SEC proposes rules on employee hedging disclosures

(Adds SEC Republican commissioners citing concerns with the plan)

By Sarah N. Lynch

WASHINGTON, Feb 9 (Reuters) - The U.S. Securities and Exchange Commission on Monday proposed rules to require public companies to tell investors about what policies they may have to allow corporate executives to hedge the value of their stock and options.

In a statement, SEC Chair Mary Jo White said the rules are designed to help investors understand whether the interests of employees and company directors are aligned with shareholders.

Monday’s proposal is one of several provisions in the Dodd-Frank Wall Street reform law designed to make corporate compensation issues more transparent. Some of the proposals have generated opposition, such as a plan to require companies to disclose how paychecks of chief executives compare to the median of their workers.

SEC Commissioner Luis Aguilar, a Democrat, said Monday that the proposal on disclosing stock hedging practices is crucial.

“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,” he said in a statement released after the proposal was unveiled.

“In the absence of this proposed disclosure, shareholders may not be aware of the executive officers’ and directors’ true economic exposure to the company’s equity,” he added.

But in a joint statement, the SEC’s two Republican commissioners signaled they have several strong reservations about the plan.

“While we ultimately voted to support the issuance of this proposal, our position should not be taken as unqualified support of the proposal in the form it was issued,” said SEC Commissioners Daniel Gallagher and Michael Piwowar.

Among their concerns, they said, include the fact that it would not exempt smaller companies from compliance.

They also questioned why the SEC did not use its broad powers to exempt requiring disclosures related to corporate employees who cannot affect a company’s share price.

“Disclosures about whether these employees are permitted to hedge fall below the level of information that investors would find useful,” Gallagher and Piwowar added. (Reporting by Sarah N. Lynch; additional reporting by Douwe Miedema; Editing by Susan Heavey, David Gregorio and Diane Craft)

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