The New DOL Fiduciary Rule – A Return to the Old with a New Proposed Prohibited Transaction Exemption
On June 29, 2020, the DOL issued its much anticipated new “fiduciary rule” under ERISA. The new rule is meant to replace the DOL’s previous fiduciary rule (and related exemptions) which went into effect in 2016 but was vacated by the U.S. Court of Appeals for the Fifth Circuit in 2018. The new fiduciary rule is composed of two parts: (i) a final regulation which reaffirms and reinstates the five-part test for determining whether a person renders “investment advice” for purposes of ERISA (the “Reinstated Rule”), and (ii) a new prohibited transaction class exemption for investment advice fiduciaries based on the “impartial conduct standards” previously adopted by the DOL (the “Proposed Exemption”). Reinstated Rule The new rule amends the Code of Federal Regulations to reinstate the prior 1975 regulation which contained the five-part test for determining whether a financial institution or investment professional is a fiduciary for rendering “investment advice.”… Continue Reading
On September 21, 2017, the SEC issued interpretive guidance with respect to the pay ratio rule (i) clarifying its position on a registrant’s use of reasonable estimates, assumptions and methodologies, and statistical sampling permitted by the rule, which are made with a reasonable basis and in good faith; (ii) clarifying that a registrant may use appropriate existing internal records, such as tax or payroll records, in determinations regarding the inclusion of non-U.S. employees and in identifying the median employee; and (iii) providing guidance as to when a registrant may use widely recognized tests under another area of law (such as the Internal Revenue Code) to determine whether its workers are employees for purposes of the rule. In addition, the SEC’s Division of Corporation Finance issued separate guidance on using statistical sampling methodologies and other reasonable methodologies, providing examples to illustrate the use of such methodologies. View the SEC’s press release… Continue Reading
A former CEO of a marketing company has agreed to settle charges by the U.S. Securities and Exchange Commission (the “SEC”) that his executive perks were not properly disclosed to the company’s shareholders. According to the SEC’s order, annual filings disclosed that the company’s CEO and chairman received an annual perquisite allowance of $500,000 in addition to other benefits. However, the SEC’s investigation discovered that the company paid for the CEO’s personal use of private airplanes as well as charitable donations in his name, yacht and sports car expenses, cosmetic surgery, jewelry, medical expenses for family members, pet care, and a wide range of other perks that the company failed to properly disclose. The SEC alleged the CEO improperly obtained an additional $11.285 million in perks beyond his disclosed benefits and the $500,000 annual allowance. The CEO has since resigned and returned $11.285 million to the company. The CEO consented… Continue Reading
The SEC recently published Compliance and Disclosure Interpretations (“C&DIs“) relating to the CEO pay ratio disclosure rule. This disclosure rule under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires a public company to disclose the ratio between its CEO’s annual compensation and the median annual compensation of all other employees. The new C&DIs include guidance on the selection of an appropriate alternative compensation measure and clarify that if an alternative compensation measure is utilized to determine the median employee, the time period utilized does not have to be a full annual period. Moreover, the time period utilized does not have to include the date on which the employee population was determined. View our prior post on the SEC’s adoption of the CEO pay ratio disclosure rule here. View the full text of the C&DIs here.
Several Federal Agencies Issue Revised Proposed Rule Prohibiting Incentive Compensation for Excessive Risk Taking by Covered Financial Institutions
Several federal agencies, including the SEC, issued a joint revised proposed rule to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Proposed Rule”), which prohibits incentive-based compensation that encourages inappropriate risks by certain financial institutions. The Proposed Rule divides covered institutions into three tiers based on their average total consolidated assets. Although many aspects of the Proposed Rule are similar to the rule proposed in 2011, there are a few key differences. These differences include a new definition of incentive-based compensation that would not be considered to appropriately balance risk and rewards, a new recordkeeping requirement regarding the structure of incentive-based compensation, new requirements for deferral of incentive-based compensation, downward adjustments and clawbacks, and requirements for the structure of the institution’s compensation committee. The Proposed Rule is available here.
The U.S. Securities and Exchange Commission (the “SEC“) adopted its much-anticipated final rule under Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires a public company to disclose (1) the median of the annual total compensation of all its employees, except its chief executive officer (“CEO“); (2) the annual total compensation of its CEO; and (3) the ratio of the compensation of its CEO to the median compensation of its employees. Under the rule, a company would only be required to calculate median employee compensation once every three years and generally must include all employees, including part-time, seasonal, and non-U.S. employees. Although the company may choose among methods for calculating compensation, it must disclose the method it uses and must use the same method for calculating both CEO and employee compensation. The rule is effective for the first fiscal year beginning on or after… Continue Reading
In 2013, the U.S. Securities and Exchange Commission (the “SEC”) issued proposed rules implementing Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires publicly traded companies to disclose (a) the median of the annual total compensation of all employees of the company other than the chief executive officer, (b) the annual total compensation of the company’s chief executive officer, and (c) the ratio of (a) to (b) (the “Pay Ratio”). The Pay Ratio disclosure would be required in any annual report, proxy statement, or registration statement that requires executive compensation disclosure pursuant to Item 402 of Regulation S-K. In response to comments received with respect to the Pay-Ratio proposed rules, the SEC’s Division of Economic and Risk Analysis (“DERA”) published an analysis on June 4, 2015, which considers the potential effects on the Pay Ratio of excluding different percentages of certain categories of employees, such… Continue Reading
On April 29, 2015, the U.S. Securities and Exchange Commission (the “SEC“) voted to propose rules under Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring companies to disclose the relationship between executive compensation actually paid and the financial performance of the company. This new “pay-for-performance” disclosure (the “Disclosure“) would include information for the company and peer group companies set out in a table that is incorporated into the proxy or other information statements in which executive compensation disclosure is required. The Disclosure would present (a) executive compensation actually paid for the principal executive officer (i.e., the total compensation as disclosed in the proxy statement’s summary compensation table (the “SCT“), with adjustments for pension and equity award amounts); (b) the average compensation actually paid to the remaining named executive officers identified in the SCT; and (c) the total annual shareholder return of the company and its… Continue Reading
As mentioned before, the SEC recently released a proposed rule that would require public companies to disclose the median annual total compensation of all their employees and the ratio of such median to the annual total compensation of their CEO. This requirement is commonly known as the “pay ratio disclosure” requirement. You can find our recent alert discussing the proposed rule here.
On Thursday, Twitter announced — by tweet, of course — that it has filed to go public. That is, Twitter submitted a S-1 filing to the SEC for a planned IPO. It did so confidentially, as allowed under the JOBS Act. Twitter revealed this to the world 3 days ago through its own Twitter account in a brief tweeter…and minutes later, casually tweeted, “Now, back to work.” Twitter’s IPO plans are sure to be watched closely by the world. Facebook going public was, of course, an enormous event filled with business and legal questions and activities.