On November 2, 2022, the SEC adopted amendments to Form N-PX in order to fulfill one of the remaining mandates established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other changes triggered by the amendments, institutional investment managers must report annually on proxy voting related to say-on-pay and executive compensation matters.
These changes apply to say-on-pay votes that occur between July 1, 2023 and June 30, 2024, and annually thereafter. The first filing containing this say-on-pay information is not due until August 1, 2024.
Like Form 13F, the filing requirement for Form N-PX applies to each “institutional investment manager,” a term that generally includes any manager exercising investment discretion with respect to accounts holding U.S. equity securities that have an aggregate value of at least $100 million.
There is a streamlined reporting option for managers with a disclosed policy of not voting proxies who did not, in fact, vote proxies during the reporting period. Form N-PX contains a designation permitting managers to indicate in a notice report that they do not vote proxies. In that situation, the manager is not required to report any information on a security-by-security basis. Managers not voting proxies are only required to file N-PX’s cover page along with the required signature.
Overview of Form N-PX
In addition to enhancing the information that mutual funds, ETFs, and certain other funds currently report about their proxy votes, the SEC adopted rule and form amendments under the Securities Exchange Act of 1934 (Exchange Act) that would require institutional investment managers to report on Form N-PX how they voted proxies dealing with executive compensation matters. Shareholder advisory votes on executive compensation matters are commonly referred to as “say-on-pay.” Pursuant to the rule and form amendments, institutional investment managers that are required to file Form 13F must disclose their say-on-pay votes on Form N-PX.
The kinds of say-on-pay votes that managers must report are the same as the types of shareholder advisory votes required by Section 14A of the Exchange Act, such as:
- Votes regarding the approval of executive compensation;
- Votes regarding the approval of the frequency of executive compensation; and
- Votes to approve “golden parachute” compensation connected to a merger or acquisition.
The amendments to Form N-PX implemented a two-part test for determining whether a manager “exercised voting power” over a security and must report a say-on-pay vote on Form N-PX. Managers are required to report a say-on-pay vote for a security only if they:
- have the power to vote, or direct the voting of, a security; and
- exercise this power to influence a voting decision for the security.
Voting power can exist or be exercised either directly or indirectly. The power emanates from a contract, arrangement, understanding, or relationship. Merely possessing voting power alone would not trigger the reporting requirement, but exercising that power would. The exercise of voting power means the actual use of voting power or to influence a voting decision. For example, influencing a vote can include directing another party to vote based on the manager’s judgment or expertise, determining or influencing the decision of whether to vote or not to vote on a say-on-pay matter, or even whether to recall loaned securities in advance of a vote in order to vote the shares. If the voting decision is entirely determined by another party or the client, the manager would not be deemed to influence the voting decision.
Registered Investment Advisers subject to 13F filing requirements will be subject to Form N-PX filing and notice filing requirements and must implement relevant policies and procedures, including relevant recordkeeping by July 1, 2023. Certain sub-advisers or other third parties are likely to be subject to say-on-pay reporting, so investors will have access to how those parties voted on compensation matters. Form N-PX voting records are available to the public. Note: These requirements apply to all securities registered under section 12 of the Exchange Act and are not limited to section 13F securities only.
The Final Rule is available here. The SEC also published a Small Entity Compliance Guide entitled Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, which can be read here or at https://www.sec.gov/investment/enhanced-reporting-proxy-votes.
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