February 24, 2015
Hedging & Pledging Policies: Possible Approaches & Survey
– Broc Romanek, CompensationStandards.com
An analysis of ISS Governance QuickScore data finds: 54.3% of Russell 3000 companies have a policy prohibiting hedging of company shares by employees, while 84% of large capital S&P500 companies have such a policy. Executive or director pledging of company shares was prevalent at just 14.2% of Russell 3000 companies, and, notably, 15.8% of S&P500 companies.
In reaction to the SEC’s hedging & pledging policy disclosure proposal last week, I received this nifty chart on possible approaches from one in-house member – as well as this note below:
From where I sit, companies would do a disservice to themselves – and their stockholders – by adopting a blanket “one-size-fits-all” rule with regard to hedging of company securities. Instead, I believe we should consider different policy decisions on how we view hedging with regard to (i) outstanding equity awards v. shares owned outright and (ii) rank-and-file employees v. directors and officers. Also, even though the proposed rules are focused on hedging activity, I believe that companies should re-visit their pledging policies because they raise similar issues. See my attached snapshot summary.
We have numerous memos in our “Hedging” Practice Area – and I just posted this “Quick Survey on Hedging Policies.”