The Advisors' Blog

It’s been 5 years since I last shared a reminder that stock compensation may trigger an HSR filing requirement. The market has climbed since then – which means execs with lots of equity may be more likely to pass the filing threshold. The penalties are also higher these days! This Cleary memo explains:

The Hart-Scott-Rodino Antitrust Improvements Act or “HSR” is best known as a notification regime for large corporate transactions. But it also applies to executive compensation paid in the form of stock awards, including restricted stock units (RSUs)—an obligation that companies and their officers and directors frequently overlook.

The obligation can attach to even small awards. Why? Because the individual’s existing holdings must be combined with the new shares that will be awarded to determine if the total holdings will exceed the “size-of-transaction” threshold, which is currently $133.9 million. If it does, an HSR filing is probably required. And, note, this obligation exists regardless of the percentage that will be held.

Failure to make a required filing and observe the 30-day waiting period before the award is granted can, in the extreme case, result in fines of up to $53,088 per day from the day of the acquisition to the day HSR clearance is ultimately obtained via a corrective filing. There are several examples of enforcement actions where multi-million dollar fines were paid by executives that failed to make required filings.

The filing obligation runs to the individual officer or director – but we all know who will get the blame if something gets missed. The memo walks through the requirements and potential safe harbor for prior filings. It concludes with these practical tips:

The most important step is to assess whether any upcoming award will cause an officer’s or director’s total holdings of company voting securities to exceed $133.9 million. If so, experienced HSR counsel should be consulted to determine whether a filing is required and to select the elections that will provide maximum future coverage.

Longer term, companies should establish an HSR monitoring program that tracks each relevant officer’s and director’s holdings, anticipated awards, and prior filings. The program should flag potential filing obligations well in advance of deadlines. Experienced HSR counsel can assist with setup.

If, during the review, it emerges that an officer or director has already fallen into the trap, counsel experienced with addressing such issues with the Federal Trade Commission should be engaged to help mitigate any consequences, including any civil penalties.

– Liz Dunshee