New Rule 14Ad-1 takes effect on July 1, 2024, with filing of Form N-PX due on August 31, 2024, for votes during the July 1, 2023 to June 30, 2024 reporting period. The Rule requires all institutional investment managers that are 13F filers to report say-on-pay votes on the new version of Form N-PX when voting on the approval of executive compensation, including, but not limited to, “golden parachute” compensation. It is important to note that the rules do not contain a de minimis exception for smaller holdings and is not limited to those securities that are listed on Form 13F. It applies to any security over which the institutional investment manager exercised voting power on a say-on-pay matter presented under Section 14A. Even if you are a 13F filer that does not vote proxies or does not vote on any say-on-pay matters, Form N-PX must still be filed, indicating that there was no such voting. Managers that have a disclosed policy of not voting proxies and have not voted proxies during the reporting period will be able to file a notice report under the Form N-PX cover page.

Section 13(f)(6)(A) of the Exchange Act defines “institutional investment manager” as “any person, other than a natural person, investing in or buying and selling securities for its own account, and any person exercising investment discretion with respect to the account of any other person.” Registered Investment Advisers are considered to be institutional investment managers.

According to the SEC, a Say-on-Pay vote asks investors to vote on the compensation of the top executives of the company – the CEO, the Chief Financial Officer, and at least three other most highly compensated executives. (These are called the “named executive officers.”) Examples of compensation include remuneration packages of executives, grants of equity to executives, performance measures related to compensation, short-term and long-term incentives.

The Final Rule provides a two-part test for determining whether an institutional investment manager “exercised voting power” over a security and must therefore report a say-on-pay vote on Form N-PX:

1. The institutional investment manager has the power to vote, or direct the voting of, a security.
2. The institutional manager “exercises” this power to influence a voting decision for the security.

The Final Rule states that “voting power could exist or be exercised either directly or indirectly by way of a contract, arrangement, understanding, or relationship.” It is important to note that a manager can be deemed to have exercised voting power even if it abstains from voting.

With this deadline quickly approaching, managers subject to Rule 14Ad-1 must account for their say-on-pay voting activity beginning on July 1, 2023 and record the information corresponding to the Form N-PX disclosure requirements. Going forward, managers must also be aware that Form N-PX disclosure now highlights a firm’s voting conduct.