WASHINGTON - The Securities and Exchange Commission will approve rules requiring companies that trade on U.S. stock markets to get shareholder approval for stock-compensation plans, people familiar with the proposal said yesterday.
The requirements will be included in listing standards that the SEC plans to approve Monday for companies that trade on the New York Stock Exchange, the Nasdaq stock market and other U.S. exchanges, the sources said.
The new rules would let shareholders reject option packages and other stock compensation awarded to executives by company boards. Some investors have complained that options contributed to accounting scandals at Enron Corp. and WorldCom Inc. by creating incentives for executives to inflate profits.
"Shareholders have got a right, and really an obligation, to manage how their own equity is being distributed," said Richard Ferlauto, director of pension investment policy for the American Federation of State, County and Municipal Employees, an association of labor unions with pension assets of more than $1 trillion.
Under the new listing standards, brokers who hold securities on behalf of their customers wouldn't be allowed to vote on equity compensation plans without the customers' approval.
Some companies fought that provision, saying it would make it hard for them to get a quorum of shareholder voters, because brokers have custody of most of their customers' shares.
The new listing standards also would require companies to get shareholder approval for changes in the exercise price of existing option grants that have lost value because of falling stock prices.
An exception to the requirement for shareholder approval would be made for option packages designed to recruit executives.
Last year, then-SEC Chairman Harvey Pitt asked the NYSE and Nasdaq to strengthen corporate-governance standards through their listing standards, which set rules that companies must meet or face removal from the stock markets.
The NYSE and Nasdaq formulate their own listing standards, subject to the approval of the SEC.