Thursday, January 15, 2015

SunTrust May Not Omit Proposal to Disclose Incentive Compensation Recoupments from Proxy

[This story previously appeared in Securities Regulation Daily.]

By Jacquelyn Lumb

The staff of the SEC’s Division of Corporation Finance has advised SunTrust Banks, Inc. that it may not omit a shareholder proposal seeking annual disclosure of any recoupments or forfeitures of senior executives’ incentive compensation under the bank’s recoupment policy. SunTrust sought to omit the proposal on the basis that it was too vague or that it related to the bank’s ordinary business, but the staff disagreed on both counts. The proposal was submitted to SunTrust by the UAW Retiree Medical Benefits Trust and the Nathan Cummings Foundation.

Past abuses. In their supporting statement that accompanied the proposal, UAW and the Foundation noted that in the last two years, SunTrust settled federal and state charges over abuses related to securitized home loans, settled federal claims with respect to its mismanagement of the Home Affordable Modification Program, settled a whistleblower case alleging that the bank defrauded veterans and the government, and settled a federal action for racially discriminatory lending. SunTrust has not made any proxy statement disclosure about its application of the recoupment policy in response to the conduct in any of those claims.

SunTrust has administered a recoupment policy since 2002. The proponents wrote that the disclosure of the use of SunTrust’s recoupment provisions would reinforce behavioral expectations and communicate concrete consequences for misconduct.

Definition of senior executives. In discussions with the proponents about the proposal, SunTrust explained that the proposal’s reference to senior executives could potentially cover a large number of persons, and the bank explained that it would prefer not to provide disclosure for such a broad group since the proxy statement’s focus is on the compensation of named executive officers.

In seeking to omit the proposal from its proxy material, SunTrust wrote to the SEC that the lack of a definition of senior executive rendered the proposal so vague that it should be omitted. SunTrust added that the proposal sought to micromanage the bank’s business by regulating compensation matters that applied to a broad group of employees. The proponents responded that SunTrust’s argument runs counter to over 20 years of staff no-action determinations, not one of which found the term “senior executive” to be too vague.

Privacy concern. SunTrust also maintained that it could not implement the proposal without violating employees’ privacy. The proponents responded that their proposal seeks disclosure of the general circumstances of a recoupment and does not specify the disclosure of an individual’s name. The proponents also took issue with SunTrust’s characterization of the proposal as relating to ordinary business since it could relate to the compensation of several thousand employees. The proponents said the proposal applies only to senior executives, the very group whose compensation has consistently been found to transcend ordinary business.

Staff’s view. The staff did not concur with SunTrust’s view that the proposal was so inherently vague or indefinite that neither the shareholders voting on the proposal, nor the company in implementing it, would be able to determine with reasonable certainty what actions were required to be taken. Accordingly, the proposal could not be omitted under Rule 14a-8(i)(3).

The staff also was unable to concur with SunTrust’s view that the proposal could be omitted under Rule 14a-8(i)(7). The staff noted that the proposal focuses on the significant policy issue of senior executive compensation and does not seek to micromanage the company to such a degree that its exclusion would be appropriate.

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