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SEC Allows SunTrust to Exclude TARP Proposal Submitted by: Ted Allen, Publications

The staff of the Securities and Exchange Commission has ruled that SunTrust Banks may omit a labor proposal that seeks stricter executive pay limits than imposed by the federal Troubled Asset Relief Program (TARP).

The Corporation Finance Division staff concurred with the Atlanta-based banking firm?s argument that the International Brotherhood of Teamsters? proposal was excludable under Rule 14a-8(i)(3) as ?vague and indefinite.? ?In arriving at this position, we note the proponent?s statement that the ?intent of the Proposal is that the executive compensation reforms urged in the Proposal remain in effect so long as the company participates in the TARP.? By its terms, however, the proposal appears to impose no limitation on the duration of the specified reforms,? the staff stated in its Dec. 31 ruling.

?We?re very disappointed by the staff ruling,? said Louis Malizia, assistant director for capital strategies at the Teamsters. ?We feel the proposal wasn?t considered on its merits.?

It?s unclear whether the SEC will allow other financial firms to exclude similar TARP proposals, as the exclusion arguments vary by company. Seven other firms that received the proposal have filed ?no-action? requests, including PNC Financial Group, which likewise argues that the TARP proposal is ?impermissibly misleading and vague.?

Malizia said the SunTrust ruling was ?very odd? and ?seems like a rushed decision,? given that there are other pending ?no-action? requests to omit TARP proposals. He said he doesn?t recall the agency staff granting an (i)(3) request based on duration and notes that shareholder proposals typically do not specify the duration of a requested reform. ?We believe in giving the board discretion on that,? Malizia said.

The staff did not address other exclusion arguments by SunTrust, which asserted that the proposal improperly relates to ?ordinary business? and seeks to regulate its capital raising activities and compensation for its general workforce. SunTrust also argued that it has ?substantially implemented? the proposal through its compliance with the U.S. government?s TARP pay requirements.

The Teamsters and other labor funds filed similar proposals at about 25 financial firms that are TARP participants. The resolutions call for limiting annual incentive compensation and severance payments; greater use of performance-vested equity instruments; a freeze on new stock option awards, unless the options are indexed to peer group performance; requiring executives to hold 75 percent of their shares obtained through equity grants through their term of employment, and no accelerated vesting for all unvested equity awards.

In a separate ruling, the SEC granted a request to omit a TARP proposal at Beckman-Coulter, a California-based maker of biotechnology instruments. The company argued the resolution could be excluded because it seeks to reform the pay practices at an unaffiliated firm, the Bank of New York Mellon. While a Mellon unit is a trustee, Beckman argued that ?this contractual relationship does not give the Company the power or the authority to implement or influence the executive compensation reforms raised in the Proposal.?

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on January 12, 2009 (boomark / email).