The Proxy Fee Advisory Committee (PFAC), formed by the New York Stock Exchange, published its 2012 recommendations for changes to the fees paid by public companies to banks and brokers for the distribution of proxy materials to shareholders who hold their stock in street name.
The 2012 Report and Recommendations propose to encourage and facilitate active voting participation by retail beneficial owners, streamline proxy fees and make them more transparent to issuers as well as result in a modest decrease in total fees paid of approximately 4%.The impact on any individual participant is expected to vary somewhat depending on their circumstances.
The committee recommended:
1. Changing terminology and streamlining the proxy fee categories into three basic fee categories:
- Nominee fee
- Basic processing fee
- Preference management fee
2. Reducing preference management fees for managed accounts to half the normal rate to address the concern that proxy fees on managed accounts impose disproportionately high costs on issuers. All processing fees will be eliminated for managed account positions of five shares or less.
3. Modestly increasing the processing fees for special meetings and contests so the increased work involved in these meetings is reflected.
4. Gradually tiering the basic processing fee to smooth the cliff effect that occurs between large/small issuers.
5. Reducing by half the fee for annual meeting reminder notices to support improved shareholder communication.
6. Regulating fees for notice and access utilizing the fee schedule currently used by Broadridge.
7. Exploring the impact of allowing issuers to request stratified NOBO lists, including whether a modest stratification surcharge would be appropriate.
8. Discussing Broadridges investor mailbox proposal with additional industry representatives so it can be determined whether the proposed success fee is at an appropriate level. This would be subject to further consideration on the fee.
9. Creating an ongoing process to review proxy fees and services more frequently going forward.
The PFAC was formed in September 2010 to review the existing proxy distribution fee structure and make recommendations for change. Their goals have been to support the current proxy distribution system, including continued support for the elimination of mailings; to encourage and facilitate active voting participation by retail beneficial owners; improve transparency of the fee structure and ensure that fees are as fair as possible and aligned with the work involved. The Committees stated purpose is to bring proxy distribution fees in line with the work performed and add increased transparency.
Several concerns surround the PFAC including the make-up of the committee, oversight, and the way costs are addressed. The committee consists of only nine executives from publically traded companies. There is no independent third-party involvement, even though it was recommended by the 2006 working committee, and they failed to properly address the costs involved with the various activities in proxy distribution. The STA did a study in which they looked at 33 invoices from Broadridge and applied the recommended proxy fees and in 80% of the cases, the fees actually increased.
For the full Proxy Fee Advisory Committee report, go to http://usequities.nyx.com/listings/list-with-nyse/proxy.