Institutional investment managers may soon have to report to the Securities and Exchange Commission on what say they have on executive pay at the firms they invest in.

The SEC has filed a proposal to amend the Securities Exchange Act of 1934 and the Investment Company Act of 1940 so that institutional investment managers that file Form 13F – namely pension plans, endowments, managers of separately managed accounts, banks and broker-dealers – would have to annually report on a new upgraded Form N-PX how they voted on executive compensation proposals. Comments are due by November 18.

"The institutional investment manager would be required to report votes on approval of executive compensation and on the frequency of executive compensation approval votes," wrote the SEC in its release on October 18. 

The regulator said that the executive compensation would relate to "an acquisition, merger, consolidation, or proposed sale or other disposition of all of substantially all the assets of an issuer."

Currently, only registered investment management firms -- namely, mutual funds-- must report to the SEC just how they voted in all U.S. corporate proposals on Form N-PX. 

Despite the more limited scope of disclosure, compliance won't be easy for institutional investment managers. 

"It comes down to data collection. Institutional investment managers will have to gather the information on how they voted on a daily basis from multiple internal applications as well as any proxy advisory firms that may vote on their behalf,” said Edward Johnsen, a partner with the law firm of Winston & Strawn in New York. “The proposal is made more complicated by the fact that many larger financial institutions have multiple asset management and brokerage arms and would need to consolidate the information from numerous business units.”

The SEC estimates that, if adopted, its proposal would cost U.S. institutional fund managers collectively $13.5 million a year to file the new N-PX forms, while mutual funds would need only an additional $2.5 million.

In amending the current Form N-PX, the SEC is requiring that information on the executive compensation votes be disclosed in the following format: the name of the issuer of the security; the exchange ticker symbol of the security; the CUSIP identification code for the security; the shareholder meeting date; a brief description of the matter voted on; whether the matter was proposed by the issuer or a shareholder; the number of shares the reporting person was entitled to vote or had or shared voting power over; the number of shares that were voted; how the reporting person voted those shares; whether the vote was for or against management’s recommendation; and an identification of each institutional investment manager on whose behalf form NP-X is filed.

Still to be determined is which securities the institutional investment manager will be required to include on the new amended Form N-PX. The proposal currently calls for reporting votes with respect to "any security" with respect to which the manager meets the voting power test. However, the SEC is asking for comment on whether reporting should be limited to securities that a manager has previously reported or been required to report on Form 13F, or securities above a minimum position size threshold.

Based on how the SEC has now worded the new proposal, the securities reported on Form N-PX may not match the ones the manager reports on Form 13F. For instance, an institutional fund manager would not be required to report on Form N-PX any shares for which it had only investment discretion but not voting power. In addition, if the institutional investment manager sold securities before the end of a calendar quarter it would not have to list them on Form 13F, but might have to report them on Form N-PX if there had been a reportable shareholder vote while it held them.

Institutional investment managers must file Form 13F to comply with Section 13(f), a 1975 amendment to the Securities and Exchange Act of 1934 if they have discretionary investment authority over more than $100 million in listed equity securities. The report is to be filed with the SEC on a quarterly basis and includes the manager's holding in securities which appear on a list the regulator publishes on its website at the end of each quarter.

Once the institutional investment manager becomes subject to the reporting requirement, it must report all of its holdings in these "13(f) securities," unless a holding is less than 10,000 shares of a given issuer with an aggregate fair market value of under $200,000.

For the mutual fund industry, the new limited disclosure requirement for institutional investment managers appears to be a welcome sign. Mutual funds initially opposed their unique disclosure requirements on proxy voting in 2004 and have been lobbying the SEC to bring institutional fund managers to the fold ever since.

"Our policy is not to complain about being singled out, but to say to other institutional investors--lets see how you vote your shares," said a spokeswoman for the Investment Company Institute, the mutual fund trade association, in a statement issued to IMW’s sister publication, Securities Technology Monitor on Thursday afternoon. "Whether compelled or voluntary, broader proxy vote disclosure could only result in a better informed view of how the corporate franchise is used."