SEC Proposes Rules Regarding Say-On-Pay and Golden Parachutes

The SEC recently proposed rules implementing the provisions of the Dodd-Frank Act regarding shareholder advisory votes on executive compensation ("say-on-pay"); how often a shareholder advisory vote with respect to executive compensation will occur ("say-on-frequency"); and shareholder advisory votes on compensation arrangements in connection with certain corporate transactions ("say-on-golden parachutes"). The SEC has asked for comments by November 18, 2010.

 

Shareholder Approval of Executive Compensation: The proposed rules require a shareholder advisory vote on executive compensation at least once every three years commencing with meetings taking place on or after January 21, 2011. In proxy materials for annual meetings (or other shareholder meetings requiring executive compensation disclosure) companies must disclose that there is a separate shareholder vote on executive compensation and explain the general effect of the vote (such as that the vote is non-binding). No specific language or form of resolution to be voted on by the shareholders is required but the vote must relate to all executive compensation disclosure set forth pursuant to Item 402 of Regulation S-K. This includes, for named executive officers of the company, the CD&A, the compensation tables and other required narrative disclosure. The proposed rules cannot be satisfied with a general vote on all company compensation policies and procedures. Smaller reporting companies are subject to scaled executive compensation disclosure requirements and will not be required to have a CD&A for purposes of these rules.

 

            Disclosure Regarding Effect of Prior Votes: The proposed rules require the company to include in future CD&A disclosure whether and, if so, how compensation policies and decisions have taken into account the results of required shareholder advisory votes on executive compensation. Smaller companies, who are not required to include CD&A disclosure, must include disclosure of the impact of prior shareholder advisory votes on executive compensation if such results are considered a material factor necessary to understanding the information disclosed in the Summary Compensation Table.