SEC PROPOSES RULES FOR SAY-ON-PAY, SAY-WHEN-ON-PAY AND GOLDEN PARACHUTE DISCLOSURE REQUIREMENTS
By Thomas L. Montrone
November 02, 2010
On October 18, 2010, the SEC issued proposed rules in response to
Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (The "Act"). Under the Act, the SEC proposed Rule 14a-21 that
would require companies to include certain advisory, non-binding
proposals and other matters on the ballot for shareholder meetings
taking place on or after January 21, 2011. The proposed Rule places new
requirements for shareholder advisory votes on executive compensation
("say-on-pay"), the frequency of say-on-pay votes ("say-when-on-pay")
and "golden parachutes".
The SEC proposed Rule 14a-21(a), if approved as proposed, will
require a mandatory advisory proposal on executive compensation at least
every three years. The Rules address compensation on Named Executive
Officers ("NEOs"), which includes the principal executive officer,
principal financial officer and the three other most highly paid
executive officers. The proposal would be required for an annual or
other special meeting in which the SEC's proxy rules require disclosure
of executive compensation.
Say-When-On-Pay Advisory Provisions
The proposed new Rule 14a-21(b), if approved, will require public
companies, at least once every six years, to include a proposal for
shareholder approval as to whether the "say-on-pay" advisory proposal
will be included on the proxy every year, every other year or every
third year. Shareholders may also abstain on the proposal. This
proposal must be included in the first shareholder meeting held on or
after January 21, 2011. The board of directors may include a vote
recommendation. However, while the Rules do not specify the language to
be used, it must be clear that the shareholder can choose among the
Excluding Shareholder Proposals
Under Rule 14a-8(i)(10), the SEC proposed adding a note that
companies may exclude shareholder proposals for "say-on-pay" on the
basis that they have substantially implemented "say-on-pay". They may
be considered to have implemented this if the company has adopted the
frequency of "say-on-pay" proposals when the "say-when-on-pay"
alternative selected has received plurality support.
"Golden Parachute" Provisions
The proposed Rules add a new item to Regulation S-K, which would
require disclosures in specific tabular and narrative form of all
"golden parachute" compensation for NEOs relating to or based on an
acquisition. If the company has already submitted "golden parachute"
arrangements to a "say-on-pay" vote and has not altered these
arrangements, the company would not have to submit the golden parachute
to a vote provided the company's disclosure satisfied the tabular and
Companies must disclose if the votes on "say-on-pay" and
"say-when-on-pay" are binding or non-binding. Also, issuers subject to
TARP (the "Trouble Asset Relief Program") and have already included an
advisory executive compensation proposal would be exempt from the
"say-on-pay" and "say-when-on-pay" requirements until the first meeting
after they have repaid all of the debt under TARP.
Finally, the format of this proposal may present some challenges for the
tabulating community. Systems are not geared for handling this format.
Internal tabulating systems and file formats for handling street votes
will require modifications and some additional coordination.
Companies are encouraged to submit their comments and concerns to the
SEC. This article is intended as an informational piece and should not
be used for guidance. Issuers should seek the opinion of their counsel
in regards to their shareholder meeting requirements.