No Surprises - SEC Adopts Rules for Say on Pay and Golden Parachute Compensation as Required Under Dodd-Frank Act

No Surprises – SEC Adopts Rules for Say on Pay and Golden Parachute Compensation as Required Under Dodd-Frank Act

January 26 2011

Alert Highlights
–  Say on Pay vote to be held at least once every three years
–  Say on Frequency vote to be held at least once every six years
–  Say on Golden Parachute vote and disclosure rules become effective April 25, 2011
–  Small Companies exempt from Say on Pay and Frequency votes until January 2013

On January 25, 2011, the Securities and Exchange Commission adopted rules concerning shareholder advisory votes on executive compensation and “golden parachute” compensation arrangements as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Say on Pay
Under the SEC’s new rules, Say on Pay advisory votes required under the Dodd-Frank Act must occur at least once every three years beginning with the first annual shareholders’ meeting taking place on or after January 21, 2011.

Say on Frequency
Under the new rules, companies are also required to hold a Say on Frequency advisory vote at least once every six years.  The Say on Frequency vote provides shareholders an opportunity to express their preference for a Say on Pay every one, two or three years.

Following the Say on Frequency vote, companies must file a Form 8-K disclosing which frequency option they have adopted.  This disclosure must be filed no later than 150 calendar days after the date of the annual meeting in which the vote took place, but no later than 60 calendar days prior to the deadline for submission of shareholder proposals for the subsequent annual meeting.

Golden Parachute Disclosure
Under the SEC’s new rules, companies are also required to provide additional disclosure regarding executive “golden parachute” compensation arrangements in connection with merger transactions.  Disclosure is required of any agreements and understandings that the acquiring and target companies have with named executive officers.

The rules require this disclosure in both narrative and tabular formats.  The table will quantify cash severance, equity awards that are accelerated or cashed out, pension and nonqualified deferred compensation enhancements, perquisites, and tax reimbursements.  In addition, the table requires disclosure and quantification of the value of any other compensation related to the transaction.  Amounts must be footnoted as either “single-trigger” or “double-trigger” for easy identification by shareholders.

Say on Golden Parachutes
The new rules require companies to provide a separate non-binding shareholder advisory vote on “golden parachute” compensation arrangements in connection with a merger, acquisition, consolidation, proposed sale or other disposition of all or substantially all assets.

Companies must comply with the Say on Golden Parachute advisory vote and disclosure requirements in proxy statements and other schedules and forms initially filed on or after April 25, 2011.

Small Company Exemption
The Commission also adopted a temporary exemption for smaller reporting companies (public float of less than $75 million).  These smaller companies are not required to conduct Say on Pay and frequency votes until the first annual meeting occurring on or after January 21, 2013. The delayed compliance date for the Say on Pay and frequency votes for smaller reporting companies is designed to allow those companies to observe how the rules operate for other companies, and should allow them to better prepare for implementation of the rules.

PDF:  SEC Adopts Say-on-Pay