SEC Adopts Rules for Say-on-Pay and Golden Parachute Compensation Under Dodd-Frank Act


As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the U.S. Securities and Exchange Commission (SEC) adopted rules regarding shareholder approval of executive compensation and “golden parachute” arrangements on January 25, 2011. See Release Nos. 33-9178 and 34-63768.

Summary of New Rules

  • Companies must provide a separate shareholder advisory vote to approve the compensation of their named executive officers (a say-on-pay vote), not less frequently than once every three calendar years.
  • The SEC’s compensation discussion and analysis (CD&A) requirements are amended to require issuers to address whether and, if so, how their compensation policies and decisions have taken into account the results of the most recent say-on-pay vote.
  • Companies must provide a separate shareholder advisory vote to determine whether the say-on-pay vote will occur every one, two or three years (a say-on-frequency vote). This say-on-frequency vote is required not less frequently than once every six calendar years.
  • Schedule 14A (which sets forth the SEC’s proxy statement requirements) is amended to require companies to disclose that they are providing a say-on-pay, say-on-frequency or say-on-golden parachutes vote, if applicable, to briefly explain the general effect of each vote, such as whether each such vote is non-binding, and, when applicable, to disclose the current frequency of say-on-pay votes and state when the next such vote will occur.
  • Say-on-pay and say-on-frequency votes are added to the list of items that do not require the filing of proxy materials in preliminary form.
  • Amended Rule 14a-8 permits exclusion of a shareholder proposal that would provide a say-on-pay vote or that relates to the frequency of say-on-pay votes, if, in the most recent shareholder say-on-frequency vote, a single frequency (i.e., one, two or three years) received the support of a majority of the votes cast and the issuer has adopted a policy on the frequency of say-on-pay votes that is consistent with that choice.
  • Companies are required to disclose on Form 8-K their decision regarding how frequently to conduct say-on-pay votes following each say-on-frequency vote.
  • Companies are required to include tabular and narrative disclosure of named executive officers’ golden parachute arrangements in proxy statements filed in connection with a merger or acquisition transaction or other filings in which shareholders are effectively giving a consent with respect to their investment decision.
  • Companies must provide a separate shareholder advisory vote on golden parachute arrangements in proxy statements filed in connection with a merger or acquisition transaction.

Effective Dates

The first say-on-pay and say-on-frequency votes are required for companies’ first shareholder meeting occurring on or after January 21, 2011 at which directors will be elected and for which disclosure of executive compensation is required under Item 402 of Regulation S-K, except that smaller reporting companies will not be required to conduct a say-on-pay or say-on-frequency vote until meetings on or after January 21, 2013. All public companies, including smaller reporting companies, must comply with the say-on-golden parachutes rules with respect to any merger proxy statement or other covered transactional document filed on or after April 25, 2011.

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