Under the proposed rules, public companies subject to the federal proxy
rules would be required to:
- provide their shareholders with an advisory vote on executive
compensation and an advisory vote on the desired frequency of these votes;
- provide shareholders with an advisory vote on compensation
arrangements and understandings in connection with merger transactions,
known as "golden parachute" arrangements; and
- provide additional disclosure of "golden parachute" arrangements in
merger proxy statements.
The proposed rules would also require that institutional investment
managers report their votes on executive compensation and "golden parachute"
arrangements at least annually, unless the votes are otherwise required to
be reported publicly by SEC rules.
Last year, the Commission adopted rules requiring public companies with
outstanding obligations under the Troubled Asset Relief Program to provide a
shareholder vote on executive pay in their proxy solicitations. The
Commission also adopted rules requiring enhanced disclosure of executive
compensation by public companies in their proxy statements.
Required Say-on-Pay Votes and Additional
Shareholder Approval of Executive Compensation
Under the proposed rules implementing the Dodd-Frank Act, companies
subject to the federal proxy rules would be required to provide shareholders
with an advisory vote on executive compensation. Section 14A(a) of the
Exchange Act, which was added under the Dodd-Frank Act, specifies that these
votes, generally known as say-on-pay votes, are required at least once every
three years beginning with the first annual shareholders' meeting taking
place on or after Jan. 21, 2011.
The SEC's proposal requires companies to provide disclosure about the
say-on-pay vote in the annual meeting proxy statement, including whether the
vote is non-binding. The proposal also would require the company to disclose
in the Compensation Discussion and Analysis, or CD&A, whether, and if so,
how companies have considered the results of previous say-on-pay votes.
Shareholder Approval of the Frequency of Shareholder
Votes on Executive Compensation
Under the proposal, companies subject to the federal proxy rules also
would be required to allow shareholders to vote on how often they would like
to cast a say-on-pay vote, namely: every year, every other year, or once
every three years.
Shareholders would be allowed to cast this non-binding "frequency" vote
at least once every six years beginning with the first annual shareholders'
meeting taking place on or after Jan. 21, 2011.
The proposals would require companies to provide disclosure about the
frequency vote in the annual meeting proxy statement, including whether the
vote is non-binding.
Shareholder Approval and Disclosure of Golden Parachute
Under the proposal, companies also would be required to provide
additional information about the compensation arrangements with executive
officers in connection with merger transactions. Disclosures of these
"golden parachute" arrangements would be required of all agreements and
understandings that the acquiring and target companies have with the named
executive officers of both companies.
This "golden parachute" disclosure also would be required in connection
with going-private transactions and third-party tender offers, so that the
information is available for shareholders no matter the structure of the
Further, the proposed rules would require companies to provide a
shareholder advisory vote to approve certain "golden parachute" compensation
arrangements in merger proxy statements.
Institutional Investment Manager
Reporting of Votes
The SEC also proposed rules that would require institutional investment
managers to annually file with the SEC their votes on say-on-pay, frequency
of say-on-pay votes, and "golden parachute" arrangements.
The proposal would generally apply to every institutional investment
manager that manages certain equity securities having an aggregate fair
market value of at least $100 million.
The manager would be required to identify securities voted, describe the
executive compensation matters voted on, disclose the number of shares over
which the manager held voting power and the number of shares voted, and
indicate how the manager voted.
The proposal would require institutional investment managers to report
these votes annually not later than August 31 of each year, for the twelve
months ended June 30.
The SEC will seek public comment on the proposals. The comment period
will close on Nov. 18, 2010.
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