Last week the U.S. Securities and Exchange Commission approved final rules implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that require U.S. public companies to conduct a separate shareholder advisory vote on:
- the compensation of their named executive officers (a “say-on-pay” vote) – at least once every three calendar years;
- whether the say-on-pay vote should be held annually, biennially or triennially (the “frequency vote”) – at least once every six calendar years; and
- any golden parachute compensation arrangements of their named executive officers in connection with a “M&A transaction” that is presented to shareholders for approval (a “say-on-golden parachute” vote).
The outcomes of these votes are not binding on the company or its board of directors; they do not affect the validity of compensation arrangements or the fiduciary duties of directors regarding compensation matters. However, they will represent an important expression of shareholder views on a company’s executive compensation policies, with a potentially significant impact on shareholder relations. In considering these votes, companies should also keep in mind that, under recently adopted rules required by the Dodd-Frank Act, brokers will no longer have discretion to vote on these matters any customer shares for which they have not received voting instructions.
As mandated by the Dodd-Frank Act, companies already have been conducting say-on-pay and frequency votes for annual meetings taking place on or after January 21, 2011. Except as noted below, the new SEC rules become effective 60 days after publication in the Federal Register. While the new rules were adopted largely as proposed, a number of changes were made and companies still working on their proxy statements should carefully review the rules in final form.
Weil’s Public Company Advisory Group will be issuing a separate Alert covering the say-on-golden parachutes vote and the new disclosures that will be required for M&A transactions. Companies must comply with those new requirements beginning with initial filings on or after April 25, 2011.
For the full-text of this alert on the new “say-on-pay” requirements, follow this link.