Executive Compensation

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.

At the end of last year, Weil’s London office circulated a brief note concerning additional EU-wide rules on remuneration following amendments to the EU’s Capital Requirements Directive. Under the new provisions, banks and investment firms must have remuneration policies and practices that do not encourage or reward excessive risk-taking.

Click here to read the full briefing.

Proxy advisory company Institutional Shareholder Services Inc. recently issued updates to its proxy voting policies applicable to shareholder meetings held on or after February 1, 2011.

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On October 4, 2010, the U.S. Securities and Exchange Commission put on hold the effectiveness of its recent adoption of Rule 14a-11 (the “proxy access” rule) and the related amendments to other SEC rules adopted at the same time, including the amendment of Rule 14a-8, pending resolution by the U.S. Court of Appeals of the petition the Business Roundtable and the U.S. Chamber of Commerce filed on September 29 challenging the lawfulness of the proxy access rule.  The parties will seek expedited review by the court and an SEC spokesperson has indicated that the matter may be resolved by late spring, according to a media report.  If so, even if the proxy access rule is sustained by the court, for the bulk of public companies, proxy access will be delayed until at least the 2012 proxy season; for non-calendar year companies, access would become available later in 2011.

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The challenges that Dodd- Frank will bring to the upcoming proxy season keep evolving.  Please follow this link for a current update.