Summary: SEC Say On Pay - By Megan N. Gates, Pamela B. Greene, and Asya S. Alexandrovich

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November 23‚ 2010

SEC Proposes Say-on-Pay Rules

Advisory Votes on Executive Compensation and "Golden Parachute" Compensation, and Frequency of the Executive Compensation Vote

By Megan N. Gates, Pamela B. Greene, and Asya S. Alexandrovich

The Securities and Exchange Commission (SEC) has proposed rules regarding shareholder advisory votes on executive compensation and "golden parachute" compensation arrangements,1 implementing certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The SEC has also proposed rules on reporting of proxy votes on executive compensation by institutional investment managers.2 New Section 14A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), added by Section 951 of the Dodd-Frank Act, requires public companies to conduct a non-binding shareholder advisory vote to approve the compensation of a company's named executive officers disclosed pursuant to Item 402 of Regulation S-K under the Securities Act of 1933, as amended (a so-called "say-on-pay" vote), and a separate, non-binding shareholder advisory vote to determine how often a company will conduct the shareholder vote on executive compensation (a so-called "say-on-frequency" vote). These votes are required to be included in a proxy statement for which the proxy solicitation rules of the SEC require compensation disclosures,3 for a company's first annual or other meeting of shareholders taking place on or after January 21, 2011, regardless of whether or not the SEC's rules on say-on-pay and say-on-frequency have been finalized by that date.

Section 14A also requires public companies to provide disclosure regarding certain so-called "golden parachute" compensation arrangements, as described in further detail below, when engaged in mergers or similar transactions and, in most circumstances, to conduct a separate, non-binding shareholder advisory vote to approve the golden parachute compensation arrangements. In addition, Section 14A requires institutional investment managers to report annually how they voted on executive compensation proposals in each company's proxy statement in which they have been delegated direct or indirect voting power by their clients. Unlike the say-on-pay and say-on-frequency votes that are automatically effective on January 21, 2011 under the Dodd-Frank Act, companies will not be required to solicit shareholder votes on golden parachute compensation arrangements until the SEC adopts final rules and such rules become effective.