SEC Adopts “Say on Pay” Rules for Public Companies


On January 25, 2011, the Securities and Exchange Commission adopted by a 3-2 vote final rules on say on pay, say on frequency and say on golden parachutes advisory votes, which give shareholders of public companies a voice on executive compensation and golden parachute arrangements.

The final rules largely track the proposed rules released in October 2010. The most notable differences are:

• Smaller reporting company reprieve. Smaller reporting companies (companies with a public float of less than $75 million) have been granted a reprieve from compliance with say on pay and say on frequency rules until their first annual shareholder meeting on or after January 21, 2013. As originally proposed, smaller reporting companies would have been required to comply for annual shareholder meetings held on or after January 21, 2011.

• Basis for exclusion of shareholder proposal. A company may exclude a shareholder-initiated proposal on say on pay or say on frequency if the company has adopted the frequency approved by a majority of votes cast by shareholders (a higher threshold than the proposed rules, which would have permitted exclusion of a proposal if the company adopted the frequency chosen by a plurality of votes).

• Form 8-K reporting of company decision on frequency. Disclosure of the company’s frequency decision will be reported on Form 8-K (rather than in the company’s Form 10-Q or Form 10-K covering the period in which the vote was taken, as the proposed rules would have required). The deadline for filing the Form 8-K will be 150 days after the shareholder meeting at which the say on frequency vote was taken or 60 calendar days before the deadline for submission of any shareholder proposals under Rule 14a-8 for the company’s next annual meeting, if earlier.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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