SEC Proposes Say-on-Pay Rules

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

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.