SEC Proposes Rules on “Say on Pay” for Public Companies and Rules on Proxy Vote Reporting for Institutional Investment Managers


On October 18, 2010, the Securities and Exchange Commission proposed rules on say on pay, say on frequency and say on golden parachutes votes to implement the provisions of the Dodd-Frank Act that give shareholders of public companies a voice on executive compensation and golden parachute arrangements. In a companion release, the SEC proposed rules that would require certain investment managers to report how they voted on these executive compensation matters.

A brief description of the proposed rules and associated amendments is provided below. The SEC’s proposed rules on shareholder approval of executive compensation may be found at the SEC’s web site here, and the SEC’s proposed rules on proxy vote reporting may be found at the SEC’s web site here.

Shareholder Approval of Executive Compensation

A. Say on Pay

Proposed Rule 14a-21(a) of the Exchange Act would require an issuer to include in proxy statements for meetings at which proxies are solicited for the election of directors a separate shareholder advisory vote to approve the compensation of the issuer’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K. Approval of executive compensation would be required to be put to a vote of shareholders at least once every three years. Though the proposed rule does not require any specific language or form of resolution, a proposal that failed to include all executive compensation disclosed pursuant to Item 402 would not be acceptable (for example, a vote to approve compensation policies and procedures, without more, would not suffice).

The SEC is also proposing amendments to Item 402(b) of Regulation S-K to require that an issuer’s Compensation Discussion and Analysis disclose whether (and if so, how) the issuer’s compensation policies and decisions have taken into account the result of prior say on pay votes. While this requirement is for disclosure only and does not require a board to make changes to compensation policies or practices in the wake of a negative vote on say on pay, we can expect that proxy advisory groups will be intently focused on whether changes are made following such a vote.

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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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