Over two years ago, Congress enacted Section 951 of the Dodd-Frank Act, which requires public companies to conduct an advisory shareholder vote on the company’s executive compensation plan – the so-called “say-on-pay vote.” Immediately after its enactment, plaintiffs’ firms began filing shareholder actions against directors, executive officers, and compensation consultants of companies that failed to obtain a majority shareholder vote in favor of their plans. With a growing number of courts dismissing such suits, plaintiffs’ firms have orchestrated a new strategy to hold companies liable: suits to enjoin the shareholder vote because the proxy statement fails to provide adequate disclosure concerning executive compensation proposals. Such suits have met with some success – with two court orders enjoining shareholder meetings and five settlements prior to companies’ annual meetings.

The Say-on-Pay Statute -

Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010 (“Dodd-Frank Act”). Section 951 of the Dodd-Frank Act amends the Securities Exchange Act of 1934 (“Exchange Act”) by adding Section 14A(“Say-on-Pay Statute”), which requires public companies: (1) to conduct a separate shareholder advisory vote to approve the compensation of executives, (2) to conduct a separate shareholder advisory vote to determine how often an issuer will conduct a shareholder advisory vote on executive compensation, and (3) when soliciting votes to approve merger or acquisition transactions, to provide disclosure of certain golden parachute compensation arrangements and, in certain circumstances, to conduct a separate shareholder advisory vote to approve those arrangements. On January 25, 2011, the Securities and Exchange Commission adopted rules implementing Section 951 of the Dodd-Frank Act, which became effective on April 4, 2011.