Executive Compensation Regulation - Shareholder Approval of Executive Compensation and Golden Parachute Compensation

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Dodd-Frank Timeline, Shareholder Approval of Executive Compensation and Golden Parachute Compensation, SEC
Approval Date Effective Date Compliance Date
February 2, 2011 April 4, 2011 April 4, 2011

On January 25, 2011, the Securities and Exchange Commission (SEC) adopted final rules requiring approval from shareholders for executive compensation and "golden parachute" arrangements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The new rules will require:

  • Say-on-pay votes required under the Dodd-Frank Act must occur at least once every three years, beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011.
  • A "frequency" vote must take place at least once every six years in order to allow shareholders to decide how often they would like to be presented with the say-on-pay vote.
  • A company must disclose on an SEC Form 8-K how often it will hold the say-on-pay vote.
  • Companies also are required to provide additional disclosure regarding "golden parachute" compensation arrangements with certain executive officers in connection with merger transactions.[1]

Two Year Exemption for Small Businesses
The Commission also adopted a temporary exemption for smaller reporting companies (public float of less than $75 million). These smaller companies are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after Jan. 21, 2013.

Required Say-on-Pay Votes and Additional Disclosure Requirements Shareholder Approval of Executive Compensation

According to the final rules, any company which falls under federal proxy rules must offer shareholders an advisory vote on the compensation of top executives of the company, typically the CEO, CFO, and at least three other named executives. In particular, the rule amendments, which implement the Dodd-Frank Act, specify that these say-on-pay votes are required at least once every three years beginning with the first annual shareholders' meeting taking place on or after January 21, 2011.[2]

In addition, each company must disclose the results of its "say-on-pay" vote in the annual meeting proxy statement. The disclosure must include:

  • whether the vote is non-binding;
  • if and how the company has considered the results of the most recent say-on-pay vote; and
  • offer shareholders a choice as to the frequency of subsequent non-binding (advisory) "say-on-pay" votes - every year, every other year, or once every three years.

The required 8-K disclosure form will be revised to include "say-on-pay-" vote results.

Shareholder Approval and Disclosure of Golden Parachute Arrangements

Under the rules, companies are required to provide additional disclosure, in narrative and in tables, all special executive compensation arrangements connected with merger transactions ("golden parachute" arrangements). Specifically:

  • Disclosure is required of all compensation agreements with executives of both the acquiring and target companies.
  • The "golden parachute" disclosure also is required in connection with other transactions, such as public-to-private transactions and third-party tender offers.
  • A company involved in a merger, acquisition, consolidation, proposed sale or other disposition of all or substantially all assets must comply with the golden parachute compensation shareholder advisory vote.

The final rule, as it appeared in the Federal Register on February 2, 2011, can be found below.

References

  1. SEC Adopts Rules for Say-on-Pay and Golden Parachute Compensation as Required Under Dodd-Frank Act. U.S. Securities and Exchange Commission. Retrieved on January 25, 2011.
  2. Shareholder Approval of Executive Compensation and Golden Parachute Compensation. U.S. Securities and Exchange Commission. Retrieved on April 4, 2011.

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