SEC Adopts Executive Compensation Rules

By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guide, Bank Digest; co-author, Dodd-Frank Wall Street Reform and Consumer Protection Act—Law, Explanation and Analysis.

The Securities and Exchange Commission has announced the adoption of final rules implementing the Dodd-Frank Act requirements for shareholders' “say on pay” and golden parachutes. The rules increase the required disclosures while creating exceptions for smaller companies. All relevant shareholders votes would be advisory. 

Beginning with the first annual shareholders' meeting after Jan. 21, 2011, companies that are subject to federal proxy rules must provide shareholders with an opportunity to cast an advisory vote on executive compensation. The vote must be permitted at least once every three years. The annual meeting proxy statement must disclose whether a vote will be taken, whether that vote is non-binding and how the company considered the results of the prior vote.

Also, at least once every six years shareholders are to be allowed to vote on how often the “say on pay” vote will be taken--once each year, once every two years or once every three years. However, this frequency vote also is advisory. 

Smaller companies--those with a “public float” of less than $75 million--will not be required to conduct “say on pay” or frequency votes until annual meetings on or after Jan. 21, 2013.

A separate advisory shareholder vote will be required for compensation arrangements with executive officers in connection with mergers, acquisitions, consolidations, and proposed sales or other disposition of all or substantially all assets of a company. These compensation agreements commonly are called “golden parachutes.” Disclosures are required for all compensation agreements and understandings that both the acquiring and target companies have with the executive officers of both companies. It also will be required in other types of transactions, such as going-private transactions and third-party tender offers. The requirement is effective for proxy statements and other schedules and forms initially filed on or after April 25, 2011.