As I Blogged previously, on Tuesday morning, the SEC adopted the Final Rules on Shareholder Say on Pay, Frequency of SSOP and Shareholder Say on Parachute Payments in a 3-2 vote, and Tuesday evening SEC published the Final Rules. The Rules technically are not effective until 60 days after publication in the Federal Register (March 26, 2010). However, we expect that most companies that have not already printed their proxy statements will seek to comply.
The Final Rules made no earth shattering changes from the proposed rules, but the do modify every single proposed rule in some way. In addition to the six points from yesterday's Blog post, the following issues bear special mention:
- As I blogged yesterday, the Rules allow companies to exclude shareholder proposals that would provide a say-on-pay vote, seek future say-on-pay votes, or relate to the frequency of say-on-pay votes. However, this exception only applies if, in the most recent shareholder vote on Frequency of SSOP votes, a single frequency (i.e., one, two or three years) received the support of a majority of the votes cast (and the company adopted a policy consistent with that choice). That is, if one of the choices receives as much as 49% of the shareholder votes, no other choice receive more than 20% of the votes cast, and the company adopts a policy on frequency that is consistent with the 49% choice, the company would not be able to exclude subsequent shareholder proposals regarding say-on-pay matters. Ouch.
- As I Blogged yesterday, responding to numerous comments, including ours, the Rules require companies to disclose their decision regarding Frequency of SSOP votes on Form 8-K, due at a later date, rather than on Form 10-Q and Form 10-K, to give companies additional time to make their decisions. To comply, a company will file an amendment to its prior Form 8-K filing under Item 5.07, which discloses the preliminary and final results of the shareholder vote on frequency. This amended Form 8-K will be due no later than 150 calendar days after the date of the end of the annual (or other) meeting in which the vote took place, but in no event later than 60 calendar days prior to the deadline for the submission of shareholder proposals for the subsequent annual meeting.
Form 8-K generally requires a company to "state the number of votes cast for, against, or withheld, as well as the number of abstentions and broker non-votes as to each such matter…." The Final Rules clarify that, with respect to the vote on the frequency of say-on-pay votes, the company will be required to disclose the number of votes cast for each of 1 year, 2 years, and 3 years, as well as the number of abstentions.
- As I Blogged yesterday, the Rules adopt a temporary exemption for smaller reporting companies. These companies will not be required to conduct either a shareholder advisory vote on executive compensation or a shareholder advisory vote on the frequency of say-on-pay votes until the first annual or other meeting of shareholders occurring on or after January 21, 2013. The SEC expressly refused to adopt a permanent exemption for smaller companies.
- As expected, the Rules add the required shareholder advisory votes on executive compensation, both SSOP and the frequency of the SSOP vote, to the list of items that do not trigger a preliminary filing of the proxy statement.
- TARP companies are already required to conduct an annual SSOP vote until they have repaid all outstanding indebtedness under TARP. The SEC states that it "will not object" if a TARP company does not include a resolution on the Frequency of SSOP votes in its proxy statement for the 2011 annual meeting, provided it fully complies with its say-on-pay voting obligations under EESA/TARP.
I originally proposed to handle these new Rules in just three Blogs. However, since there an additional 14 issues to cover in the area of Golden Parachute Payment disclosures alone, I will continue the discussion tomorrow and, ultimately, post a single, all-inclusive list.