The SEC’s rule proposal for say-on-pay makes it sound like it should be easy to draft. The proposal states that issuers are not required to use any specific language or form of resolutions. So we decided to put pen to paper to test the thesis. The result is set forth below with some commentary in brackets.
PROPOSAL [X]—ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Company is presenting the following proposal, which gives you as a shareholder the opportunity to endorse or not endorse our pay program for named executive officers by voting for or against the following resolution. This resolution is required pursuant to Section 14A of the Securities Exchange Act. While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature.
“RESOLVED, that the shareholders approve the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption [insert appropriate reference] of this proxy statement.”
The Board of Directors recommends that you vote FOR approval of the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the proxy statement set forth under the caption [insert appropriate reference] of this proxy statement. Proxies will be voted FOR approval of the proposal unless otherwise specified. [Include a discussion of the favorable aspects of the issuer’s compensation programs as disclosed.]
PROPOSAL [Y]—ADVISORY VOTE ON FREQUENCY OF EXECUTIVE COMPENSATION VOTE
The Company is presenting the following proposal, which gives you as a shareholder the opportunity to inform the Company as to how often you wish the Company to include a proposal, similar to Proposal [X], in our proxy statement. This resolution is required pursuant to Section 14A of the Securities Exchange Act. While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature. However, the Company has adopted a policy that it will include an advisory vote on executive compensation similar to Proposal [X] consistent with the plurality of votes cast in its most recent advisory vote on executive compensation. [The last sentence is not required. However, the proposed change to Rule 14a-8 permits issuers to exclude certain shareholder proposals related to executive compensation if the issuer has such a policy. Note also that there is no requirement that the policy be included in the proxy statement.]
“RESOLVED, that the shareholders wish the company to include an advisory vote on the compensation of the Company’s named executive officers pursuant to Section 14A of the Securities Exchange Act every:
- two years; or
- three years.”
The Board of Directors recommends that you vote to hold an advisory vote on executive compensation every [insert recommendation and reasons for recommendation.] [Currently we believe there is no consensus on what investors want or how they are likely to vote. There are also advantages and disadvantages for issuers on more frequent versus less frequent votes. We believe many will recommend the three year option as investor feedback would be more useful if the success of a compensation program is judged over a period of time. That being said, a disadvantage to the three year option is if investors are unhappy with compensation, one way they may express their dissatisfaction is by withholding votes from director nominees.]
OTHER CHANGES TO PROXY STATEMENT
For the purposes of Proposal [Y], which provides for an advisory vote on compensation of our named executive officers every one, two, or three years, the Company will treat the option selected by the affirmative vote of a majority of shares present and entitled to vote as the option approved by the shareholders. [The foregoing would be inserted where other approvals are discussed. It may need to be tailored to standards imposed by the issuer’s state of incorporation, articles and by-laws. The issue is since there are more than two matters to choose from, none may receive a majority of the votes cast. Item 21 of Schedule 14A requires disclosure of the vote required for approval so the question cannot be avoided. In footnotes 62 and 65 of the proposing release, the SEC stated that since the vote is advisory in nature it did not see the need to prescribe a standard to determine when the shareholders have adopted the matter. Instead, the SEC offered relief by allowing an issuer to exclude certain other shareholder proposals related to executive compensation under Rule 14a-8 if the issuer has a policy to include an advisory vote consistent with the frequency approved by a plurality of the votes cast.]
CHANGES TO PROXY CARD
The Directors recommends a vote FOR Proposal X.
Proposal [X]—Advisory vote on compensation of named executive officers  For  Against  Abstain
The Directors recommend that an advisory vote on the compensation of named executive officers be held every [insert recommendation.]
Proposal [Y]–Frequency of advisory vote on the compensation of named executive officers:
One year  Two years  Three years  [Abstain  ]
SIGNED PROXIES RETURNED WITHOUT SPECIFIC VOTING DIRECTIONS WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS [, EXCEPT NO VOTE WILL BE CAST ON PROPOSAL [Y]]. [The SEC has indicated that proxy service providers may not, in the short term, be able to tabulate a vote with four choices as set forth in Proposal [Y]. If that is the case, then the SEC has indicated language similar to the foregoing bracketed language should be inserted and the “Abstain” choice should be removed. In such event, similar language included in the proxy statement should be revised accordingly as well.]