On July 1, the Securities and Exchange Commission proposed to amend the federal proxy rules to require companies which have received financial assistance under the Troubled Asset Relief Program (TARP) to include in their proxy materials an advisory vote on executive compensation.

Under the proposed Rule 14a-20, the requirement to include a non-binding, shareholder advisory vote on executive compensation (also referred to as a “say-on-pay” vote) would apply to all solicitations at which proxies are solicited for the election of directors in connection with a company’s annual meeting, or a special meeting in lieu of an annual meeting, during the period in which a company has outstanding obligations as a result of receiving TARP funds. The shareholder vote must cover the compensation of executives as disclosed pursuant to Item 402 of Regulation S-K, including the compensation discussion and analysis, the compensation tables and related material. Disclosure of such a vote, as well as a brief description of the effect of the vote, would be required under Item 20 of Schedule 14A. These proposed amendments represent the SEC’s attempt to clarify and codify into the proxy rules the provisions of Section 111(e) of the Emergency Economic Stabilization Act of 2008, as amended, which requires TARP recipients to permit a separate shareholder advisory vote on executive compensation.

The proposed “say-on-pay” rules would not modify current disclosure requirements with respect to executive compensation. As a result, pursuant to scaled disclosure, smaller-reporting TARP recipients would not be required to provide a compensation discussion and analysis section in their proxy statements.

Public comments on the proposed rule amendments must be received by the Commission within 60 days after their publication in the Federal Register.

Click here to read the SEC’s release regarding the proposed rules.

Click here to read remarks from John Harrington of the Division of Corporate Finance.