As you all know by now, on Tuesday morning the SEC adopted and published the Final Rules on Shareholder Say on Pay, Frequency of SSOP and Shareholder Say on Parachute Payments. After focusing on the SSOP and Frequency of SSOP votes in my previous Blogs, this one will focus on the Shareholder Say on Golden Parachute Pay Rules.
Most important, the Final Rules clarify that the advisory vote "Golden Parachute" payments will not be effective until proxy statements are initially filed on or after April 25, 2011 (unlike the SSOP and Frequency votes, which went into effect on January 21, 2011). Here are six other important points (and I'll post six more tomorrow):
- The Final Rules do not require companies to use any specific language or form of resolution to be voted on by shareholders.
- Regarding disclosure in a proxy statement soliciting shareholder approval of a merger or similar transaction, the Final Rules require disclosure of NEO's "golden parachute" arrangements in both tabular and narrative formats, and adopt the attached table.
- The Final Rules require separate footnote identification of amounts in the table attributable to "single-trigger" arrangements and amounts attributable to "double-trigger" arrangements, "so that shareholders can readily discern these amounts."
- Item 402(t) in the Final Rules requires companies to describe any material conditions or obligations applicable to the receipt of payment, including but not limited to non-compete, non-solicitation, non-disparagement or confidentiality agreements, their duration, and provisions regarding waiver or breach. The Final Rules also require companies to provide a description of the specific circumstances that would trigger payment, whether the payments would or could be lump sum, or annual, and their duration, and by whom the payments would be provided, and any material factors regarding each agreement, similar to the narrative disclosure required with respect to termination and change-in-control agreements in proxy statements.
- The Final Rules do not permit companies to exclude de minimis perquisites and other personal benefits from this disclosure.
- The Final Rules require disclosure only of compensation that is based on or otherwise relates to the transaction. The Final Rules do not require disclosure or quantification of vested pension or nonqualified deferred compensation payouts, or previously vested equity awards. The Final Rules also do not require disclosure of any post-transaction employment arrangements.