On January 25, 2011, the Securities and Exchange Commission ("SEC") adopted rules implementing section 14A of the Securities Exchange Act of 1934, which was enacted by section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules relate to so-called "say-on-pay," "say-on-frequency," and "say-on-golden parachutes" votes.
The adopted rules generally follow the rules proposed October 18, 2010. For a copy of our report regarding the proposed rules, click the following link.
Of particular interest for issuers who are already well into their schedule of preparation for the 2011 annual meeting, the adopted rules include, as did the proposed rules, an amendment to Rule 14a-6 to provide that the required shareholder advisory votes on executive compensation and the frequency of advisory votes on executive compensation will not trigger a requirement to file preliminary proxy materials with the SEC 10 days before mailing. As the rules do not become effective until 60 days after publication in the Federal Register, a short time-period exists when issuers are technically required to file preliminary proxy materials. The SEC addresses this issue in its transition rules, providing that until the adopted rules become effective, it will not object if issuers do not file preliminary proxy materials.
Notably, the adopted rules differ from the proposed rules in amending Rule 14a-8. The proposed rules included a note to Rule 14a-8(i)(10) that stated that a company could exclude, as substantially implemented, a shareholder proposal that would provide an advisory vote or seek future advisory votes on executive compensation, or that would relate to the frequency of such votes-provided the company has adopted a policy on the frequency of such votes that is consistent with the frequency that received a plurality of the votes cast in the most recent nonbinding frequency vote.
As adopted, the note to Rule 14a-8(i)(10) would allow such an exclusion if the company has adopted a policy on frequency that is consistent with the frequency that received a majority of the votes cast in the most recent nonbinding frequency vote. This is a higher threshold, and will reduce the likelihood that companies will be able to rely on this basis for exclusion.
Another change in the adopted rules relates to the requirement of reporting the company's decision as to how frequently say-on-pay votes will be held, based on the results of the shareholder advisory vote. The proposed rules required that such decision be disclosed in the Form 10-Q for the period during which the meeting was held. Under the adopted rules, such decision must be disclosed in a Form 8-K filed not more than 150 calendar days after the meeting, but not later than 60 days prior to the 14a-8 deadline for shareholder proposals for the next annual meeting.
As part of the rules, the SEC adopted a temporary exemption so that smaller reporting companies are not required to conduct say-on-pay or say-on-frequency votes until annual meetings occurring on or after January 21, 2013. There is no similar exemption for say-on-golden-parachute votes.