A handful of companies have received SEC comments on their say-on-pay proposals in their proxy statements.  The comments we found are outlined below.  In general, they can be summarized as follows:

  • Issuers can be sloppy by not following the technical wording of the rule (or worse yet, in ignoring it altogether), and the SEC is capable of making silly comments.
  • Issuers depart from having the advisory vote cover anything other than “compensation of its named executive officers, as disclosed pursuant to Item 402 of Regulation S-K” at their own risk..
  • Most of the comments were on preliminary proxy statements so the SEC policy on correcting in future proxies is unclear.
  • The SEC will look closely at the language in the proxy card as well.

Issuer A

Comment:

Please include separate resolutions providing shareholders with an advisory vote to approve the compensation of your named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, and whether the shareholder vote should be held every 1, 2, or 3 years.  Alternatively, tell us why you are not required to comply with Exchange Act Rule 14a-21 at this time.  Refer to Item 24 of Schedule 14A, Exchange Act Rule 14a-21(a)-(b).  For additional guidance, see Securities Act Release 33-9178.

Response”

The Company inadvertently omitted the proposals from its preliminary proxy statement and the proposals are now included as Proposal Number Five and Proposal Number Six.

Issuer B

Comment:

Rule 14a-21(a) of the Exchange Act of 1934 requires that you provide shareholders with an advisory vote to approve the compensation of your named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including related narrative disclosure. It does not appear that the resolution on page 48 meets the requirements of Rule 14a-21(a), given that it seeks approval only for your “overall executive compensation policies and procedures” (emphasis added).  Please tell us how you intend to address this apparent noncompliance or tell us why you believe that your present disclosure is in compliance with Rule 14a-21(a).

Response:

The Company recognizes that the wording of the Resolution which is presented to the stockholders in the Proxy Statement filed April 21, 2011 did not satisfy the requirements in Rule 14a-21(a) of the Exchange Act of 1934.  In light of this, the Company has filed and mailed to its stockholders an Amendment to its Proxy Statement amending Proposal 3 to specifically ask the stockholders to vote, on an advisory basis, on the Company’s executive compensation, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission.

Issuer C

Comment:

Please revise your proxy statement to include the proposals required by Item 24 of Schedule 14A or provide us with an analysis as to why you are not required to include these proposals.

Response:

The Company advises the Staff that it is a “smaller reporting company” as such term is defined in Rule 12b-2 (“Rule 12b-2”) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), because the Company had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter (i.e., June 30, 2010). On such date, the Company’s public float, computed in accordance with the definition of “smaller reporting company” set forth in Rule 12b-2, was $28,046,748. Pursuant to Securities Act Release No. 9178/Exchange Act Release No. 63768 (Jan. 25, 2011), companies that qualify as “smaller reporting companies” as of January 21, 2011, are not subject to Exchange Act Section 14A(a) and Rule 14a-21(a) and (b) until the first annual or other meeting of shareholders at which directors will be elected and for which the rules of the Commission require executive compensation disclosure pursuant to Item 402 of Regulation S-K occurring on or after January 21, 2013. Accordingly, the Company is not required to include such proposals in its proxy statement for its 2011 annual meeting.

Issuer D

Comment:

Please include a separate resolution subject to shareholder advisory vote to approve the compensation of your named executive officers, as disclosed pursuant to Item 402 of Regulation S-K. See Rule 14a-21(a) of the Exchange Act and Instruction to Rule 14a-21(a) of the Exchange Act.

Reponse:

During our telephonic conversation on April 25, 2011, we indicated that we will file an amended preliminary proxy statement to include a separate resolution to approve the compensation of our named executive officers.  The resolution we will include is as follows:

RESOLVED, that the shareholders of this corporation approve, on an advisory basis, the compensation of the named executive officers for the fiscal year ended February 26, 2011, as described in the “Compensation Discussion and Analysis” section of and the compensation tables and related material disclosed in the corporation’s proxy statement for its 2011 Regular Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission.

Issuer E

[T]his letter is in response to your telephone call on Friday, April 22, 2011 relating to our proxy statement for the 2011 Annual Meeting of Stockholders. In such call you stated that the resolution of the stockholders contained in the Advisory Vote on Executive Compensation (Proposal 10) on page 54 of the proxy statement did not adequately comply with the requirements of Rule 14a-21(a) adopted last February by Securities and Exchange Commission Release No. 33-9178 (the “Release”), Shareholder Approval of Executive Compensation and Golden Parachute Compensation, because it did not directly approve the actual compensation of our named executive officers as disclosed in the proxy statement.

In drafting the resolution, the Company intended to clearly and broadly seek stockholder approval, on an advisory basis, of the actual compensation of our named executive officers as disclosed in the proxy statement. The first sentence of the third paragraph of the proposal makes the scope of the vote explicit:

We are asking for stockholder approval of the compensation of our named executive officers as disclosed in this proxy statement in accordance with SEC rules, which disclosures include the disclosures under “Executive Compensation—Compensation Discussion and Analysis,” the compensation tables and the narrative discussion following the compensation tables.

The fifth paragraph of the proposal similarly refers to the vote as addressing “named executive officer compensation as disclosed in this proxy.”

The language of the formal resolution included in the proposal is not limited to an approval of executive officer compensation policies and procedures as prohibited by the Release. By including the language “practices of the Company as disclosed in this proxy statement” in the resolution we intended to cover the actual compensation of our named executive officers, rather than the Company’s general approach to compensation.

Finally, our proxy card say-on-pay item seeks approval for the “Advisory Vote on Executive Compensation.” The resolution language is not repeated on the proxy card. This further illustrates our intent to obtain stockholder approval of the compensation of our named executive officers and not solely to approve our policies and philosophy.

Notwithstanding the above, we acknowledge your comment. We note that Rule 14a-21(a) does not require any specific form of resolution, and indeed, per Compliance & Disclosure Interpretation Q&A 169.04, a formal resolution is not even required under Rule 14a-21(a). We believe the current disclosure in the proxy statement is not materially inconsistent with the intention of the Release and Rule 14a-21(a), that shareholders are likely to understand the scope of the proposed vote to include a vote on the compensation of the named executive officers as disclosed in the proxy statement, and therefore, we cordially request that no changes be required for this year’s proxy statement. We do, however, undertake that any formal resolution included as part of our Rule 14a-21(a) advisory vote in our future proxy statements shall clearly state that the Company is seeking approval of our stockholders, on an advisory basis of “compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion” when obtaining future advisory votes as required by the Release.

Issuer F

Comment

We note that Proposal 3 on the proxy card is described as a vote to “[p]rovide an advisory vote on executive compensation.” Using the word “provide” to describe the proposal implies that shareholders are voting on whether they should be provided an advisory vote on executive compensation in the future. But the discussion of the proposal starting on page 5 indicates that you are providing a shareholder advisory vote on the compensation of your named executive officers. Revise your proxy card to more clearly describe the effect of Proposal 3 as required by Rule 14a-4(a)(3). Refer to the example in the instruction to Rule 14a-21(a).

Response

The Company has revised the preliminary proxy card to delete the reference to “provide”.

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