As I Blogged yesterday morning, the SEC adopted the Final Rules on Shareholder Say on Pay, Frequency of SSOP and Shareholder Say on Parachute Payments on a 3-2 vote, and, as I promised, today I will begin filling in the details on the Final Rules, which the SEC published late yesterday afternoon. [Part 3 tomorrow]

The Final Rules made no earth shattering changes from the proposed rules, but the following issues bear special mention:

  1. The SEC states its belief that companies should retain flexibility to craft the resolution language. However, the shareholder advisory vote must be "to approve the compensation of executives, and the rules add an instruction to indicate that this language should be included in the company's resolution for the say-on-pay vote. The Rules also provide the following non-exclusive example of a resolution that would satisfy the applicable requirements.

"RESOLVED, that the 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, is hereby APPROVED."

Thanks, but I think we can do better. The Final Rules do not provide a form of resolution for the Frequency of SSOP vote required.

  1. The Final Rules require companies to disclose (i) the current frequency of say-on-pay votes and (ii) when the next say-on-pay vote will occur on under Item 5.07 of Form 8-K.
  2. The Final Rules also require companies to provide disclosure of the current frequency of say-on-pay votes and when the next scheduled say-on-pay vote will occur, in their proxy materials.
  3. The Final Rules require companies to address in CD&A whether, and if so, how the company has considered the results of the most recent SSOP vote in determining compensation policies and decisions, and if so, how that consideration has affected the company's executive compensation policies and decisions - although the SEC acknowledges that Dodd-Frank Section 951 does not require such disclosure.
  4. The Final Rules clarify that the SSOP vote and the Frequency of SSOP vote are required of newly public companies in the proxy statement for such company's first annual meeting after the initial public offering.
  5. The Final Rules note that companies may vote uninstructed proxy cards in accordance with management's recommendation for the frequency vote only if the issuer follows the existing requirements of Rule 14a-4 to (1) include a recommendation for the frequency of say-on-pay votes in the proxy statement, (2) permit abstention on the proxy card, and (3) include language regarding how uninstructed shares will be voted in bold on the proxy card.