Proposed Rules

By a 5-0 vote on July 1, 2009, the Securities and Exchange Commission approved two rule proposals, which would mandate the inclusion of additional disclosures in a company's proxy statement relating to its executive compensation and corporate governance practices. The tandem rule proposals will now be subject to a 60-day public comment period before being reconsidered and perhaps adopted by the Commission in time for the 2010 proxy season. While the final text of the rule proposals are not yet available, the proposals relate to the following:

"Say on Pay" for TARP Recipients

  • the required "say-on-pay" vote for companies that received assistance under the Troubled Asset Relief Program would add new Rule 14a-20 to the proxy rules covering any shareholder meeting at which directors would be elected for so long as the company holds any TARP funds;

Additional Proxy Disclosures for All Registrants

  • improved disclosure in the company's Compensation Discussion and Analysis of its policies as they relate to compensation below the level of the five most highly compensated officers. Companies would also be required to identify and discuss the impact of risk on executive compensation policies and the role of its board of directors in the risk management process;
  • the manner in which equity compensation is calculated by proposing that a company report the full grant date fair value of equity awards in its Summary Compensation Table and Director Compensation Table;
  • disclosure regarding the qualifications of director nominees to include a specific disclosure of each candidate's particular experience, attributes or skills that qualify him or her to serve as a board member, including background information about material legal proceedings in the past 10 years, rather than the current five years;
  • disclosure regarding board leadership structure, such as why a board has chosen combined or separated positions of chief executive officer and chairman of the board, and if so, why and whether the board has appointed a lead independent director;
  • disclosure regarding the fees paid to, and services provided by, any compensation consultant, and information regarding how a consultant was retained and whether the board or the compensation committee approved the retention;
  • accelerate the disclosure of voting results from shareholder meetings by adding a new item to Form 8-K that would require disclosure of any shareholder vote within four days after the shareholders' meeting; and
  • the operation of the proxy rules to provide new rights and requirements related to solicitations by proponents other than the issuer.  

Amended NYSE Rule 452

Finally, by a 3-2 vote, the Commission also approved the New York Stock Exchange's amendment of Rule 452, the "broker vote" rule, to eliminate broker discretionary voting in director elections. This proposed change has been pending approval for three years and has had fervent supporters and critics.

Pursuant to this amendment, beginning with shareholder meetings held on or after January 1, 2010, a broker will no longer be permitted to vote a customer's shares on the uncontested election of directors at a company's meeting of shareholders except in accordance with voting instructions received from the customer. This amendment expands current Rule 452 to prohibit brokers from voting uninstructed customer shares in all director elections whether contested or uncontested.