On July 16, 2009, the U.S. Department of the Treasury released draft legislation that includes proposed amendments relating to "say-on-pay" in the form of a required non-binding shareholder vote on compensation as well as proposals relating to the authority and composition of an issuer’s compensation committee.

With respect to “say-on-pay”, the draft legislation would require any proxy, consent or authorization for an annual meeting of shareholders (or special meeting in lieu thereof) to provide for a separate non-binding shareholder vote to approve the compensation of executives. In addition to including such a non-binding shareholder vote relating to annual compensation disclosure, the draft legislation would also require that a similar vote be provided to shareholders in any proxy or consent solicitation material for a meeting or special meeting of shareholders that concerns an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all of the assets of an issuer. In such circumstances, the person making the solicitation would be required to disclose any agreements or understanding that such person has with executive officers concerning any type of compensation that is based on, or otherwise relates to, the proposed transaction as well as the aggregate total of all such compensation that may be paid or become payable to, or on behalf of, such executive officer. The disclosure is to be set out in further regulations to be promulgated by the Securities and Exchange Commission and the SEC has been given one year to issue such further regulations or other rules that may be required.

Such a non-binding vote would be required in any shareholders meeting occurring on of after December 15, 2009. While the draft legislation further provides that the vote is mandatory, it would not be binding on the corporation or the board, nor would it be construed as overruling a decision by the board, creating or implying any additional fiduciary duty, or as restricting the ability of shareholders to make shareholder proposals.

The proposed legislation also includes governance-related proposals that would require each member of the compensation committee to be independent. The compensation committee would have the authority, in its sole discretion, to retain and obtain independent compensation consultants and would be directly responsible for their appointment and compensation as well as the oversight of the consultants’ work. The proposal would also require that any compensation consultants, legal counsel or other adviser to the compensation committee meet independence standards to be promulgated by the SEC and that the issuer include prescribed proxy disclosure relating to retention of, and reliance upon, compensation consultants. The SEC is also given a two-year deadline to study and report back to Congress on the effects of reliance upon independent consultants.

The Treasury Department's release on the proposals is available here.