As I promised last Friday, here is part two of the focus on the Shareholder Say on Golden Parachute Pay Rules, from the Final Rules adopted and published by the SEC last week. Last Friday, I listed six important points. Today, I list another eight:
- The Rules do not permit companies to exclude de minimis perquisites and other personal benefits from this disclosure.
- For the tabular disclosure required by Item 402(t) in connection with a proxy statement soliciting shareholder approval of a merger or similar transaction (or a filing made with respect to a similar transaction), the Rules generally require the company to use the "consideration per share" as the stock price for calculating dollar amounts in the table. For disclosure in a regular annual meeting proxy, the company would use the price as of the last day of the preceding fiscal year.
- The Rules clarify that a company need not provide narrative or tabular disclosure for persons who are NEOs, not only because they have been among the most highly compensated executive officers, but also for the fact that they were not serving as an executive officer at the end of the last completed fiscal year. However, the Rules also provide that where Item 402(t) disclosure is provided in a proxy statement soliciting shareholder approval of a merger or similar transaction, this instruction will be applied with respect to the NEOs for whom disclosure was required in the company's most recent filing requiring Summary Compensation Table disclosure.
- Although new Item 402(t) requires disclosure of golden parachute arrangements between the acquiring company and the NEOs of either company, if such parachute arrangements are based on or related to the subject transaction, any golden parachute arrangements between the acquiring company and the NEOs of the target company need not be subjected to the Say on Golden Parachute Payments vote. In this case, two tables would be required.
- The Rules expand the types of transactions for which Item 402(t) disclosure is required (but not a shareholder vote) to all proxy statements that are required to include disclosure of information required under Item 14 of Schedule 14A pursuant to Note A of Schedule 14A, specifically citing going-private transactions and acquiring companies that solicit proxies to approve the issuance of shares or a reverse stock split in order to conduct a merger transaction.
- The Rules clarify, however, that bidders in third-party tender offers (other than Rule 13e-3 going-private transactions) are not required to provide the "golden parachute" payment disclosure otherwise required, as they could have difficulty obtaining the information necessary to provide such disclosure and, in any event, the target company would be required to provide the Item 402(t) golden parachute compensation disclosure in Schedule 14D-9 filed by the tenth business day from the date the tender offer is first published, sent or given to security holders.
- For foreign private issuers, the Rules include exceptions to the disclosure requirement (a) where the target or subject company in a third-party tender offer or going-private transactions is a foreign private issuer, and (b) where the target or acquirer is a foreign private issuer, with respect to agreements with the senior management of foreign private issuers.
- The Rules clarify that a company seeking to satisfy the exception from the separate merger proxy shareholder vote by including Item 402(t) disclosure in an annual meeting proxy statement soliciting the SSOP vote will be able to satisfy Item 402(j) disclosure requirements with respect to a change-in-control of the company by providing the disclosure required by Item 402(t). However, the company still must include the regular disclosure about payments that may be made to NEOs on termination of employment in a proxy statement.
Additionally, regarding the disclosure exception, the Rules emphasize that the exception will be available only to the extent that the same golden parachute arrangements previously subject to an annual meeting shareholder vote remain in effect, and the terms of those arrangements have not been modified subsequent to the shareholder vote. If the disclosure pursuant to Item 402(t) has been updated to change only the value of the items in the Golden Parachute Compensation Table to reflect price movements in the company's securities, no new shareholder advisory vote would be required. The addition or substitution of an NEO also would defeat the company's ability to rely on the exception. New golden parachute arrangements and any revisions to golden parachute arrangements that were subject to a prior shareholder vote will be subject to the separate merger proxy shareholder vote requirement. The SEC indicates that it would view any change that would result in an Section 280G tax gross-up becoming payable as a change in terms triggering such a separate vote, even if such tax gross-up becomes payable only because of an increase in the company's share price. Changes that result only in a reduction in value of the total compensation payable would not require a new shareholder vote.