On October 18, 2010, the SEC proposed rules to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) relating to: (1) shareholder advisory votes on executive compensation (“say-on-pay”); (2) shareholder advisory votes on the frequency of say-on-pay votes (“say-on-frequency”); and (3) shareholder advisory votes on compensation arrangements in connection with significant corporate transactions (“say-on-golden-parachutes”).


The proposed rules would require public companies to hold a say-on-pay vote at least once every three years. The proposed say-on-pay rules do not dictate a specific form of resolution or specific language to be used in structuring the shareholder vote. However, the vote must approve the compensation of the named executive officers (NEOs) as such compensation is disclosed under Item 402, including the CD&A, the compensation tables and other narrative disclosures. The say-on-pay vote would not cover disclosure required under Item 402(s) of Regulation S-K of risks arising from a company’s employee compensation programs (although it would cover risk disclosure included in the CD&A regarding a company’s named executive officer compensation programs). In addition, the CD&A must include disclosure as to whether, and if so, how the company’s compensation policies and decisions have taken into account the results of previous say-on-pay votes. Companies must also briefly explain in the proxy statement the effects of the vote, such as whether it is non-binding. However, companies would not be required to state what action they would expect to take in response to a say-on-pay vote.


The proposed rules would require public companies to hold at least once every six years a separate shareholder advisory vote on whether the say-on-pay vote should be held every one, two or three years. The proposed rules would require companies to provide shareholders with four choices: whether the say-on-pay vote should be held every year, every two years, every three years, or to abstain from voting. The proposing release states that if proxy service providers cannot reprogram their systems to allow for the four choices in time for the first required say-on-frequency votes, and until final rules are issued, companies may include only three choices on their proxy for the say-on-frequency proposal: “one year,” “two years,” or “three years.” While companies would be free to include their recommended alternative, the proxy card would need to make clear that the vote is not to approve or disapprove a company’s recommendation. Companies would be required to disclose in their Form 10-Q their decision regarding how frequently they will conduct the say-on-pay vote.

Issues Relating to Both Say-on-Pay and Say-on-Frequency Votes

The following are issues that must be considered relating to both say-on-pay and say-on-frequency votes:

  • Companies are required to hold say-on-pay and say-on-frequency votes at any annual or other shareholder meeting occurring on or after January 21, 2011, whether or not the final rules are adopted.
  • A preliminary proxy statement would not be required to be filed in connection with the say-on-pay/say-on-frequency votes if the only ballot items that otherwise would require a preliminary filing are the say-on-pay and say-on-frequency votes.
  • Brokers are not permitted to vote uninstructed shares on the say-on-pay/say-on-frequency votes.
  • Proposed amendment to Rule 14a-8 would allow companies to exclude a shareholder proposal providing for a say-on-pay/say-on-frequency vote if the company has adopted a policy on say-on-pay/say-on-frequency votes that is consistent with the plurality of votes cast in the most recent relevant vote.
  • The SEC confirmed that say-on-pay/say-on-frequency votes are non-binding on a company and its board of directors.


The proposed rules would require, in connection with shareholder approval of an acquisition, merger, consolidation or proposed sale or disposition of all or substantially all of a company’s assets, disclosure of all golden parachute agreements that the soliciting company has with its NEOs or the NEOs of the acquiring company (if the soliciting company is the target company) with respect to compensation that is based on or otherwise relates to such transaction. In addition, these companies would be required to hold a separate shareholder advisory vote on these compensation arrangements unless all of the transaction-related compensation agreements and understandings were the subject of a prior say-on-pay vote.

The proposed rules do not dictate a specific form of resolution or specific language to be used in structuring this advisory vote. The disclosure would be required in merger proxies, Schedule 13E-3 going private transactions, tender offers and consent solicitations. It would not be required in an annual meeting proxy that does not involve a merger or extraordinary transaction. However, if disclosure of the “golden parachute” compensation was included in the annual meeting proxy statement that was subject to a say-on-pay vote, such an arrangement would be exempt from the say-on-golden-parachute vote.

The new disclosure would be presented in both narrative and tabular form, with tabular disclosure made in a new “Golden Parachute Compensation” table that would include columns for the following categories of compensation:

  • cash
  • equity
  • pension and nonqualified deferred compensation
  • perquisites and other personal benefits
  • tax reimbursements
  • other items
  • a total of the above items

Companies must also disclose any material conditions or obligations to the receipt of payment, including non-compete, non-solicitation, non-disparagement or confidentiality agreements, their duration and provisions regarding waiver or breach. The disclosure would require a summary of the specific circumstances that would trigger payment, whether the payments would or could be lump sum, or annual, and their duration, and by whom the payments would be provided, and any material factors regarding each agreement.

Comments are due on the proposed rules by November 18, 2010.