The SEC recently proposed rules implementing certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The period for public comment on these proposed rules ends on November 18, 2010. The Dodd-Frank Act amended the Securities Exchange Act of 1934 by adding Section 14A, which requires (i) companies to conduct a separate shareholder advisory vote to approve the compensation of certain executives, (ii) companies to conduct a separate shareholder advisory vote to determine how often an issuer will conduct a shareholder advisory vote on executive compensation and (iii) companies soliciting votes to approve merger or acquisition transactions to provide disclosure of certain “golden parachute” compensation arrangements and, in certain circumstances, to conduct a separate shareholder advisory vote to approve the golden parachute compensation arrangements.  

Say-on-Pay Vote

Under the proposed rules, companies would be required, not less than once every three years, to set forth in their proxy statements for an annual or other meeting a shareholder vote approving the compensation of a company’s named executive officers, as such compensation is disclosed in the proxy statement. Companies would also be required to disclose the general effect of the vote, such as whether the vote is advisory in nature. In addition, the proposed rules amend the compensation discussion and analysis requirements to include a discussion on how compensation policies and decisions have taken into account the results of such advisory votes. The first such shareholder vote is required to be included in the first annual or other meeting of shareholders occurring on or after January 21, 2011.  

Vote on Frequency of Say-on-Pay Vote

The proposed rules also would require companies to include a separate shareholder advisory vote regarding the frequency of the above say-on-pay vote and such vote must be had no less than once every six years. The proposed rules would require that such vote put forth whether the say-on-pay vote “will occur every 1, 2, or 3 years.” Similar to the say-on-pay vote, companies must disclose the effect of the vote, such as whether it is advisory in nature, and must include this vote on the frequency of the sayon- pay vote in the first annual or other meeting of shareholders occurring on or after January 21, 2011.  

Golden Parachute Vote

Lastly, the proposed rules would require companies to provide a shareholder advisory vote to approve certain “golden parachute” compensation arrangements in merger proxy statements. To this end, the proposed rules would require companies seeking shareholder approval of an acquisition, merger, consolidation or proposed sale or disposition of all or substantially all assets to provide specific disclosure regarding any agreements and understandings the soliciting person has with its named executive officers (or those of the acquiring or target company, as the case may be) concerning compensation that is based on or otherwise relates to the transaction. The proposed rules amend the proxy statement disclosure rules to set forth specific disclosure requirements relating to golden parachute arrangements.

The golden parachute disclosure requirement also would be applicable to information statements on Schedule 14C, registration statements on Form S-4, going-private transactions on Schedule 13E-3 and third-party tender officers on Schedule TO.  

Institutional Investment Manager Reporting of Votes

In a separate release, the SEC has proposed rules requiring institutional investment managers to annually disclose and file with the SEC their votes on say-on-pay, frequency of say-on-pay vote and golden parachute arrangements.