Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 14A to the Securities Exchange Act of 1934 (the “Exchange Act”) which requires reporting companies to make certain new disclosures and enable shareholders to cast advisory votes on executive compensation (“say-on-pay”) and compensation arrangements and understandings in connection with business combination transactions (“golden parachutes”). On October 18, 2010, the Securities and Exchange Commission proposed new Rule 14a-21 and several amendments to existing rules and forms to implement the requirements of Section 14A. See SEC Release No. 33-9153 (October 18, 2010) The comment period for the proposals closes November 18, 2010.


Shareholder Approval of Executive Compensation. Proposed Rule 14a-21(a) would require a shareholder advisory vote to approve executive compensation at least once every three years. The proposed rule does not require any specific language to be used in the resolution, but the say-on-pay vote must be based on all of the executive compensation disclosures required by Item 402 of Regulation S-K contained in the proxy statement, including the CD&A and narrative and tabular disclosures. Proposed Item 24 to Schedule 14A would require disclosure that the say-on-pay vote is being conducted and the effect of such vote, including whether the vote will be binding. A proposed amendment to Item 402(b) of Regulation S-K would require disclosure in the CD&A regarding if and how the issuer’s compensation policies and decisions reflect the results of the say-on-pay vote.

Shareholder Approval of the Frequency of Say-on-Pay Votes. Proposed Rule 14a-21(b) would require a shareholder advisory vote at least once every six years regarding the frequency of the say-on-pay vote (a “frequency vote”). Proposed Item 24 to Schedule 14A would require disclosure that the frequency vote is being conducted and the effect of such vote, including whether the frequency vote is binding. A proposed amendment to Rule 14a-4 would require companies to provide four choices with respect to how often the say-on-pay vote should be held – every year, every two years, every three years, or abstain from voting – rather than a choice to approve or disapprove a company recommendation regarding the frequency vote.

Golden Parachutes

Proposed Item 402(t) of Regulation S-K details new golden parachute disclosure requirements. The new disclosure requirements would include both narrative and tabular disclosure of all elements of golden parachute compensation as well as disclosure of the total of all golden parachute compensation. The disclosure would include compensation arrangements involving either the target or acquiring company and the named executive officers of either company. A proposed amendment to Schedule 14A would require this golden parachute disclosure in proxy or consent solicitation materials relating to any acquisition, merger, consolidation, or proposed sale of disposition of all or substantially all assets of the issuer.

Proposed Rule 14a-21(c) would require a shareholder advisory vote to approve certain golden parachute arrangements disclosed pursuant to Item 402(t) in business combination proxy statements. The requirement for this vote would not apply to a target issuer if it has included the golden parachute disclosure in its latest annual meeting or other proxy statement which included a say-on-pay advisory vote.

Related Amendments and Interpretations

The SEC also proposed the following:

  • amendments to Form 10-K and Form 10-Q requiring disclosure in the report covering the period during which the advisory vote is held regarding the company’s action as a result of the frequency vote and whether the company will follow the shareholder recommendation,
  • an amendment to Rule 14a-8 explaining if and how shareholder proposals concerning the say-on-pay vote and the frequency vote may be excluded,
  • an amendment to Rule 14a-6(a) clarifying that neither the say-on-pay vote nor the frequency vote will trigger a preliminary proxy statement filing requirement,
  • amendments to Schedule 14C, Schedule 14D-9, Schedule 13E-3, and Regulation M-A requiring similar golden parachute disclosures as proposed in the amendment to Schedule 14A;
  • issuers that received financial assistance under the Troubled Asset Relief Program (“TARP”) would be exempt from the proposed say-on-pay and frequency vote rules until all of their TARP debt has been repaid because they are currently required to conduct an annual say-on-pay vote under TARP; and
  • broker discretionary voting of uninstructed shares would not be permitted for the say-on-pay, frequency or golden parachute votes.

In a related release on October 18, 2010, the SEC proposed rule and form amendments under the Exchange Act and Investment Company Act of 1940 which would require institutional investment managers that file Schedule 13Fs to report annually how they voted shares under their control in say-on-pay, frequency and golden parachute votes. See SEC Release No. 34-63123 (October 18, 2010)


The say-on-pay vote and frequency vote will be required in any proxy statement for an annual or other meeting of shareholders which is held on or after January 21, 2011 and includes disclosure of executive compensation pursuant to Item 402 of Regulation S-K. The golden parachute disclosures and advisory vote will be required after the later of January 21, 2011 or the date on which the related proposed rule and amendments are effective. The SEC also indicated that, pending approval of the proposed amendment to Rule 14a-6(a), the SEC will not object if an issuer does not a file preliminary proxy statement when the only matters that would require filing a preliminary proxy statement are the say-on-pay and frequency votes.