Yesterday, the SEC released two proposed rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The first proposal addresses the Dodd-Frank Act requirement that public companies conduct separate shareholder advisory votes to approve both executive compensation disclosures and to determine the future frequency of such votes. This proposal also addresses the Dodd-Frank Act requirement that companies soliciting votes to approve merger or acquisition transactions provide additional disclosure regarding certain “golden parachute” compensation arrangements, and, in certain circumstances, to conduct a separate shareholder advisory vote to approve the golden parachute compensation arrangements. The second proposal would implement the Dodd-Frank Act requirement that institutional investment managers report annually how they voted on these executive compensation matters.

These new requirements are proposed to be effective for shareholder meetings occurring on or after January 21, 2011. The comment period for both proposals will close on November 18, 2010.

Shareholder Advisory Votes

New proposed Rule 14a-21 would require issuers, beginning with the first annual or other such meeting of shareholders occurring on or after January 21, 2011, and thereafter not less than once every three years, to provide a separate shareholder advisory vote in proxy statements to approve the compensation of named executive officers (as defined in Item 402(a)(3) of Regulation S-K) and to disclose in their proxy statements that they are providing a separate shareholder vote on executive compensation and to briefly explain the general effect of the vote, such as whether the vote is non-binding. The SEC's proposal would also require companies to disclose in the Compensation Discussion and Analysis section of their proxy statements whether, and if so, how they have considered the results of previous say-on-pay votes in determining compensation policies and decisions and, if so, how decisions and policies have been affected.

Consistent with Dodd-Frank Act requirements, the SEC's proposal would require companies that are subject to the federal proxy rules to allow shareholders to vote on the frequency of say-on-pay votes: every year, every other year, or once every three years. The form of proxy would be required to provide options for shareholders to "specify by boxes a choice among 1, 2 or 3 years, or abstain." Shareholders would be allowed to cast this non-binding "frequency" vote at least once every six years, beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011 (or, in the case of TARP recipients subject to the ARRA "say on pay" vote, the first annual meeting after they repay their TARP funding). The proposal would also require companies to disclose the frequency vote in the annual meeting proxy statement, including whether the vote is non-binding.

With respect to "golden parachute" disclosure requirements, the SEC proposes that companies provide additional information about compensation arrangements with named executive officers in connection with merger transactions, going-private transactions and third-party tender offers, including all agreements and understandings that the acquiring and target companies have with named executive officers. The proposal would also require companies to provide a shareholder advisory vote to approve certain "golden parachute" compensation arrangements in merger proxy statements (the principal exemption being for golden parachute arrangements that have previously been the subject of an advisory "say on pay" vote).

Investment Manager Voting Disclosure

The new investment manager executive compensation voting disclosure requirements would generally apply to every institutional investment manager who manages an aggregate of at least $100 million in certain equity securities. Specifically, any person who is:

  • an institutional investment manager (defined in Securities Exchange Act Section 13(f)(6)(A)); and
  • required to file reports under Section 13(f) of the Exchange Act

would be required to report on Form N-PX “(1) for each shareholder vote pursuant to Sections 14A(a) and (b) of the Exchange Act (2) with respect to which the manager … had or shared the power to vote, or to direct the voting of, (3) any security” the following information:

  • Securities voted,
  • General information about executive compensation matters voted on,
  • Number of shares over which manager held voting power, and the number of shares voted, and
  • How shares were voted

Investment managers would be required to report annually no later than August 31 of each year for the 12 months ended June 30.