SEC Proposes Say-on-Pay and Golden Parachute Rules for Proxy Statements: Highlights Include: No Need for Preliminary Proxy for Say-on-Pay Votes; CD&A Must Address Previous Say-on-Pay Votes; New Detailed Disclosure of Golden Parachute Arrangements; and Annual Disclosure of Institutional Investment Managers’ Votes on These Matters

Sullivan & Cromwell LLP - October 22, 2010

On Monday, October 18, 2010, the U.S. Securities and Exchange Commission proposed rules to implement the new Dodd-Frank requirements for non-binding “say-on-pay” votes, say-on-pay frequency votes and votes on “golden parachutes”, as well as annual reporting by institutional investment managers of how they voted on these matters. The rules would apply to all issuers subject to the U.S. proxy rules. Significant questions answered by the proposal and other key provisions include the following:

  • The say-on-pay and frequency votes will be required in proxy materials for annual meetings held on or after January 21, 2010 (whether or not the proposed rules are final by that date). The golden parachute vote and related disclosure will not be required until the SEC rules are adopted and take effect.
  • The golden parachute rules would require new tabular and narrative disclosure of payments and benefits to the named executive officers of both the selling company and the buying company, by either company. Golden parachute disclosure (though not the advisory vote) would be required in the case of third-party tender offers and going-private transactions, not just in proxy statements to approve business combinations.
  • No preliminary proxy statement will be required solely due to the inclusion of the say-on-pay vote or the say-on-pay frequency vote.
  • For the non-binding say-on-pay frequency vote, shareholders must have four choices: every year, every two years, every three years, or abstain.
  • Issuers must disclose their decision regarding the frequency of say-on-pay votes in the Form 10-Q for the quarter in which the frequency vote occurred (or in the Form 10-K for frequency votes in the fourth quarter).
  • The Compensation Discussion & Analysis must address whether and how the issuer’s compensation policies and decisions have been affected by the results of previous say-on-pay votes.
  • Rule 14a-8 shareholder proposals on say-on-pay votes or relating to the frequency of say-on-pay votes can be excluded only if issuer has adopted a policy that is consistent with the outcome of the last frequency vote.

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