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SEC Adopts Final Say-on-Pay Rules and Extends Comment Period on Other Dodd-Frank Rulemaking

January 31, 2011

On January 25, 2011, by a 3-2 vote, the Securities and Exchange Commission (the “Commission”) adopted new rules giving effect to Section 951 of the Dodd-Frank Act of 2010 (“Dodd-Frank”). These new rules require a shareholder advisory vote on:

  • executive compensation, with such vote to occur not less than once every 3 years;
  • the frequency of the say-on-pay vote; and
  • agreements or understandings with named executive officers relating to compensation in connection with shareholder approval of an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the assets of an issuer.

This Commission release is available here.

On January 28, 2011, the Commission published releases extending the comment period for the following three Dodd-Frank rulemaking proposals: 

  • disclosure regarding conflict minerals;
  • disclosure regarding mine safety issues; and
  • disclosure required of by resource extractive companies.

These releases are available here, here, and here.

Shareholder Say-on-Pay Votes

The Commission established rules regarding the Dodd-Frank-mandated advisory vote on executive compensation. The Commission’s new rules require the following with regard to this “Say-on-Pay” vote:

  • the Say-on-Pay vote must be held at the first annual shareholders’ meeting taking place on or after January 21, 2011;
  • companies must include disclosure in their proxy statements regarding the Say-on-Pay vote, including the non-binding nature of the vote; and 
  • companies must include Compensation Discussion and Analysis disclosure regarding whether, and if so how, they have considered the results of the most recent Say-on-Pay vote.

Smaller Reporting Companies

Dodd-Frank provided the Commission with exemptive authority when adopting the Say-on-Pay vote rules. Pursuant to this authority, the Commission has delayed the date on which smaller reporting companies are required to comply with the new rules relating to shareholder Say-on-Pay votes until annual meetings occurring on or after January 21, 2013.

Shareholder Say-on-Frequency Votes

The Commission established rules regarding the Dodd-Frank-mandated advisory vote on the frequency of the Say-on-Pay vote. Dodd-Frank requires that this “Say-on-Frequency” vote must be held at least every six years and must give shareholders an opportunity to provide an advisory vote on whether the Say-on-Pay vote should be held every one, two, or three years. The Commission’s new rules require the following with regard to the Say-on-Frequency vote:

  • the Say-on-Frequency vote must be held at the first annual shareholders’ meeting taking place on or after January 21, 2011; and
  • companies must file a Form 8-K in which it provides disclosure regarding the results of the Say-on-Frequency vote.

The Commission’s new rules will permit issuers to exclude shareholder proposals relating to the frequency of Say-on-Pay votes pursuant to Rule 14a-8 if any frequency option (one, two or three years) receives a majority vote and the issuer has adopted a policy on the frequency of Say-on-Pay votes consistent with such majority vote. This Commission requirement represents a significant change from the proposing release, which permitted exclusion of shareholder Say-on-Pay frequency proposals whenever the issuer’s policy was consistent with the plurality of votes cast.

Shareholder Golden Parachute Votes

The Commission established rules regarding the Dodd-Frank-mandated advisory vote on agreements or understandings with named executive officers relating to compensation in connection with shareholder approval of an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the assets of an issuer. Under these new Golden Parachute rules, initial filings that are made on or after April 25, 2011 that seek shareholder approval of an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the assets of an issuer must include:

  • narrative and tabular disclosure regarding any named executive officer’s Golden Parachute; and
  • a shareholder advisory vote on any such Golden Parachute.

Commission Extension of Comment Periods on Three Dodd-Frank Rulemakings

In December 2010, the Commission proposed rules to implement Dodd-Frank requirements regarding:

  • disclosure regarding conflict minerals (proposing release here);
  • disclosure regarding mine safety issues (proposing release here); and
  • disclosure required of by resource extractive companies (proposing release here).

The due date for comments relating to each of these proposals was established as January 31, 2011. On January 28, 2011, the Commission published three releases that extended the due date for comments on each of these matters to March 2, 2011.

If You Have Any Questions about these Recent Commission Actions

The Commission’s new rules will affect the proxy materials of public companies with annual meetings held later this year. We will be following developments closely as companies implement the new rules. Further, the extension of the comment period for the three Dodd-Frank rulemakings provide companies with an opportunity to seek to affect the new rules regarding conflict minerals, mine safety, and resource extractive companies. If you have any questions regarding the new Commission rules, or if you have any questions regarding the best manner in which to comment on the proposed rules, please contact the authors of this Client Alert or your O’Melveny & Myers advisor.