January 28, 2011

On January 25, 2011, the Securities and Exchange Commission finalized its “Say on Pay” guidance, as required by the Dodd-Frank banking bill that was passed by Congress last summer.  The text of the rules can be found at http://www.sec.gov/rules/final/2011/33-9178.pdf. The SEC’s guidance, consistent with Dodd Frank, requires that public reporting companies permit shareholders to give a non-binding advisory vote on executive compensation as a whole–this say on pay vote is often referred to by its acronym, SOP.  The first SOP vote must be held in this 2011 proxy season (the requirements are delayed for two years for very small companies with less than $75 million in publicly traded stock value, unless the Company has already filed its proxy with the SEC).

Also for this 2011 proxy season, shareholders must be allowed to give a non-binding advisory vote on how often the SOP vote must be offered.  The SEC indicates in its guidance that this vote (often referred to as SWOP for “say when on pay”) must offer shareholders one of four choices: one year, two years, three years or no vote.

The SEC guidance also addresses a third non-binding advisory vote required with respect to golden parachute rules at the time of certain mergers and acquisitions.  This requirement is more expansive than what is currently required in the annual proxy with respect to golden parachute payments.  However, if the golden parachute description in the proxy meets the new rules and is subject to the regular SOP vote, the company can be excused from conducting a new vote at the time of the merger.  While certain companies are gearing up the golden parachute rules to qualify for the disclosure exception at the time of a merger, etc., many are opting to deal with this issue at a later date when the rules and their implications are better understood.