The Latest Word on 2011 Say on Pay Vote Recommendations

by Charles M. Nathan, Latham & Watkins LLP for The Harvard Law School Forum, January 13th, 2011.

Dodd-Frank and Proposed Say on Pay Vote Rules

On October 18, 2010, the Securities and Exchange Commission (SEC) published proposed rules (Proposed Rules) implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act). Section 951 generally requires US public companies to provide their shareholders the right to cast three types of pay votes: (i) a vote to approve the compensation of the named executive officers (say on pay vote); (ii) a vote on the frequency with which shareholders should be entitled to cast votes on the company’s executive compensation (frequency vote) and (iii) a vote to approve certain payments made in connection with an acquisition, merger or other specified corporate transaction (golden parachute vote). As of this date, the SEC has not adopted any final rules on the say on pay votes, but they are expected any day.

This Commentary provides a brief overview of the Proposed Rules and their effective dates, the current institutional and public company say on pay trends and what companies should be doing now to prepare for their 2011 say on pay votes. For a more detailed overview of the Proposed Rules, please see our Client Alert: SEC Announces Preliminary Say on Pay Rules, dated November 4, 2010.

Bottom Lines

The bottom lines are that US public companies are generally required to hold say on pay and frequency votes at their first meetings of shareholders occurring on or after January 21, 2011. Public companies are not required to hold golden parachute votes until the SEC promulgates the final rules. The SEC expects to issue the final rules between January and March of 2011. Until that time, public companies holding shareholder meetings on or after January 21, 2011 are only required to hold say on pay and frequency votes. Public companies may, however, ultimately avoid a golden parachute vote if they properly disclose their golden parachute arrangements and subject them to a general say on pay vote, provided that the arrangement is not modified after its prior approval. (continue reading… )



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