Trends developing after first month of Say-on-Pay votes

by Sheppard Mullin for Corporate and Securities Blog, February 22nd, 2011.

It has now been one month since shareholders were able to render advisory votes on the executive compensation provided at their publicly-held companies in accordance with rules adopted by the Securities and Exchange Commission (“SEC”) in January 2011 (“Say-On-Pay”). These rules were promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”).  Our January 28, 2011 blog “Some Interesting New Developments as SEC Adopts Final Say-On-Pay Rules” provides an overview of the applicable rules and requirements. Of the seventy-six Say-On-Pay votes which have been reported on to-date, the shareholders at two companies have voted against approving the executive compensation.

One element of the Say-On-Pay rules is that shareholders also get to vote on how frequently the Say-on-Pay vote will be conducted at their company (“Say-On-Frequency”). In particular, shareholders can provide an advisory vote that states their wishes as to whether the Say-on-Pay vote should occur every one, two or three years. In soliciting the Say-On-Frequency vote, a company’s board of directors can provide its recommendation (or it can provide no recommendation) as to which frequency it believes shareholders should support.

As we recently reported in our February 1, 2011 blog “A Rising Tide for Annual Vote Say-On-Pay Votes), there was an initial trend developing which indicated that shareholders preferred annual Say-On-Frequency. While it continues to be early in the Say-On-Pay process since the SEC’s final rules have only been in effect for one month and there have been only just over seventy-five votes to-date, these initial voting results do indeed continue to demonstrate a shareholder preference for annual Say-On-Pay votes (as opposed to biennial or triennial voting). The annual frequency has received the most shareholder votes at 65% of the companies that have reported on their Say-On-Frequency votes.  This preference for annual voting is particularly evident with respect to those companies which are “Large Accelerated Filers”, as such term is defined under SEC rules (i.e., public companies with a market value of at least $700 million), with the shareholders at over 84% of such companies supporting annual voting. (continue reading… )

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