SEC Adopts Rules on Say-on-Pay and Golden Parachute Compensation

The Final Rule adopted by the SEC on January 25 implements Dodd-Frank Act Section 951 requirements relating to shareholder votes on executive compensation ("say-on-pay") and "golden parachute" compensation granted to officers in connection with mergers, acquisitions, consolidations or other change in control transactions.  The rules increase the required disclosures while creating exceptions for smaller companies. All relevant shareholder votes would be advisory.

The say-on-pay votes are required at least once every three years beginning with the first annual shareholders’ meeting that takes place on or after January 21, 2011.  Companies must disclose whether the vote is non-binding and whether they considered the results of the most recent say-on-pay vote.  Also, at least once every six years shareholders are to be allowed to vote on how often the “say on pay” vote will be taken: every year, every other year, or once every three years.  In order to implement the requirement for such a "frequency" vote, the rules revises the proxy rules to permit these three choices on the proxy card. 

Several recent Form DEF14A proxy filings reflect these new provisions for non-binding advisory votes, including on January 27:

• Alberto-Culver Co.
• Applied Materials, Inc.
• Biodel Inc.
• Innovative Solutions and Support, Inc.
• OMNOVA Solutions Inc.

Form 8-K has been revised to allow shareholders to learn how often a company will provide the say-on-pay vote.  The Form 8-K must be filed no later than 150 calendar days after the date of the annual meeting in which the vote took place, and no later than 60 calendar days before the deadline for submitting a shareholder proposal under Rule 14a-8 for the subsequent annual meeting.