The SEC issues Final Rules on ShareholderApproval of Executive Compensation
By Jim Pitrat, CPA - Practice Leader, Assurance & Advisory Practice
TUESDAY, FEBRUARY 1, 2011
Public Company Financial Executive Briefng
Section 951 o The Dodd-Frank Act added Section 14A to the 1934 Act. Section 14Arequires non-binding shareholder votes on the ollowing:
The approval o executive compensation - so-called say-on-pay votes
The requency with which the vote on executive compensation will occur
In respect o votes solicited or the purpose o approving a merger or acquisition, thedisclosure o certain compensation arrangements reerred to as golden parachutearrangements
Under certain circumstances, a shareholder advisory vote to approve such compen-sation arrangementsThe SEC adopted rules to implement these provisions in Release No. 33-9178,
Shareholder Approval o Executive Compensation and Golden Parachute Compensation.
The Rules Call for the Following Changes:
Approval Executive Compensation
Not less requently than once every three calendar years,issuers must provide or a separate shareholder advisoryvote in proxy statements to approve compensation o named executive ofcers.
The advisory vote is required only when proxies aresolicited or an annual or other shareholder meeting orwhich disclosure o executive compensation is required.
Compensation o directors is not subject to the share-holder advisory vote.The new Rule applies to the frst annual, or other suchmeeting o shareholders, taking place on or ater January21, 2011.The Rules require disclosure in the proxy statement o thegeneral eect o the vote, the requency o shareholder thevotes, and the timing o the vote.Calls or a discussion in Compensation, Discussion, & Analysiso whether and how the entity’s compensation policies haveconsidered the most recent shareholder advisory vote.
The Frequency of Votes on ExecutiveCompensation
The primary requirements regarding the new rules as itrelates to the requency o the votes are as ollows:Requires that a shareholder advisory vote be taken at leastonce every six years to establish determine whether theshareholder vote on executive compensation will occur everyyear, every two years, or every three years.Requires disclosure in the proxy statement o the eect o thevote, its requency and timing.Requires that companies allow the ollowing choices to theirshareholders regarding the requency o votes on executivecompensation:1. Every year2. Every two years3. Every three years4. To abstain rom votingRule 14a-6 has been amended to add any shareholder