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4557

Public Company Financial Executive Briefing

NON-BINDING SHAREHOLDER APPROVAL OF

EXECUTIVE COMPENSATION & GOLDEN PARACHUTE COMPENSATION

By Jim Pitrat, CPA - Practice Leader, Assurance & Advisory Practice TUESDAY, DECEMBER 7, 2010

Executive Summary:

Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-
Frank Act”) added new Section 14A to the 1934 Act. It requires non-binding (i.e., advisory)
shareholder votes concerning:

• Approval of executive compensation,

• The frequency of the vote on executive compensation,

• “Golden parachute arrangements” resulting from a merger or acquisition

In Proposed Release No. 33-9153 , the SEC is proposing various amendments to its rules
to implement the provisions.

PROPOSED AMENDED RULES:

(1) Shareholder Approval of Executive
Compensation
Not less frequently than once every three years, issuers
provide for a separate shareholder advisory vote in proxy
statements to approve compensation of named executive
officers as disclosed in Item 402 of Regulation S-K
The compensation of directors, also as disclosed pursuant
to Item 402 , would not be subject to the shareholder
advisory vote
Would apply to the first annual or other such meeting of
shareholders taking place on or after January 21, 2011.
Item 402(b) of Regulation S-K would be amended to
call for a discussion in Compensation Discussion and
Analysis (“CD&A”) how the entity’s compensation policies
and decisions have taken into account the results of
shareholder advisory votes
Smaller reporting companies, which are exempt from
furnishing CD&A, would have to include the information as
part of the required narrative accompanying the Summary
Compensation Table
(2) Shareholder Approval of the Frequency of
Shareholder Votes on Executive Compensation
A separate shareholder advisory vote would have to be
taken to determine whether the shareholder vote on
executive compensation will occur every year, every two
years, or every three years.
Would require disclosure in the proxy statement of:
A separate shareholder vote on the frequency of
the shareholder advisory vote concerning executive
compensation is being taken
The non-binding effect of the vote
Item 9B of Form 10-K , Other Information, would be
amended, and new Item 5(c), Other Information, would be
added to Form 10-Q.
To require disclosure of the frequency that shareholder
advisory votes on executive compensation will be taken
Disclosure would be required on Form 10-Q covering the
period during which the shareholder advisory vote occurs,
unless the vote took place during the issuer’s fourth
quarter, then the disclosure would be required on Form 10-K
if such
(3) Disclosure and Shareholder Approval of
Golden Parachute Arrangements
Item 402(t) would be added to Regulation S-K to require
disclosure in any proxy or consent solicitation to approve
an acquisition or merger, of the golden parachute
compensation to be paid to a named executive officer;
a. Both tabular and narrative disclosure would be required.
b. The “Golden Parachute Compensation” table would
include the following columns covering each named
executive officer:
e. Perquisites and other personal and health & welfare
benefits
f. Tax reimbursements
g. Additional elements of compensation not specifically
includable in any of the other columns. Note that the table
would require tabular disclosure only of compensation
based on or otherwise relating to the transaction
New Item 402(t) would call for narrative disclosure of
a. Material conditions or obligations applicable to the
receipt of payment by a named executive
b. The specific circumstances triggering payment
c. The form of the payment, the paying party, and any
material factors in respect of each agreement
A separate advisory vote would not be required on golden
parachute compensation if disclosure of such compensation
had been included in the executive compensation disclosure
that was subject to a previous advisory vote.

(4) Transition Matters

The columns would be as follows:
a. Each named executive officer
b. Cash severance payments
c. Dollar value of accelerated stock awards, in-the-money
options for which vesting would be accelerated, and
payments in cancellation of stock and option awards
d. Pension and nonqualified deferred compensation benefit
enhancements
Any preliminary or definitive proxy statement filed before
January 21, 2011 must include separate resolutions for
shareholders to approve executive compensation and to
determine the frequency of such approval.
Generally, until final action is taken to implement Section
14A, the Commission will not object if issuers do not file
proxy material in preliminary form.

FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING:

Jim Pitrat:  Harmeet Singh:  Gale Moore:  

JPitrat@singerlewak.com  HSingh@singerlewak.com  GMoore@singerlewak.com 
310.477.3924 408.294.3924 949.261.8600 
Practice Leader Business Combinations Subject Matter Expert  Business Combinations Subject Matter Expert 
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