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 www.SingerLewak.com | 877.754.4557

Public Company Financial Executive Briefing

Analysis: Final Rules on Shareholder Approval of

Executive Compensation
By Jim Pitrat, CPA - Practice Leader, Assurance & Advisory Practice TUESDAY, MARCH 1, 2011

Executive Summary:

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

1. The approval of executive compensation (say-on-pay)

2. The frequency of votes on executive compensation
3. The disclosure of golden parachute arrangements
4. Shareholder advisory vote to approve such compensation arrangements
In Final Rulemaking Release No. 33-9178, the SEC has adopted rules to implement these provisions.

The Rules Call for the Following Changes:

Shareholder Approval of Executive Compensation

Once every three calendar years, issuers must provide for a separate shareholder advisory vote in proxy statements to approve
compensation of named executive officers.

• The vote is required only when proxies are solicited for an annual or other shareholder meeting for which disclosure of
executive compensation is required

Requires the following disclosure in the proxy statement:

• That a separate vote on executive compensation is being taken

• The effect of the advisory vote
• The frequency of advisory votes
• When the advisory vote will take place next

Requires a discussion in Compensation, Discussion, & Analysis (CD&A) of how the entity’s compensation policies and decisions
have taken into account the most recent shareholder advisory vote.

Shareholder Approval of the Frequency of Shareholder Votes on Executive Compensation

Requires that a separate shareholder advisory vote be taken at least once during the six years to determine whether the
shareholder vote on executive compensation will occur every year, every two years, or every three years.

continue on page 2
Requires the following disclosures in the proxy statement:

• That a separate shareholder vote on the frequency of the shareholder advisory vote is being taken
• The effect of the advisory vote
• The frequency of advisory votes
• When the advisory vote will take place next

Issuers must present four choices to their shareholders in respect of the frequency of advisory votes on executive compensation:
every year, every two years, every three years, or to abstain from voting.

Shareholder advisory votes on executive compensation do not trigger the need to file a proxy statement in preliminary form.

Item 5.07 of Form 8-K, “Submission of Matters to a Vote of Security Holders,” has been amended to require disclosure of (1)
votes concerning the frequency of shareholder advisory votes, disclosure of the number of votes cast for each of the following
choices: every year, every two years, every three years, and abstentions, and (2) disclosure of the company’s decision regarding
how frequently it will conduct advisory votes on executive compensation.

Disclosure of Golden Parachute Arrangements

Item 402(t) has been added to Regulation S-K to require disclosure in any proxy or consent solicitation to approve an acquisition,
merger, consolidation, or proposed sale of substantially all of the entity’s assets of the aggregate golden parachute compensation
that may be paid to a named executive officer.

• Both tabular and narrative disclosures are required.

• The required table is titled “Golden Parachute Compensation” and includes the following columns covering each
executive officer:

Pension Perquisites/ Tax

Name Cash Equity NQDC Benifits Reimbursement Other Total
(a) (b) (c) (d) (e) (f ) (g) (h)

• Column (a) includes each named executive officer

• Column (b) includes cash severance payments
• Column (c) includes the 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
• Column (d) includes pension and nonqualified deferred compensation benefit enhancements
• Column (e) includes perquisites and other personal and health and welfare benefits
• Column (f) includes tax reimbursements
• Column (g) includes additional elements of compensation not specifically includable in the other columns of the table

The new rules also calls for narrative disclosure of:

1. Material obligations (or conditions) applicable to the receipt of payment by a named executive officer (items such as non-
competition, non-solicitation, non-disparagement, or confidentiality agreements)
2. The specific circumstances triggering payment
3. The form of the payment (e.g., lump-sum or installments)
4. The paying party
5. Any material factors in respect of each agreement

Approval of Golden Parachute Compensation

A separate advisory vote is not required on golden parachute compensation if disclosure of such compensation has been
included in the executive compensation disclosure that was subject to a previous advisory vote, otherwise, a golden parachute
compensation vote is required.

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Smaller Reporting Companies

The Commission has adopted a temporary exemption for smaller reporting companies:

1. Issuers are not required to conduct either a shareholder advisory vote on executive compensation or a shareholder advisory
vote on the frequency of say-on-pay votes until the first annual (or other) meeting of shareholders occurring on or after January
21, 2013.
2. The temporary exemption for smaller reporting companies does not apply to the requirement to provide a shareholder advisory
vote on golden parachute compensation in connection with mergers or other extraordinary transactions.
3. Smaller reporting companies remain exempt from furnishing CD&A; however, these companies are required to disclose
information concerning how the entity’s compensation policies and decisions have taken into account the results of the most
recent shareholder advisory vote as part of the required narrative accompanying the Summary Compensation Table.

Transition

• 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.

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 
Assurance & Advisory Los Angeles, Silicon Valley  Orange County, San Diego