SEC adopts say-on-pay rules

Additional disclosure on golden parachute compensation also required

The Securities and Exchange Commission (SEC) in the United States has adopted rules concerning shareholder approval of executive compensation and "golden parachute" compensation arrangements as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The SEC's new rules specify that say-on-pay votes required under the Dodd-Frank Act must occur at least once every three years beginning with the first annual shareholders' meeting taking place on or after Jan. 21, 2011. Companies also are required to hold a frequency vote at least once every six years in order to allow shareholders to decide how often they would like to be presented with the say-on-pay vote. Following the frequency vote, a company must disclose on an SEC Form 8-K how often it will hold the say-on-pay vote.

Under the SEC's new rules, companies also are required to provide additional disclosure regarding "golden parachute" compensation arrangements with certain executive officers in connection with merger transactions.

The SEC also adopted a temporary exemption for smaller reporting companies (public float of less than US $75 million). These smaller companies are not required to conduct say-on-pay and frequency votes until annual meetings occurring on or after Jan. 21, 2013.

"I believe that this two-year deferral is a balanced and responsible way for the SEC to ensure that its rules do not disproportionately burden small issuers," said SEC chairman Mary L. Schapiro.

The Dodd-Frank Act authorizes the commission to exempt an issuer or class of issuers, but only after considering a number of factors including whether this disproportionate burden exists.

“The two-year deferral period is designed to assist the commission in its consideration of these factors and will enable us to adjust the rule if appropriate before it applies to smaller issuers," said Schapiro.

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