Changes in CEO Compensation Coming

The Dodd-Frank Act contained several provisions that were intended to provide shareholders additional input on executive compensation.  Not surprisingly, these provisions were controversial in many quarters.  I do not address that aspect here, but rather simply aim to provide an overview of implementing rules that were adopted by the SEC yesterday.  These rules include:

§  “Say-on-pay” provision: Under the rules, companies are required to provide shareholders with an advisory vote on executive compensation at least once every three years.  Companies must disclose the vote in the annual meeting proxy statement and inform shareholders whether the vote is non-binding.  Companies are also required to provide additional disclosure in the Compensation Discussion and Analysis regarding if and how companies considered the results of the most recent “say-on-pay” vote.  This provision is effective for annual shareholders meetings occurring on or after January 21, 2011. 

§  “Say-on-pay” frequency provision: Companies are required to allow shareholders to vote at least once every six years to determine whether “say-on-pay” votes should be held every year, every other year, or every three years.  As with the say-on-pay provision, this requirement applies to annual shareholders meetings on or after January 21, 2011. 

§  “Golden parachute” provision: Under the rules, companies are required to disclose “golden parachute” arrangements with executive officers during mergers or certain other transactions.  Companies will be required to provide a separate shareholder advisory vote to approve certain “golden parachute” provisions.  This provision is effective for proxy statements or other schedules and forms filed on or after April 25, 2011. 

Smaller companies (public float less than $75 million) were provided with a temporary exemption and do not have to comply with the “say-on-pay” or its frequency provisions until annual meetings on or after January 21, 2014.

For more information, click on the following link to the SEC website:  http://www.sec.gov/news/press/2011/2011-25.htm.