Say on Pay is Coming to Life
NFPCCmp;A has been keeping a close eye on all of the regulations regarding Say on Pay (“SOP”), Say on Frequency (“SOF”), and Say on Golden Parachutes (“SOGP”). On January 25, 2011, the SEC (in a 3-2 vote) officially passed requirements for additional disclosure effective immediately. After reading over the SEC’s 150 page legislation, we have identified some key take aways from the regulations:
- Shareholders will independently vote for a 1, 2, or 3 year SOF while the Company has the ability to recommend a frequency schedule.
- SOF vote will be held every 6 years.
- SOGP votes shall occur in connection with a vote by shareholders for a merger or acquisition.
- All three votes (SOP, SOF, SOGP) are non-binding. The Company’s Board of Directors are still the approving authority; however, if the Board passes a resolution counter to the majority shareholder vote on SOP, SOF, or SOGP, the Board must explain why there is a difference.
- Effective for all proxies filed after January 21, 2011.
- 60 comment letters from consultants, law firms, companies, and investment institutions generally approved a Say on Pay.
- New regulations provide a two year SOP and SOF exemption for small market cap companies ($75 mm market cap or less).
- Companies must explain in the proxy statement they are holding a vote and the effect of previous year’s votes.
- A company can exclude shareholder proposals for SOP & SOF as long as a majority of the shareholders (not plurality) elected 1, 2, or 3 years SOF and the company adopted the policy.
- A new Golden Parachute Compensation Table is required for single & double trigger arrangements of change of control payouts.
Bass, Berry, and Sims has provided a more lengthy description of the new regulations and can be found at the link below:
Proxy Update: SEC Adopts Final Rules on Say on Pay
In addition, here are some statistics worth noting from several of the preliminary proxy statements (as of January 21, 2011):
- 120 companies (including 34 smaller reporting companies) had recommended a triennial vote;
- 60 companies (including 11 smaller reporting companies) had recommended an annual vote;
- 13 companies (including two smaller reporting companies) had recommended a biennial vote; and
- 12 companies (including four smaller reporting companies) had made no recommendation
- To recap: of the 205 preliminary proxies, 59% voted triennial, 6% voted biennial, 29% voted annual, and 5% had no recommendation.
- On January 31, 2011, a group of 39 institutional investors with combined assets under management of $830 billion issued a press release urging companies to recommend an annual frequency for SOP voting. This final push from shareholders will put more pressure on companies to hold their executives accountable.
Based on preliminary market results and future best practices, NFPCCmp;A still recommends considering a SOF vote of every three years. However, NFPCCmp;A believes that groups like RiskMetrics will continue to try and close the gap to an annual SOP vote. Companies should be prepared to defend their decisions on SOF with evident pay-for-performance practices, positive operational performance, strong governance practices, transparent proxy disclosures and risk-averse pay programs. NFPCCmp;A will continue to keep everyone up-to-date with the ever evolving SEC ruling and regulations.
Thanks for reading,