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SEC Advises on Say-on-Pay Presentation on Proxy Card

Posted in Plan Administration

While I don’t normally get an opportunity to include matters relating to executive compensation, it is an important component of employee benefit package in many companies.  Robert Fields and Sarah Ivy, two of our executive compensation attorneys here at the firm, have shared the following with me, so I am passing it on:

In 2010, the Securities and Exchange Commission adopted final rules regarding shareholder advisory (“say-on-pay”) votes on executive compensation and “golden parachute” compensation arrangements required under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).  As you may know, these votes are now required to be included in a proxy statement relating to an annual meeting of stockholders or, in the case of “say-on-parachute” votes, in a merger or related proxy.

On February 13, 2012, the SEC’s Division of Corporation Finance issued the following Compliance and Disclosure Interpretation regarding a say-on-pay vote and its presentation on proxy cards:

      Question: On its proxy card and voting instruction form, how should a company describe the advisory vote to approve executive compensation that is required by Exchange Act Rule 14a-21?

      Answer: The following are examples of advisory vote descriptions that would be consistent with Rule 14a-21’s requirement for shareholders to be given an advisory vote to approve the compensation paid to a company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K.

  • To approve the company’s executive compensation
  • Advisory approval of the company’s executive compensation
  • Advisory resolution to approve executive compensation
  • Advisory vote to approve named executive officer compensation

The following is an example of an advisory vote description that would not be consistent with Rule 14a-21 because it is not clear from the description as to what shareholders are being asked to vote on. Shareholders could interpret this example as asking them to vote on whether or not the company should hold an advisory vote on executive compensation, rather than asking shareholders to actually approve, on an advisory basis, the compensation paid to the company’s named executive officers.

  • To hold an advisory vote on executive compensation

Compliance Steps: Public companies should review their proxy cards to determine if their presentation of the say-on-pay vote is in a form that has been endorsed by the SEC and, if not, whether the presentation is misleading in contravention of the requirements of Rule 14a-21.

For more information about this topic, please contact Sarah or Robert, or your attorney at Fox Rothschild.