November 8, 2010
To: Ms. Elizabeth M. Murphy
Securities and Exchange Commission
100 F Street, NE
Washington DC 20549-1090
Date: November 8, 2010
Re: Comments on Proposed Rule – Shareholder Approval of Executive Compensation and Golden Parachute Compensation
Release Nos. 33-9153 34-63124
File No. S7-31-10
Thank you for the opportunity to comment on this matter. My name is Steve Quinlivan and I am a practicing securities lawyer, and the views expressed herein are my own and not those of any firm or client.
I appreciate the challenge the Commission and staff had in rapidly drafting these proposed rules and thank them for their effort because of the importance to public companies. The comments below relate principally to Section II.D. of the proposed rules, Disclosure of Golden Parachute Arrangements and Shareholder Approval of Golden Parachute Arrangements.
Section 14A(b) of the Exchange Act provides that a public company may obtain an advisory preapproval of so called golden parachute arrangements in connection with an annual meeting such that the golden parachute arrangements need not be subject to an advisory vote in connection with a subsequent acquisition. In that regard, the Dodd-Frank Act should be interpreted to permit issuers to have a useful and flexible opportunity to obtain such an advisory preapproval without a subsequent advisory vote in connection with an acquisition to the maximum extent possible.
1. More specifically, in request for comment No. 49 on page 60 of the release, the Commission requests comment on whether it should provide an exemption for a vote on new or changed parachute arrangements for a subsequent grant of additional awards under an employee benefit plan that are subject to the same acceleration terms. In my view, such an exemption should be granted. Absent such an exemption, an option grant subsequent to a golden parachute advisory vote may be the sole item subject to a new advisory vote on golden parachute arrangements in a merger proxy statement. An advisory vote on a routine grant of options in connection with a merger proxy would be both a distraction and likely to cause investor confusion. As such, an exemption should be granted.
2. In request for comment No. 49, the Commission also requests comment on whether an exemption should be granted from a subsequent advisory vote if the only change is the addition of a new named executive officer. In my view, such an exemption should be granted. Again, putting the parachute arrangements of a single named executive officer in connection with a merger proxy would be both a distraction and likely to cause confusion. Much of the same information would already have been disclosed to investors under Item 402(j) of Regulation S-K and subject to an advisory vote under Section 14A(a) of the Exchange Act.
3. Likewise, in its rules implementing Section 14(b) of the Exchange Act, the Commission needs to recognize that where golden parachute arrangements have already been approved pursuant to Section 14A(a) of the Exchange Act, subsequent ordinary course changes in executive compensation that affect amounts payable on an acquisition need not be subject to a new shareholder advisory vote. For instance, an issuer may annually grant increases in base compensation or change the amount of target bonuses to named executive officers. Such changes may well affect the amount of severance payments to named executive officers that are considered to be a parachute payment. It is unclear to me under the proposed rules if such routine changes to salary and bonuses are revised terms of agreements and understandings (as such phrase is used in proposed Instruction 6 to Item 402(t)(2) of Regulation S-K) and consequently would be subject to a subsequent advisory vote on an acquisition where the golden parachute arrangements have already been the subject of an advisory vote. An exemption from a subsequent advisory vote should be granted for these types of routine changes for the reasons set forth above, or at the very least clarification should be made with respect to whether such changes are subject to a subsequent golden parachute advisory vote.
4. In a similar vein, options or restricted stock which have accelerated vesting upon a change of control may vest between the time an advisory vote is held and a subsequent acquisition. Such vesting would change the tabular disclosure in proposed Item 402(t). Clarification should be made to the proposed rules that such vesting pursuant to the original terms do not require a subsequent advisory vote where golden parachute arrangements have already been the subject of an advisory vote.
5. There is confusion, in my opinion, in the proposing release as to which initial date is used to determine whether any changes have occurred to parachute arrangements so that such changed items must be put to a new advisory vote in connection with an acquisition. On page 58 of the release, reference is made to those arrangements which have not been modified subsequent to the shareholder vote. Proposed Instruction 6 to Item 402(t)(2) refers to agreements and understandings that were previously subject to a shareholder vote. Is the threshold for determining whether an advisory vote on changed parachute items measured from the date of the shareholder vote or what was disclosed in the proxy statement?
6. It would be helpful in my opinion if Item 402(j) of Regulation S-K were clarified to state that if disclosure is provided pursuant to proposed Item 402(t) then further information with respect to change in control agreements need not be given in response to Item 402(j).
7. Likewise it would be helpful if proposed item 402(t)(2)(iv) (pension and nonqualified deferred compensation) were clarified to provide that amounts with respect to the referenced items need not be included if previously disclosed pursuant to Item 402(h) or (i).
Very truly yours,
/s/ Steve Quinlivan