Speech by SEC Commissioner:
Opening Statement — SEC Open Meeting: Say-On-Pay and Golden Parachute Compensation
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
January 25, 2011
The last item that we will consider today is whether to approve rules relating to shareholder votes on executive compensation and golden parachutes. These rules were proposed last October, and would implement Section 951 of the Dodd-Frank Act.
That section requires the Commission to adopt rules governing shareholder advisory votes on particular executive compensation-related matters.
New Statutory Provisions
The statute essentially contains three requirements. First, public companies subject to the federal proxy rules must provide their shareholders with an advisory vote on executive compensation — generally known as “say-on-pay” votes.
Second, the statute requires these same public companies to provide their shareholders with an advisory vote on the desired frequency of say-on-pay votes — choosing between every one, two or three years. Shareholders must also be asked to cast this “frequency” vote at least once every six years.
Third, the statute requires certain enhanced disclosures regarding golden parachutes, and also subjects these special arrangements to shareholder advisory votes.
The recommendation before us would implement this legislative directive by amending our rules in several ways.
The amended rules would specify that a say-on-pay vote is required at least once every three years, beginning with the first annual shareholders’ meeting taking place on or after January 21, 2011.
The amendments also would require certain disclosure in the annual meeting proxy regarding the say-on-pay vote, including whether the vote is non-binding. And, it would require additional disclosure in the Compensation Discussion and Analysis (CD&A) regarding whether, and if so, how companies have considered the results of the most recent say-on-pay vote.
Similarly, the amended rules would require the “frequency” vote to occur at least once every six years, also beginning with the first annual shareholders’ meeting taking place on or after January 21, 2011. The amended rules would require certain disclosure in the annual meeting proxy regarding the frequency vote, including whether the vote is non-binding. And, to facilitate the choice of frequency of every one, two or three years, our rules would be amended to permit these three choices to appear on the proxy card.
Rule 14a-8, the shareholder proposal rule, would also be amended to provide guidance regarding the impact of these new requirements on shareholder proposals relating to say-on-pay votes or frequency of say-on-pay votes.
Further, the rule amendments would revise Form 8-K to require companies to disclose the outcome of their “frequency” advisory vote.
As for the new “golden parachute” provision, the rule would require those who are soliciting for shareholder consent or approval to disclose all such agreements and understandings that both the acquiring and target companies have with the named executive officers of both companies.
The “golden parachute” disclosure also would be required in connection with other transactions, including going-private transactions and third-party tender offers, so that the information is available for shareholders no matter the structure of the transaction.
I am particularly pleased that the staff is also recommending a temporary exemption for smaller reporting companies.
The delayed compliance date for smaller reporting companies is designed to allow those companies to observe how the rules operate for other companies, and should allow them to better prepare for implementation of the rules.
Delayed implementation for these companies will also allow the Commission to evaluate the implementation of the adopted rules by larger companies and provide us with the additional opportunity to consider whether adjustments to the rule would be appropriate for smaller reporting companies before the rule becomes applicable to them.
I believe that this two-year deferral is a balanced and responsible way for the Commission to ensure that its rules do not disproportionately burden small issuers. Section 951 of 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.
Again, before asking Meredith to provide more details about the recommendation before us, I’d like to thank the staff members who have worked so hard to bring this project over the finish line.
From Corp Fin, thank you to Meredith, Paula Dubberly, Felicia Kung, Scott Hodgdon, Jennifer Zepralka, Tom Kim, Anne Krauskopf, Heather Maples, Larry Hamermesh, Michele Anderson, Perry Hindin, Gerald Laporte, and Paul Dudek.
Thanks also to our colleagues in the General Counsel’s Office, specifically Richard Levine, David Fredrickson, and Dorothy McCuaig.
From the Division of Risk, Strategy and Financial Innovation, thank you to Emre Carr, Ayla Kayhan, Vladamir Ivanov, and Radhakrishna Kamath.
Thank you also to Susan Nash, Deborah Skeens and Mark Uyeda from the Division of Investment Management.
Finally, I would again like to thank the other Commissioners and all of our counsels for their work and thoughtful comments.
Now I'll turn the meeting over to Meredith Cross to hear more about the staff’s recommendations.