September 7, 2009
The Commission should be applauded for proposing a number of recent reforms that will bring greater corporate democracy to our country, and should use the opportunity created by the ARRA Act to create broad reform in corporate governance. While a new rule may initially only apply to TARP recipients, such changes will allow the Commission, regulated community, and investors to examine the influence of regulations on a group of corporations and some of these can then at a later date be expanded to all public corporations.
In reading the proposed rule changes, it was not clear how shareholders will be made aware of the outcome of previous 'say on pay' votes. Will corporations required to have nonbinding votes on executive compensation disclose the outcome of these votes in subsequent proxy statements? If not, the intent of Congress to hold corporate managers more accountable to excessive pay would be frustrated. As part of compensation discussion and analysis, TARP recipients should disclose previous shareholder votes on compensation. This will better enable shareholders to have adequate disclosure and share information on more popular managers as comparted to those who are 'paid more than they are worth.' This disclosure on 'say on pay' should take place at the earliest proxy communication. If the issuer should convene a special meeting that preceeds the next annual meeting then disclosure should be made at the special meeting of shareholders. This will empower the small shareholder and encourage them to more actively take part in corporate governance.
Issuers should be required to state clearly that the vote is nonbinding, and briefly note that this disclosure and nonbinding ratification is required because the corporation has received TARP funds. The SEC staff should require corporations provide drafts of executive pay disclosure that the staff can review 10-15 days in advance, so as to monitor the implementation of the rule, and it is necessary to have small corporations receiving TARP funds to provide a limited compensation discussion and analysis (100 words minimum).