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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Division Statement before the Commission Open Meeting: Shareholder Approval of Executive Compensation of TARP Recipients


John Harrington

U.S. Securities and Exchange Commission

Washington, D.C.
July 1, 2009

Thank you and good morning. The Division of Corporation Finance recommends that you publish for public comment proposed amendments to the proxy rules under the Securities Exchange Act of 1934 to set forth certain requirements for U.S. registrants subject to Section 111(e) of the Emergency Economic Stabilization Act of 2008 (or the “EESA”).

Section 111(e) of the EESA, as amended by the American Recovery and Reinvestment Act on February 17, 2009, requires any entity that has received financial assistance under the Troubled Asset Relief Program (or “TARP”) to permit an annual advisory shareholder vote to approve the compensation of executives, as disclosed pursuant to the Commission’s rules. This shareholder vote on executive compensation is non-binding and is required as long as obligations under the TARP remain outstanding. Section 111(e)(3) of the EESA directs the Commission to issue any required final rules not later than February 17, 2010.

We recommend that the Commission propose new Rule 14a-20 under the Exchange Act and an amendment to Schedule 14A under the Exchange Act.

Proposed Rule 14a-20 would help implement the requirements of Section 111(e) of the EESA by requiring registrants that are TARP recipients to provide an advisory shareholder vote to approve the compensation of executives when they conduct certain solicitations subject to the Commission’s proxy rules. The language in the proposed rule mirrors the language in Section 111(e) of the EESA. The requirement under proposed Rule 14a-20 would apply to solicitations during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding. Under the proposed rule, the shareholder vote on executive compensation would only be required in connection with an annual meeting of security holders, or a special meeting in lieu of an annual meeting, for which proxies will be solicited for the election of directors. The required vote would be to approve the compensation of executives as disclosed pursuant to Item 402 of Regulation S-K. Proposed Rule 14a-20 would not modify the substantive executive compensation disclosure requirements that are set forth in Item 402 of Regulation S-K, so smaller reporting companies would still be entitled to provide scaled disclosure that does not include a compensation discussion and analysis.

We also recommend that the Commission propose an amendment to Item 20 of Schedule 14A. Item 20 is a general disclosure requirement for proposals not otherwise enumerated in another Item of Schedule 14A. The proposed amendment would add a requirement to Item 20 that would apply to TARP recipients required to provide an advisory vote on executive compensation. These registrants would be required to disclose in their proxy statements that they are providing the vote on executive compensation pursuant to the requirements of the EESA and to briefly explain the general effect of the vote.

The proposals that we are recommending are intended to specify and clarify the requirements of Section 111(e) of the EESA in the context of the federal proxy rules. By helping to provide certainty about the nature of the TARP recipient’s responsibilities with respect to the advisory vote on executive compensation, we believe the proposed amendments we are recommending would make it easier for registrants to comply with the requirements. At the same time, the proposed amendments are intended to allow TARP recipients adequate flexibility under the proxy rules to comply with the requirements of the EESA. Consistent with this approach, we are not proposing specific, detailed disclosure requirements.

Thank you. We are happy to answer any questions you may have.



Modified: 07/01/2009