Corporate Governance Issues, Including Executive Compensation Disclosure and Related SRO Rules
Background: The Dodd-Frank Wall Street Reform and Consumer Protection Act contains numerous provisions which affect the governance of issuers. For example:
- Section 951 requires advisory votes of shareholders about executive compensation and golden parachutes. This section also requires specific disclosure of golden parachutes in merger proxies. This section further requires institutional investment managers subject to Section 13(f) of the Securities Exchange Act to report at least annually how they voted on these advisory shareholder votes.
- Section 952 requires disclosure about the role of, and potential conflicts involving, compensation consultants. This statute also requires the Commission to direct that the exchanges adopt listing standards that include certain enhanced independence requirements for members of issuers’ compensation committees. The Commission is also directed to establish competitively neutral independence factors for all who are retained to advise compensation committees.
- Section 953 requires additional disclosure about certain compensation matters, including pay-for-performance and the ratio between the CEO’s total compensation and the median total compensation for all other company employees.
- Section 954 requires the Commission to direct the exchanges to prohibit the listing of securities of issuers that have not developed and implemented compensation claw-back policies.
- Section 955 requires additional disclosure about whether directors and employees are permitted to hedge any decrease in market value of the company’s stock.
Implementation: On October 18, 2010, the Commission proposed rules to implement the Section 951 provisions related to institutional investment managers. The rules would require institutional investment mangers to report their votes on executive compensation and "golden parachute" arrangements at least annually, unless the votes are otherwise required to be reported publicly by SEC rules.
On January 25, 2011, the Commission adopted rules concerning shareholder approval of executive compensation and "golden parachute" compensation arrangements to implement Section 951 of the Dodd-Frank Act. (Release No. 33-9178)
On June 20, 2012, the Commission adopted rules directing the national securities exchanges to adopt certain listing standards related to the compensation committee of a company's board of directors as well as its compensation advisers, as required by Section 952 of the Dodd-Frank Act. (Release No. 33-9330)
In January, 2013, the Commission approved the listing standards. (Release Nos. 34-68643 [BATS]; 34-68642 [CBOE]; 34-68653 [CHX]; 34-68640 [NASDAQ]; 34-68641 [BX]; 34-68662 [NSX]; 34-68635 [NYSE]; 34-68638 [NYSEARCA]; 34-68637 [NYSEMKT])
On September 18, 2013, the Commission proposed rules regarding pay ratios to implement Section 953 of the Dodd-Frank Act. (Release No. 33-9452)
On February 9, 2015, the Commission proposed rules regarding hedging disclosure to implement Section 955 of the Dodd-Frank Act. (Release No. 33-9723)
On April 29, 2015, the Commission proposed rules regarding pay for performance disclosure to implement Section 953 of the Dodd-Frank Act. (Release No. 34-74835)
On July 1, 2015, the Commission proposed rules regarding recovery of executive compensation to implement Section 954 of the Dodd-Frank Act. (Release No. 33-9861)