Public Company Financial Executive Briefing

The SEC issues Final Rules on Shareholder

Approval of Executive Compensation
By Jim Pitrat, CPA - Practice Leader, Assurance & Advisory Practice TUESDAY, FEBRUARY 1, 2011

Executive Summary:

Section 951 of The Dodd-Frank Act added Section 14A to the 1934 Act. Section 14A
requires non-binding shareholder votes on the following:

• The approval of executive compensation - so-called say-on-pay votes

• The frequency with which the vote on executive compensation will occur

• In respect of votes solicited for the purpose of approving a merger or acquisition, the
disclosure of certain compensation arrangements referred to as golden parachute
arrangements

• Under certain circumstances, a shareholder advisory vote to approve such compen-

sation arrangements

The SEC adopted rules to implement these provisions in Release No. 33-9178,
Shareholder Approval of Executive Compensation and Golden Parachute Compensation.

The Rules Call for the Following Changes:

Approval Executive Compensation
Not less frequently than once every three calendar years,
issuers must provide for a separate shareholder advisory
vote in proxy statements to approve compensation of
named executive officers.
The Frequency of Votes on Executive
Compensation
The primary requirements regarding the new rules as it
relates to the frequency of the votes are as follows:

• The advisory vote is required only when proxies are
solicited for an annual or other shareholder meeting for
which disclosure of executive compensation is required.
• Compensation of directors is not subject to the share-
holder advisory vote.
The new Rule applies to the first annual, or other such
meeting of shareholders, taking place on or after January
21, 2011.
The Rules require disclosure in the proxy statement of the
general effect of the vote, the frequency of shareholder the
votes, and the timing of the vote.
Calls for a discussion in Compensation, Discussion, & Analysis
of whether and how the entity’s compensation policies have
considered the most recent shareholder advisory vote.
Requires that a shareholder advisory vote be taken at least
once every six years to establish determine whether the
shareholder vote on executive compensation will occur every
year, every two years, or every three years.
Requires disclosure in the proxy statement of the effect of the
vote, its frequency and timing.
Requires that companies allow the following choices to their
shareholders regarding the frequency of votes on executive
compensation:
1. Every year
2. Every two years
3. Every three years
4. To abstain from voting
Rule 14a-6 has been amended to add any shareholder
advisory vote on executive compensation, including
shareholder votes to approve executive compensation
and the frequency of shareholder votes on executive
compensation, to the list of items that do not trigger the
need to file a proxy statement in preliminary form.
Form 8-K rules have been amended to require disclosure of
the number of votes cast for each of the 4 choices above,
and the company’s decision regarding how frequently it will
conduct the votes on executive compensation.
Disclosure of Golden
Parachute Arrangements
The rules require disclosure in any proxy or consent
solicitation to approve an acquisition, or proposed sale
of the entity’s assets, the aggregate golden parachute
compensation that may be paid to an executive officers in a
defined tabular format, and certain narrative disclosures.
Smaller Reporting Companies
Smaller reporting companies are not permanently exempt
from the vote, frequency of votes, and golden parachute
disclosure and vote.

However, the Commission has adopted a temporary

exemption for smaller reporting companies until the first
annual meeting of shareholders occurring on or after
January 21, 2013.

FOR FURTHER INFORMATION, PLEASE CONTACT ONE OF THE FOLLOWING:

Jim Pitrat:  Harmeet Singh:  Gale Moore:  

JPitrat@singerlewak.com  HSingh@singerlewak.com  GMoore@singerlewak.com 
310.477.3924 408.294.3924 949.261.8600 
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