,
David Lavan ,
Bjorn Hall , and
Sarah O'Sullivan 
On January 25, 2011, by a 3-2 vote, the Securities and Exchange Commission (the "Commission") adopted new rules giving effect to Section 951 of the Dodd-Frank Act of 2010 ("Dodd-Frank"). These new rules require a shareholder advisory vote on:
- executive compensation, with such vote to occur not less than once every 3 years;
- the frequency of the say-on-pay vote; and
- agreements or understandings with named executive officers relating to compensation in connection with shareholder approval of an acquisition, merger, consolidation, or proposed sale or other disposition of all or substantially all the assets of an issuer.
This Commission release is available here.
On January 28, 2011, the Commission published releases extending
the comment period for the following three Dodd-Frank rulemaking
proposals:
- disclosure regarding conflict minerals;
- disclosure regarding mine safety issues; and
- disclosure required of by resource extractive companies.
These releases are available here, here, and here.
Shareholder Say-on-Pay Votes
The Commission established rules regarding the
Dodd-Frank-mandated advisory vote on executive compensation. The
Commission's new rules require the following with regard to
this "Say-on-Pay" vote:
- the Say-on-Pay vote must be held at the first annual shareholders' meeting taking place on or after January 21, 2011;
- companies must include disclosure in their proxy statements regarding the Say-on-Pay vote, including the non-binding nature of the vote; and
- companies must include Compensation Discussion and Analysis disclosure regarding whether, and if so how, they have considered the results of the most recent Say-on-Pay vote.
Smaller Reporting Companies
Dodd-Frank provided the Commission with exemptive authority when
adopting the Say-on-Pay vote rules. Pursuant to this authority, the
Commission has delayed the date on which smaller reporting
companies are required to comply with the new rules relating to
shareholder Say-on-Pay votes until annual meetings occurring on or
after January 21, 2013.
Shareholder Say-on-Frequency Votes
The Commission established rules regarding the Dodd-Frank-mandated
advisory vote on the frequency of the Say-on-Pay vote. Dodd-Frank
requires that this "Say-on-Frequency" vote must be held
at least every six years and must give shareholders an opportunity
to provide an advisory vote on whether the Say-on-Pay vote should
be held every one, two, or three years. The Commission's new
rules require the following with regard to the Say-on-Frequency
vote:
- the Say-on-Frequency vote must be held at the first annual shareholders' meeting taking place on or after January 21, 2011; and
- companies must file a Form 8-K in which it provides disclosure regarding the results of the Say-on-Frequency vote.
The Commission's new rules will permit issuers to exclude
shareholder proposals relating to the frequency of Say-on-Pay votes
pursuant to Rule 14a-8 if any frequency option (one, two or three
years) receives a majority vote and the issuer has adopted a policy
on the frequency of Say-on-Pay votes consistent with such majority
vote. This Commission requirement represents a significant change
from the proposing release, which permitted exclusion of
shareholder Say-on-Pay frequency proposals whenever the
issuer's policy was consistent with the plurality of votes
cast.
Shareholder Golden Parachute Votes
The Commission established rules regarding the Dodd-Frank-mandated
advisory vote on agreements or understandings with named executive
officers relating to compensation in connection with shareholder
approval of an acquisition, merger, consolidation, or proposed sale
or other disposition of all or substantially all the assets of an
issuer. Under these new Golden Parachute rules, initial filings
that are made on or after April 25, 2011 that seek shareholder
approval of an acquisition, merger, consolidation, or proposed sale
or other disposition of all or substantially all the assets of an
issuer must include:
- narrative and tabular disclosure regarding any named executive officer's Golden Parachute; and
- a shareholder advisory vote on any such Golden Parachute.
Commission Extension of Comment Periods on Three Dodd-Frank
Rulemakings
In December 2010, the Commission proposed rules to implement
Dodd-Frank requirements regarding:
- disclosure regarding conflict minerals (proposing release here);
- disclosure regarding mine safety issues (proposing release here); and
- disclosure required of by resource extractive companies (proposing release here).
The due date for comments relating to each of these proposals was
established as January 31, 2011. On January 28, 2011, the
Commission published three releases that extended the due date for
comments on each of these matters to March 2, 2011.
If You Have Any Questions about these Recent Commission
Actions
The Commission's new rules will affect the proxy materials of
public companies with annual meetings held later this year. We will
be following developments closely as companies implement the new
rules. Further, the extension of the comment period for the three
Dodd-Frank rulemakings provide companies with an opportunity to
seek to affect the new rules regarding conflict minerals, mine
safety, and resource extractive companies. If you have any
questions regarding the new Commission rules, or if you have any
questions regarding the best manner in which to comment on the
proposed rules, please contact the authors of this Client Alert or
your O'Melveny & Myers advisor.
O'Melveny & Myers LLP routinely provides advice to clients on complex transactions in which these issues may arise, including finance, mergers and acquisitions, and licensing arrangements. If you have any questions about the operation of the applicable statutory provisions or the case law interpreting these provisions, please contact any of the attorneys listed on this alert.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
