On January 25, 2011, the Securities and Exchange Commission (SEC) officially adopted final rules implementing Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This so-called “Say-on-Pay” provision establishes three new shareholder-voting requirements for large companies subject to federal proxy rules. First, such companies must provide shareholders with a non-binding vote on executive compensation at least once every three years. Second, large companies must give shareholders a non-binding vote establishing the frequency with which they engage in the say-on-pay vote at least once every six years. Finally, shareholders must be given a separately held advisory vote on “golden-parachute” arrangements and understandings in connection with mergers and acquisitions and other transactions, including going-private transactions and third-party tender offers.
For large reporting companies, the non-binding vote on executive compensation as well as the non-binding vote on frequency must be had at the first shareholder meeting after January 21, 2011. However, smaller reporting companies are not required to hold a say-on-pay or frequency vote until the first shareholder meeting to occur after January 21, 2013. New regulations regarding golden-parachute votes and disclosures will become effective after April 25, 2011.