Center’s Comments on Say on Pay Urge SEC to Revise Aspects of Rule Inconsistent With Nonbinding Nature of Vote

November 18, 2010

The Association’s Center On Executive Compensation filed comments with the SEC this week on its proposed rules implementing say on pay and golden parachutes under Dodd-Frank, opposing duplicative disclosure mandates and requirements that effectively force employers to adopt the results of nonbinding shareholder votes.  The Center took issue with the SEC’s proposal that companies must disclose whether and how companies are changing their executive compensation programs in response to say on pay votes.  “To our knowledge, there is no precedent for including proxy disclosure specific to the outcome of a nonbinding shareholder vote,” our letter states, adding that existing rules already require disclosure of the rationale for pay changes.  For similar reasons, the letter also opposes the requirement that companies adopt the results of the nonbinding shareholder vote on how often say on pay votes will be held in order to exclude related shareholder resolutions.  The Center urged the Commission to give companies an “appropriate amount of time for analysis and decisions” on how frequently they will hold say on pay votes.  The proposed rules sought disclosure in the quarterly report filed after the annual meeting, which provided little time to make a determination and obtain compensation committee and board approval.  With respect to the additional disclosure of so-called “golden parachute” arrangements in the event of a merger or acquisition, the Center asked the SEC to confirm that only compensation triggered by the transaction needed to be disclosed (e.g., accelerated equity), not awards that previously vested.  The SEC is expected to complete the rules on say on pay by the end of the year or shortly thereafter, in anticipation of the January 21, 2011 effective date.