On January 25, 2011, the SEC adopted final rules implementing Section 951 of the Dodd-Frank Act. These rules include requirements related to disclosure of golden parachute arrangements and shareholder advisory votes on such arrangements, as related to change in control transactions. The rules will be effective for change in control proxy statements and similar forms filed on or after April 25, 2011.
With respect to disclosure, the final rules require that proxy materials for a shareholder meeting to approve a change in control transaction must include both tabular and narrative disclosure of named executive officers’ golden parachute arrangements. The current disclosure required by Item 402(j) of Regulation S-K does not satisfy the new requirements, and there is no exclusion of de minimis amounts. The disclosure is required regardless of whether the company is required to include a “Say on Parachutes Vote,” as discussed below.
With respect to shareholder advisory votes, the final rules require a nonbinding shareholder vote on golden parachute arrangements in connection with any change in control transaction. However, this requirement does not apply to golden parachute arrangements between the acquiring company and the named executive officers of the target, or to compensation that has been subjected to a prior “Say on Pay” vote.
For further information, see the Client Advisory prepared by Alston & Bird’s Employee Benefits and Executive Compensation Group.
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On October 18, 2010, the SEC issued its proposed rules implementing certain portions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), including the shareholder advisory voting requirements on severance arrangements in the context of change in control transactions. Comments on the rules are due November 18, 2010. In addition to requiring certain non-binding shareholder advisory votes on change in control severance arrangements (so called “say-on-golden-parachute” votes), the proposed rules would also require both a narrative and tabular disclosure of change in control compensation and would require companies to distinguish among the sources or form of the compensation, for example cash versus acceleration of options. This heightened focus on change in control compensation arrives in a market increasingly eager to temper such arrangements.
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Yesterday, the New York Stock Exchange announced that it "intends to file an amendment to NYSE Rule 452 to prohibit members from voting uninstructed shares if the matter to be voted on relates to executive compensation, including 'say-on-pay' proposals, at meetings occurring after July 21, 2010," but that an "exception will be made for those meetings on which the NYSE has issued a 'may vote' ruling prior to July 21." The NYSE is amending Rule 452 to comply with Section 957 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, effective on July 22 (one day after enactment), amended Section 6(b) of the Securities Exchange Act of 1934 to prohibit brokers from uninstructed (discretionary) voting with respect to the election of directors, executive compensation or any other significant matter, as determined by the SEC.
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On July 15, 2010, final Congressional approval of the Dodd-Frank Wall Street Reform and Consumer Protection Act occurred, when the Senate passed the bill by a vote of 60 to 39. President Obama is expected to sign the legislation next week. Embedded in the over 2,200-page Dodd-Frank Act are a number of provisions addressing executive compensation and corporate governance reforms. These provisions appear in Title IX of the Act, which may be cited separately as the Investor Protection and Securities Reform Act of 2010. Below is a brief summary of the executive compensation and corporate governance provisions in the Act that are applicable to all public companies. (Certain other provisions of the Act relate specifically to the governance of financial institutions.) A more detailed discussion, including observations regarding effects of the Act, can be found here.
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Historic financial reform legislation agreed to by the House-Senate Conference on June 25, 2010, includes several provisions aimed at giving investors in public companies better disclosure and a bigger voice relating to executive compensation and certain corporate governance measures. These provisions include notably a non-binding vote on compensation, disclosure of comparison of compensation to stock performance, and a requirement that directors be elected by majority vote.
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This advisory discusses yesterday's SEC adoption of amendments to the disclosure requirements related to executive compensation and other corporate governance matters in proxy and information statements, annual reports and registration statements. The adopted amendments will require disclosure of compensation policies as they relate to risk, the potential conflicts of interest of compensation consultants, director and nominee qualifications, board leadership structure, and diversity policies relating to board membership.
The SEC also adopted amendments to require the disclosure of stockholder voting results in a Form 8-K, and to revise the disclosure of stock and option awards in the summary compensation tables and director compensation tables.
The advisory is provided in PDF on the Alston & Bird web site: http://www.alston.com/securities_law_SECform
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