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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

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

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


Jim Pitrat:  Harmeet Singh:  Gale Moore:  

JPitrat@singerlewak.com  HSingh@singerlewak.com  GMoore@singerlewak.com 
310.477.3924 408.294.3924 949.261.8600 
Practice Leader Business Combinations Subject Matter Expert  Business Combinations Subject Matter Expert 
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