Corporate Governance

Restoring American Financial Stability Act of 2009: Say on Pay and Golden Parachutes

By J. Robert Brown

The Dodd bill contains a provision that would require say on pay.  The vote is advisory and extends to all companies subject to the proxy rules (any company with 500 shareholdes of record and $10 million in assets).   The provision puts the SEC squarely in the middle of the governance process.  The specific matter to be voted upon is whatever the SEC requires to be disclosed in Item 402.

In addition, Section 952 requires as a separate matter, a shareholder vote on any "policy" relating to golden parachutes for any "principal executive officer" of the company.  The provision only deals with golden parachutes triggered by an acquisition.  It does not deal with severance packages paid to departing CEOs in non-change of control situations. 

In the meantime, the bill and a summary are posted at the DU Corporate Governance web site.

SEC. 14A. ANNUAL SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.

• (a) SEPARATE RESOLUTION REQUIRED.—Any proxy or consent or authorization for an annual or other meeting of the shareholders occurring after the end of the 1-year period beginning on the date of enactment of this section, for which the proxy solicitation rules of the Commission require compensation disclosure, shall include a separate resolution subject to shareholder vote to approve the compensation of executives, as disclosed pursuant to section 229.402 of title 17, Code of Federal Regulations, or any successor thereto.

• (b) RULE OF CONSTRUCTION.—The shareholder vote referred to in subsection (a) shall not be binding on the board of directors of an issuer and may not be construed—

(1) as overruling a decision by such board of  directors;
(2) to create or imply any change to the current fiduciary duties of such board of directors;
(3) to create or imply any additional fiduciary  duty by such board of directors; or
(4) to restrict or limit the ability of share holders to make proposals for inclusion in proxy materials related to executive compensation.

SEC. 14B. SHAREHOLDER VOTE ON GOLDEN PARACHUTE  POLICY

• (a) DISCLOSURE.—In proxy solicitation material for an annual or other meeting of the shareholders occurring after the end of the 1-year period beginning on the date of enactment of this section, the person making such solicitation shall disclose in the proxy solicitation material, in a clear and simple form, in accordance with regulations of the Commission, any policy that the issuer has relating to the award of any type of compensation (whether present, deferred, or contingent) to any principal executive officer of the issuer—

(1) upon the acquisition, merger, consolidation, sale, or other disposition of the issuer; and
(2) that has not been subject to a shareholder vote under section 14A.

• (b) SHAREHOLDER APPROVAL.—

(1) IN GENERAL.—The proxy solicitation material containing the disclosure required by section
14A shall require a separate shareholder vote to approve the policy described in subsection (a).
(2) RULE OF CONSTRUCTION.—A vote by the  shareholders referred to in paragraph (1) shall not  be binding on the board of directors of an issuer and may not be construed—

(A) as overruling a decision by such  board of directors;(B) to create or imply any change to the  current fiduciary duties of such board of  directors;(C) to create or imply any additional fiduciary duty by such board of directors; or (D) to restrict or limit the ability of shareholders to make proposals for inclusion inproxy materials related to executive compensation.''

Full post as published by The Race to the Bottom on December 02, 2009 (boomark / email).