All U.S. public companies, except for smaller reporting companies, are now required to conduct three say-on-pay shareholder votes beginning in 2011 based upon rules adopted by the SEC on Jan. 25, 2011 (PDF).  Most of the requirements will not apply to smaller reporting companies until 2013.

The SEC’s new rules implement the Dodd-Frank Wall Street Reform and Consumer Protection Act.  That legislation requires three kinds of say-on-pay shareholder advisory votes.  Two of those are votes at an annual meeting:  one regarding approval of compensation to the company’s named executive officers, and one regarding how often that approval vote should occur.  The third is a vote regarding a company’s golden parachute payments in connection with a change-in-control transaction; that vote would typically be at the time of the transaction.

The most significant departure from the proposed rules published by the SEC in Oct. 2010 is a delay in requiring smaller reporting companies to conduct the two annual-meeting advisory votes.  Those companies, with a public float of less than $75 million, will not have to conduct those votes until after Jan. 21, 2013.  Like all other public companies, however, smaller reporting companies will have to conduct the golden-parachute vote after Apr. 25, 2011.

OUR TAKE:  Public companies, other than smaller reporting companies, should plan on spending the additional time and effort on their proxy statements this year to comply with the annual-meeting say-on-pay requirements.  One of the key determinations that a company will need to make is whether to propose an advisory vote take place every year, or only every two or three years.  Smaller reporting companies will have a somewhat easier task in preparing this and next year’s proxy statements and will have the benefit of other companies’ experiences before they must comply.

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