Thursday, February 17, 2011

Corp Fin Staff Interprets SEC Rule Implementing Dodd-Frank Say-on-Pay Mandate

Interpreting the Dodd-Frank mandated shareholder advisory vote on executive compensation, as implemented by SEC Rule 14a-21, the Corporation Finance staff said that it is permissible for the say-on-pay vote to omit the words, "pursuant to Item 402 of Regulation S-K," and replace such words with a plain English equivalent, such as ``pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement.’’ The staff also indicated that the vote on say-on-pay frequency, as required by Rule 14a-21, does not have to be in the form of a resolution.

The staff also said that an issuer with a March 31 fiscal year end that has been reporting as a smaller reporting company and is required to report under non-smaller reporting company disclosure provisions beginning with the Form 10-Q for its first fiscal quarter in 2011, which begins on April 1, 2011. qualifies as a smaller reporting company as of January 21, 2011, thus entitling it to rely on the delayed phase-in period for smaller reporting companies for compliance with Rule 14a-21. The issuer would continue to qualify as a smaller reporting company until April 1, 2011 (the first day of its next fiscal year). As of January 21, 2011, noted the staff, this issuer would be a smaller reporting company eligible for the delayed phase-in period.

The staff explained that each issuer determines its eligibility for smaller reporting company status for 2011 on the basis of its public float or annual revenue as of the last business day of the second fiscal quarter of 2010. If an issuer with a December 31 fiscal year end is no longer eligible to be a smaller reporting company, it loses that status on the first day of 2011, even though it is permitted to file its Form 10-K for 2010 in 2011 as a smaller reporting company.

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