House Passes Stimulus Bill with Say on Pay

The American Recovery and Reinvestment Act of 2009 has passed the House and is in the verge of Senate passage. The Actimposes various executive compensation limits on companies participating in the troubled assets relief program (TARP). The provisions also require each TARP recipient to include in its annual proxy statement a nonbinding shareholder advisory vote on the company’s executive cash compensation program. This is the first ever federal say on pay mandate.

During the period in which any obligation arising from TARP assistance remains outstanding, any proxy or consent or authorization for an annual or other meeting of the shareholders of any TARP company must permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to SEC rules (which disclosure must include the compensation discussion and analysis, the compensation tables, and any related material). Within one year of enactment, the SEC must issue final rules and regulations required by this section.

The shareholder vote will be nonbinding. Moreover, the Act provides that the vote may not be construed as overruling a decision by the company’s board or as creating any additional fiduciary duty of the board. Similarly, the advisory vote cannot be construed to restrict shareholders from making proposals for inclusion in proxy materials related to executive compensation.