SEC Responds to Dodd with Guidance on Say on Pay Provisions of Stimulus Legislation

In a letter to SEC Chair Mary Schapiro, Senate Banking Committee Chair Christopher Dodd explained the shareholder advisory vote provisions for TARP recipients in the American Recovery and Reinvestment Act of 2009. He also discussed the requirement that chief executive and financial officers provide a certification of compliance with the new corporate governance standards contained in the Act. Moreover, although the Act gives the SEC up to one year to adopt regulations implementing say on pay, Senator Dodd urged the Commission to provide such guidance as soon as possible. He said that firms required to comply with the new executive compensation and corporate standards would benefit from prompt and clear guidance from the SEC staff on how to comply with the Act’s requirements. It was the Dodd Amendment to the stimulus legislation that inserted the provisions in the Act.

The SEC’s Division of Corporation Finance quickly responded to Senator Dodd’s request. The legislation provides that any proxy or consent or authorization for an annual or other meeting of the shareholders of any TARP recipient must permit a separate shareholder vote on executive compensation. According to the SEC, a separate shareholder vote on executive compensation is not required for any meeting other than the annual meeting of shareholders for which proxies will be solicited for the election of directors or a special meeting in lieu of such annual meeting.

The Act refers to the compensation of executives as disclosed pursuant to the compensation disclosure rules of the Commission, which disclosure must include the compensation discussion and analysis, the compensation tables, and any related material. The staff noted that smaller reporting companies are not required to provide compensation discussion and analysis under Item 402 of Regulation S-K. Thus, in the SEC’s view, a smaller reporting company that becomes subject to the Act's say-on-pay provision will not have to provide compensation discussion and analysis disclosure.

In addition, the SEC staff said that a company that determines to comply with the Act’s say-on-pay provisions by including its own proposal to have shareholders approve executive compensation will be required to file a preliminary proxy statement pursuant to Exchange Act Rule 14a-6(a). Moreover, if the company faces special circumstances and would like to request acceleration of Rule 14a-6(a)'s ten-day review period, the company should contact the Assistant Director of the SEC office that reviews the company's filings to discuss the special circumstances the company faces and how the ten-day review period could be accelerated.