The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Section 7001 of Title VII of Division B of the “American Recovery and Reinvestment Act” – which amends 111 of EESA – requires TARP recipients to permit a non-binding say-on-pay vote. It also requires the SEC to issue rules to govern this requirement within one year. We have received many questions from members seeking input into how this should be accomplished during this proxy season in the absence of SEC guidance.

Well, we might get guidance from the SEC soon enough. On Friday, Senator Dodd sent this letter to the SEC sharing his views on the intent and application of the say-on-pay provisions in ARRA and asking the Staff to provide guidance “as soon as practicable.” Senator Dodd stated that:

– “Say-on-pay” voting applies to preliminary and definitive proxy statements filed after February 17th except for definitive proxy statements regarding preliminary proxy statements filed on or before February 17th

– CEO/CFO certification requirement is not effective until Treasury releases its upcoming guidance the FSP’s executive compensation restrictions

Here are a few of the issues that the SEC hopefully will address in their guidance:

– Does the requirement to “permit” a say-on-pay vote mean the company must affirmatively provide for a vote, or that it must provide for a vote only if it receives a request from a shareholder?

– Are companies with say-on-pay on the ballot required to file a preliminary proxy statement or is it exempt under Rule 14a-6(a)(4)?

– Are companies that have already adopted say-on-pay “grandfathered” so that they could continue to frame the vote the way they have done so before?

– Does management or the board have to actually “support” the proposal or can they can make no statement (this query involves state law)?

– Under NYSE rules, for broker non-vote purposes, is say-on-pay a “routine” item or non-discretionary?

Voluntary “Say-on-Pay”: Gathering Momentum?

As noted in this recent press release, “say-on-pay” proposals have been filed at more than 100 U.S. companies so far this season. Not really a surprise, given that this equals the about the same number as last year and includes the same network of 70 institutional and individual investors. The end of the press release identifies the ’09 proponents; in comparison here is a ’08 list of targeted companies and proponents.

This followed new SEC Chair Mary Schapiro’s responses to Senator Carl Levin, in which she said she favored advisory votes on executive compensation. SEC Commissioner Walter also seemed to favor say-on-pay in this recent speech.

This pressure will likely wind up with more companies agreeing to place pay on ballots. For example, Hewlett-Packard recently joined the list; H-P issued this press release saying that its board had decided to allow for say-on-pay, with a vote starting in 2011. [For those companies considering allowing say-on-pay, here is a list of how companies have announced they will do it as examples.]

And following in the footsteps of recent majority votes in support of “say-on-pay” proposals (eg. Sun Microsystems) is the news that a United Kingdom company – Bellway – recently received a 59% vote against its remuneration package. If you recall, all companies in the UK must put their pay packages to a vote and very few companies had received a vote against before this (in fact, I think GlaxoSmithKline might have been the only, and that was way back in 2003). It’s sure to be a wild proxy season…