The Advisors' Blog

– Broc Romanek, CompensationStandards.com

First, I note that the effective date of the SEC’s final say-on-pay rules has been set as April 4th (it’s tied to the rules being published in the Federal Register). The compliance date is also April 4th.

Second, here is analysis of a common query we are receiving: When Dave Lynn opened our popular webcast last week on say-on-pay and drafting disclosures, he noted that the SEC’s new say-on-pay rules would probably need a few interpretations from the SEC Staff like most major rulemakings. Based on the number of questions in our Q&A Forums (on this site and TheCorporateCounsel.net), that certainly seems the case. Here is one question that Dave answered yesterday regarding the smaller company exemption:

Member Question: Per Rule 12b-2 and Reg. S-K Item 10(f)(2), a calendar year issuer that exceeded $75 million in public float for the first time as of June 30, 2010 (i.e., the last day of its most recently completed second fiscal quarter) would not report the change of its smaller reporting company status until the filing of its Form 10-Q for the first quarter of 2011 and would remain eligible to use the scaled disclosure of a smaller reporting company for its Form 10-K and proxy statement filed prior to such Form 10-Q. Is this issuer required to include say-on-pay and say-on-frequency votes in its definitive proxy statement to be mailed prior to the filing of the first quarter Form 10-Q but pertaining to an annual meeting to be held thereafter?

Dave’s Answer: There appears to be some potential arguments that the issuer would not have to comply with the Say-on-Pay/Say-on-Frequency requirements when you consider the following Compliance and Disclosure Interpretation:

Question 104.13
Question: An issuer files its 2008 Form 10-K using the disclosure permitted for smaller reporting companies under Regulation S-K. The cover page of the Form 10-K indicates that the issuer will no longer qualify to use the smaller reporting company disclosure for 2009 because its public float exceeded $75 million at the end of its second fiscal quarter in 2008. The issuer proposes to rely on General Instruction G(3) to incorporate by reference executive compensation and other disclosure required by Part III of Form 10-K into the 2008 Form 10-K from its definitive proxy statement to be filed not later than 120 days after its 2008 fiscal year end. May the issuer use smaller reporting company disclosure in this proxy statement, even though it does not qualify to use smaller reporting company disclosure for 2009?

Answer: Yes, because the issuer could have used the smaller reporting company disclosure for Part III of its 2008 Form 10-K if it had not used General Instruction G(3) to incorporate that information by reference from the definitive proxy statement. [September 30, 2008]

I note, however, that the CDI is dealing with a unique issue from a disclosure perspective and I don’t think it was asked and answered with Say-on-Pay in mind. I get concerned here when the issuer knows that it is about to not be a smaller reporting company but still utilizes the exception nonetheless on what some might see as a technicality. I think it would be very useful to have the Staff’s input on this specific question.