Category Corporate Governance

SEC Timeline for Implementing Dodd-Frank Act Requirements

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The SEC has released a timeline for implementing the Dodd-Frank Act requirements it has responsibility over. The full timeline can be found HERE.

Here is a summary of the timing for SEC action regarding executive compensation provisions:

October — December 2010

  • §951: Propose rules regarding shareholder votes on executive compensation, golden parachutes
  • §951: Propose rules regarding disclosure by investment advisers of votes on executive compensation
  • §952: Propose exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; propose disclosure rules regarding compensation consultant conflicts

January — March 2011

  • §951: Adopt rules regarding shareholder votes on executive compensation, golden parachutes
  • § 951: Adopt rules regarding disclosure by investment advisers of votes on executive compensation

April — July 2011

  • §952: Adopt exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; adopt disclosure rules regarding compensation consultant conflicts
  • §§953 and 955: Propose rules regarding disclosure of pay-for-performance, pay ratios, and hedging by employees and directors
  • §954: Propose rules regarding recovery of executive compensation
  • §957: Propose rules defining “other significant matters” for purposes of exchange standards regarding broker voting of uninstructed shares

The Dodd-Frank Act – What Changes Will Impact Executive Compensation?

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Unless you’ve been living under a rock or vacationing at the South Pole, you probably know that President Obama signed the Dodd-Frank Act into law on July 21, 2010.  If you’re like most folks, the thought of wading through over 2,200 pages of the Act isn’t all that appealing (especially if all you’re interested in are the changes to executive compensation).  Well, I’ve pulled together several presentations on the topic (all are available under my user account on SlideShare.net), but thought a quick run-down of the big ticket items that will impact executive compensation might be helpful for folks.

  • Say on Pay Vote – nonbinding shareholder vote on the compensation of executives as disclosed in the proxy must be held at least once every 3 years.
  • Say on Pay Vote Frequency Vote – a nonbinding shareholder vote on the frequency of the say on pay vote must be held at least once every 6 years.
  • Vote on Golden Parachutes – a nonbinding shareholder vote on golden parachutes as part of a deal proxy; exception if the arrangement was previously approved by shareholders as part of a say on pay vote (SEC hopefully will offer some further details on how the exception will apply).
  • Independent Compensation Committees – most public companies will be required to have only independent directors on their compensation committees (SEC needs to develop definition of “independence” that will be applied; most commentators believe the SEC will draw heavily from the audit committee independence requirements).
  • Independent Advisers – most public companies’ compensation committees will be required to at least consider the independence of their advisers, e.g., attorneys, compensation consultants, and other advisers.
  • Compensation Committee Authority – mandates that most public company compensation committees must be given authority to retain a compensation consultant and independent legal counsel and other advisers, including fiscal authority.
  • Increased Disclosure About Executive Compensation – requirement for most public companies to disclose more information executive compensation, including:
    • Pay versus performance (hopefully SEC will clarify what will be required);
    • Median annual total compensation of all employees;
    • CEO’s annual total compensation; and
    • Ratio of median annual total compensation of all employees to that of the CEO (will require a lot of extra work for a figure that has questionable utility for shareholders).
  • Clawbacks Required – public companies will be required to implement a clawback policy (broader than the Sarbanes-Oxley Act’s clawback provision; likely will cause implementation issues for companies with existing clawback policies; several unanswered questions that I hope the SEC addresses).
  • Executive and Director Hedging – public companies must disclose their policy with respect to executive and director hedging of company securities.
  • Financial Institutions Subject to Greater Scrutiny – covered financial institutions will be subject to enhanced compensation structure reporting and prohibitions (important for all companies to watch executive compensation developments for financial institutions as these may eventual migrate over to all public companies through shareholder demand or otherwise).
  • Voting by Brokers – broker votes are eliminated on director elections, executive compensation, or any other significant matter, as determined by the SEC, for uninstructed shares held by beneficial owners.
  • Proxy Access – public companies will be required to (1) include a shareholder nominee to serve on the board of directors, and (2) follow a certain procedure with respect to the solicitation of proxies (the SEC is meeting this week to consider the proxy access rules).
  • Chairman and CEO Disclosures – SEC will issue rules that require public companies to disclose in their annual proxies the reasons why the company has chosen: (1) the same person to serve as chairman of the board and CEO, or (2) different individuals to serve as chairman of the board and CEO.

If you want to hear more about some of the practical things and action steps compensation professionals should be taking now to prepare for implementation of Dodd-Frank, tune in to the webcast, What compensation professionals need to know about financial reform legislation, I’ll be conducting with Dan Walter of Performensation and sponsored by HCR Software.  The webcast is this Wednesday (8/25) from 2 to 3 pm Eastern.  Here’s the link to the registration page: https://www1.gotomeeting.com/register/361114697

NASPP Chicago 8/3 Presentation on Dodd-Frank Act

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Yesterday I presented The Winds of Change Blow Once Again at the National Association of Stock Plan Professionals’ Chicago Chapter meeting.  It was a good group and the audience participated which always makes these things a bit more interesting.  in any event, here’s the presentation I used for the occasion to detail the executive compensation and corporate governance changes wrought bythe  Dodd-Frank Act as we understand them today, along with some potential action items for folks as well.

Dan Walter of Performensation and I will be conducting a webcast next week (8/11) on the Dodd-Frank Act, titled What Compensation Professionals Need to Know About Financial Reform Legislation. We’ll discuss the action items folks should be considering and focusing on right now.  Here’s a link to the details for the webcast:

http://www.salesavatar.com/hcrss/2010-08-webinar.html

Additional Provisions of the Dodd-Frank Act

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In addition to the executive compensation provisions in the Dodd-Frank Act, there are a few corporate governance and miscellaneous provisions worth noting.

Corporate Governance:

Section 971. Proxy Access—SEC may include rules requiring issuers to include shareholder nominees for director elections and follow a certain procedure in relation to a solicitation of a proxy.

Section 972. Disclosures Regarding Chairman and CEO—SEC shall issue rules within 180 days after enactment of Dodd-Frank Act that will require companies to disclose in their annual proxies why the company has chosen:

  1. The same person to serve as chairman of the board and CEO (or in equivalent positions); or
  2. Different individuals to serve as chairman of the board and CEO (or equivalent positions).

Miscellaneous

Section 1503. Reporting Requirements Regarding Coal or Other Mine Safety—Requires companies that operate a coal or other mine to include in their periodic report with the SEC (Annual Report and Form 10-Qs) specified safety information about each mine, including total number of violations of mandatory health or safety standards.

Section 1504. Disclosure of Payment By Resource Extraction Issuers—requires “resource extraction issuers” to include in their annual reports information relating to any payment made by the company, a subsidiary or a company under control of company, to a foreign government or the Federal government for the purpose of the commercial development of oil, natural gas, or minerals, specifying the amount and type of such payments for each project and the type and total of such payments made to each government.